Housing: State of the Nation Contents

Conclusions and recommendations

1.Housebuilding has been falling short of demand for many years, with escalating human costs. The Department for Communities and Local Government acknowledges the scale of the ‘housing gap’ between supply and demand, but its ambitions do not come even close to addressing it. Housebuilding in England has lagged behind demand for decades: between 2001 and 2010, for example, an average of only 144,000 new homes were completed annually—100,000 fewer per year than in the 1970s. The Department for Communities and Local Government (the Department) acknowledges that to make up for this long-term shortfall, and to keep up with population growth, between 225,000 and 275,000 additional homes are now needed each year. Despite this, its ambition of overseeing the construction of one million additional homes over the five years of this Parliament equates to an average of only 200,000 net additions per year. In the absence of any clear plans for raising supply further, the Department conceded that the fundamental flaws in the housing system could persist for decades to come. We are highly concerned by this lack of urgency and ambition, most of all in view of the rising costs, both human and financial, of homelessness. Not only does becoming homeless people represent a terrible blight on people’s lives, it also places additional strain on public spending: councils’ spending on temporary accommodation amounted to £840 million in 2015–16, a real-terms rise of nearly half (46%) in just five years.

Recommendation: In its Single Departmental Plan, the Department should publish a ‘housing gap’ figure (updated on an annual basis), showing the difference between the latest rate of net additional housebuilding and estimates of the rate required to meet demand as identified in its recent White Paper.

2.While the Department has acknowledged that the housing market is ‘broken’, it is still reliant on the market to achieve its housing ambitions. The private housebuilding market is dominated by around 10 large firms, between them accounting for nearly two-thirds (around 60%) of new private homes. The Home Builders Federation agrees that such firms limit the rate at which they build to what they believe the market can absorb. The Department’s view was also that big housebuilders have little incentive to accelerate housebuilding through investing in innovative methods of construction. In its recent White Paper the Government accepts that the housing market is ‘broken’. Yet the Department remains dependent on the big housebuilders to deliver its one million homes ambition, and accepts that its ambition therefore depends on the health of the wider economy. Dependence on the market means that even the social housing sector is increasingly reliant on profit from private sales to finance construction. Local government stakeholders, meanwhile, complain that councils are being prevented from building more homes because of government policies which limit their ability to borrow. The Department remains confident, however, that councils retain the capacity to build new homes, and that in the event of a downturn it has the tools to facilitate public investment. The Committee is also enthusiastic to see an increase in rates of self-build and other more innovative forms of housebuilding.

Recommendation: To aid evidence-based consideration of alternative policy options to accelerate housebuilding, the Department should:

a) review international evidence and report to Parliament on lessons to be learned from the housing policy and institutional landscape of other countries with higher rates of housebuilding than England, in particular focusing on innovative methods of accelerating construction and improving affordability; and

b) write to us within six months with estimates of how many homes councils will be able to build up to 2020 under current financing arrangements, and with details on what other, more innovative measures councils can pursue to develop new housing.

3.The Department has not been transparent enough about its overarching housing objectives and the progress of individual programmes which will contribute to meeting them. The Department did not announce publicly that its ambition for 1 million new homes over five years was actually to be achieved in nearly six years, making it easier to achieve. Neither did it announce formally that it had changed this ambition back to be delivered within five years, within a month of the NAO’s January 2017 report. The only metric of progress towards the one million new homes ambition in the Department’s Single Departmental Plan is a backward-looking figure for net additions in the previous year. The Department is taking a similarly backward-looking approach to judging its progress against meeting a commitment for a one-for-one replacement of council housing sold under the reinvigorated Right to Buy. This does not enable Parliament or the public to judge whether the Department is on track. The Department’s plans to develop metrics for public land disposal, and for the efficiency of the planning system, are welcome, but have been very slow in coming.

Recommendation: The Department should improve the transparency with which it reports both its objectives and progress towards achieving them. In particular, in its Single Departmental Plan it should set out:

a) the cumulative total of net additions since the beginning of its one million homes ambition, showing how many homes need to be completed in future years; and

b) how its individual programmes and spending are contributing to the one million homes ambition (making clear where these are projected as being additional to what the market is likely to have delivered in any case).

4.The Government spends around £21 billion each year on housing benefit, but does not know what contribution this money makes to the supply of new housing. Total Government spending on housing amounted to approximately £28 billion in 2015–16. Of this around three-quarters (£20.9 billion) went on housing benefit. Some £8.4 billion of the spending on housing benefit went to housing associations, which use rental income such as this to borrow to invest. However, neither the Department nor the Department for Work & Pensions (DWP) is able to quantify the impact of this funding on the construction of new homes. Another £8 billion of housing benefit went to private tenants. While this funding subsidises rents it does not contribute to the financing of new social housing.

Recommendation: Reporting back to us within one year, the Department should work with DWP to:

a) identify metrics that can be used to establish the full impact of housing benefit on construction of new homes; and

b) examine the scope for this financing to be used more innovatively to increase housing supply and home ownership.

5.Too often, the Government is subsidising landlords in the private rented sector to provide homes below a decent standard. In 2001 the Department set out a definition of a “decent” home. Following the introduction of this standard, and substantial central government spending on the Decent Homes Programme, there has been a significant improvement in the number of social rented homes that meet these standards. The government spends around £8 billion in housing benefit a year on subsidising the rents paid by tenants in the private rented sector. Yet, according to the latest available data, in 2014 the private rented sector had the highest proportion of non-decent homes (29%), compared with 14% in the social rented sector. The Department accepts that 29% is too high, but seems reluctant to use the leverage from the money it is paying to private landlords to encourage them to provide accommodation of a standard comparable to the social sector.

Recommendation: Working with the Department for Work & Pensions, the Department should commission research on how many non-decent homes in the private rented sector are being subsidised through housing benefit, the total amount of housing benefit this represents, and potential policy mechanisms for utilising this funding to raise the quality of the housing it subsidises so as to meet decent homes standards.

25 April 2017