The government is fatally myopic when it comes to housing

George Osborne is intent on saving pennies in the short term to waste pounds in the future


A new report challenges the government’s ‘myopia’ over its economically irrational housing policy. This is a policy that has seen social house building drop to a sixty year low, with government plans to sell off the remaining social housing stock.

‘Building New Social Rent Homes: An Economic Appraisal’, produced by Capital Economics for social housing campaign group SHOUT, was launched in London yesterday with an alternative vision that is both fiscally responsible and socially desirable.

The report supports the need for 100,000 new social homes yearly, and evaluates the economic case for public subsidy in bricks and mortar investment. This is a much-needed alternative to the current policy trajectory of rising and unsustainable housing benefit payments to private landlords.

At the moment, low-income households are being primarily accommodated in the private rented sector, at a rapidly rising cost to the welfare system. At the same time, the number of social homes is falling, and is likely to continue to do so if the extended Right to Buy is rolled out in the housing association sector.

The report concludes that chancellor George Osborne is suffering from fiscal myopia: saving pennies in the short-term only to waste pounds in the future.

Yet the government could achieve far better value for taxpayers’ money, as well as improve the living standards, health and wellbeing of many low-income households, if it were to part-fund the delivery of 100,000 new social homes each year. This represents the social component of the 240,000 total new homes needed annually for the foreseeable future.

The report also shows that a lack of social homes is creating additional strain, not just for household finances, but also for the public sector’s £25bn housing benefit bill.

On average, tenants in the private rented sector receive £110 per week compared with £89 per week in the social housing sector – more than £1,000 of additional rent annually.

With an increasing proportion of welfare claimants accommodated privately, the overall housing benefit bill is set to accelerate – worsening the government’s structural deficit today as well as tomorrow.

The report predicts that this will result in a housing benefit bill of £200bn in fifty years, an increase of 800 per cent with households in the private rented sector accounting for two thirds of the bill compared to one third now.

Investment in new social housing offers a better solution to the nation’s housing problems – one that is fiscally sustainable, economically efficient and socially progressive.

Alongside meeting housing needs, as social housing waiting lists rise and homelessness is on the up, every additional pound of investment in social house building is calculated to provide a Keynesian economic stimulus of almost £3 to the wider economy, through the supply chain and employment.

Social housing investment also acts as a long-term damper on net public sector debt. The Office of Budget Responsibility’s long-term fiscal projections suggest a debt-to-GDP ratio of 86 per cent if current policies are continued, whereas under SHOUT’s ‘build to save’ approach, the ratio will be 81 per cent.

SHOUT’s report also reveals additional social and economic benefits of an expanded social house building programme, including better health and wellbeing, since low quality private renting affects mortality and morbidity rates.

Education and employability would receive a boost too, as the Building Research Establishment has consistently shown.

The economic and fiscal case for building new social housing appears unanswerable to any government that places economic rationality and the good of its citizens centre stage. Unfortunately, this is not the kind of government that we currently have.

Kevin Gulliver is a contributing editor to Left Foot Forward and a director of Birmingham-based research charity the Human City Institute and chair of the Centre for Community Research. He writes in a personal capacity

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