Government plans to build more affordable housing risk falling short

Government projections show there will be more than 250,000 new households every year over the decade to 2020, the result of growth in the number of single person households, increasing life expectancy and net migration. Building 110,000 new homes in 2009 clearly falls far short of this.

Stephen Evans has worked on and published research on a range of public policy areas, including welfare reform, skills, productivity and housing; he spent five years as a Senior Policy Adviser at HM Treasury, as well as two years working on the independent Leitch Review of Skills and went on to be Chief Economist at the Social Market Foundation

Government projections show there will be more than 250,000 new households every year over the decade to 2020, the result of growth in the number of single person households, increasing life expectancy and net migration. Building 110,000 new homes in 2009 clearly falls far short of this.

It is this failure of housing supply to match housing demand that has driven shortages in all tenure types – owner occupier, private rented and social housing.

The Spending Review announced cuts in the social housing budget of around 50 per cent. Yet at the same time, the housing minister, Grant Shapps, called for 150,000 new social houses to be built over the next four years. This equates to 37,500 per year, more than the 25,010 new social homes DCLG figures show were built in 2009-10.

How does the government plan to square this circle? Their plan is for housing associations to borrow capital to build new houses against the prospect of increased rental streams, as they are now able to charge up to 80 per cent of market rents for new housing compared to 70 per cent previously.

At the same time, councils – freed from housing targets – will be incentivised with a New Homes Bonus, the government matching increased Council Tax revenues from new homes for six years.

This plan falls far short of need. While building 150,000 homes in four years would be an increase compared to recent social home construction, it compares to 1.7 million families currently on the housing waiting lists. But even this 150,000 is far from certain. It relies on councils, Registered Social Landlords and developers being willing and able to borrow to build new affordable and social housing, against the promise of being able to charge higher rents.

Cuts to Housing Benefit and, in particular, limiting Local Housing Allowances to the bottom third of rents not the median, constrain these rental flows in parts of the country where housing is relatively cheap. In these parts of the country, raising rents to 80 per cent of market rates won’t raise significant amounts of capital.

In more expensive parts of the country, such as London, the rise from 70 per cent to 80 per cent does offer the potential to raise significant amounts of capital. But the risk is that tenants will not be able to afford these higher rents and benefit caps when they begin to bite.

So 80 per cent of market rents may not be affordable for potential tenants here. Coupled with this, recent changes to benefits, with the promise of more to come, mean banks cannot have certainty over future rental streams. This could limit their willingness to lend, or at least mean they’ll ask for a premium on their interest rate to compensate for this risk.

All of this means it is far from certain that anyone will be ready, willing or able to borrow in the way the government hopes. The risk is that, even if houses are built, they will not be mixed income or tenure communities – a greater separation than currently seen will result.

This is not to say there is an easy answer – there isn’t – or that the previous model was the right one. Rather it is to argue that more is likely to need to be done to stimulate house building, and that the interaction between a range of policy changes needs to be more fully considered.

So how could the Government increase affordable and social housing? There are lots of models, but here are three that might be worth thinking about:

Community Land Trusts: In Sweden and the US, CLT’s acquire land, either below market rates or from grants or bequests. They then collectively borrow the remaining money needed to build houses, with the estate then effectively run as a co-operative;

Public land: A fragmented array of agencies own land, from the Homes and Communities Agency, local authorities, transport bodies etc. More could be done by combining this land as an asset base and allowing a wider range of bodies to borrow against it in a joint venture;

New models and flexibility. Attracting private investment through better capture of capital growth, as well as greater use of vehicles such as Real Estate Investment Trusts which allow people to invest in a portfolio, developing greater flexibility in social housing to mix, achieving a mix of incomes, selling property to raise equity and new ‘rent to own’ models.

These are just three models: they are not the whole answer in and of themselves. Increasing housing supply to meet demand is not easy – that is why house prices have been a topic of dinner party conversation for decades. And the government’s plans to move to a different approach are not necessarily a bad thing in principle.

The point is that it will take more than just cutting public subsidy; providers will need support to build these new models and the knock-on impact of other policy changes needs to be considered. We’ll need to be innovative and look at what has worked in other countries if we are to build the affordable and social housing this country needs.

11 Responses to “Government plans to build more affordable housing risk falling short”

  1. House Of Twits

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  2. Terry Cook

    RT @leftfootfwd Government plans to build more affordable housing risk falling short: //bit.ly/a8MG0s

  3. Susan Asquith

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  4. Wendy Maddox

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  5. Wendy Maddox

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  6. Mr. Sensible

    Given that housing associations will be able to charge 90% of market rate I am not quite sure how we can call these houses affordable.

  7. The Shibley Seven : Best of the Blogs | Dr. Shibley Rahman

    […] Stephen Evans concludes the Government’s housing plan is a disaster […]

  8. Anon E Mouse

    Government plans to build more affordable housing risk falling short. “Risk falling short”.

    Unlike Labour who DID fall short with the lowest housebuilding in Britain since 1946 and more people in poverty than 13 years earlier…

  9. merthyr_bill

    Is there a single economic or social indicator that would show the UK better off in 2010 than in 1997? I would be surprised. I’ll start a list of things that are worse now…
    inflation
    public debt
    private debt
    unemployment
    people on sick
    stock market
    poverty indicators
    oecd education rankings
    social cohesion
    home grown terrorism
    violent crime
    gangs
    drugs

    etc

    etc

  10. Roger

    Excellent piece – nails all the key issues.

  11. Steve Gunner

    <b>Government</b> plans to build more affordable housing risk falling <b>…</b> //bit.ly/cohtKL

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