Where the housing needs survey has identified a need for affordable rented housing the community will have to decide what level of rent they consider to be “affordable” in the local context. The survey will have asked local people about their income, their current rent levels and how much they could afford to pay as rent; it should also have gathered local knowledge about the availability and cost of rented housing. This information should help to determine what would be regarded as an affordable rent locally.
There is no one definition of what an affordable rent is - some countries define affordable rent as 30% of income or as housing of a reasonable quality that people on modest incomes can afford. However these definitions do not take into account the quality and running cost of the house - a house may have an affordable rent but be unaffordable to heat or a house may have a higher rent but because of insulation and renewables have very low heating costs.
For a community developing a housing project the rent has to be high enough to be able to repay any loan needed to help fund the project as well as covering void periods (times when the houses are empty), management costs; maintenance costs; and major repairs costs. But it has to be low enough to be affordable to local people.
There are also restrictions on what you can charge for rent if you are seeking Scottish Government support for the development to help keep rents affordable.The Scottish Government Innovation Fund permits rents up to mid market levels – 84% of the local housing allowance to be charged. In the Highlands & Islands this would mean a maximum rent of £380 per month for a 2 bedrooom house. This rent level is higher than what has traditionally been thought of as "affordable"; the equivalent of council or housing association rents - in 2009/10 average council rents were £230 for a 2 bedroom house. To develop a viable project however a rent at mid market levels may be necessary albeit too high a rent may mean that the project is not viable because it is no longer affordable to the households needing housed in the community.
Calculating the level of rent to charge is therefore a crucial but difficult undertaking for a community housing project. There are a number of considerations:
- the average rent charged in the area - this can be found through the housing needs survey or through local knowledge
- local incomes - what people consider to be an affordable rent
- fuel costs - new housing will be energy efficient and may even include renewable options to save on fuel costs – therefore a higher rent may be justifiable
- cost of land and housing development
- level of grant available
- management costs
- loan costs – the interest rate secure from the lender
It is likely that an ideal rent level will be determined based on local rates and local affordability but that this may need to flexible in order to deliver a viable housing project.