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Building more social housing Contents

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1 History of social housing

Origins

6.Before exploring current challenges, it is important to understand the context of the long-term decline of social housing in the wider history of the housing market in England, including trends in government policy interventions. Social housing is not a separate eco-system; its supply and demand is affected by government decisions elsewhere in the housing market and the economy. Successive governments over the last 40 years have contributed to the current situation, which we set out below. It is important to understand how we got here, before we can recommend ways to move forward.

7.It was in the aftermath of the First World War that councils first began providing public housing en masse. The Housing, Town Planning &c. Act 1919 (commonly called the Addison Act) provided central government subsidies for local authorities to finance the construction of 500,000 social homes within three years.7 By 1922, only 170,000 had been built, but the legislation had pioneered the idea of central government directly intervening to provide low-cost rented accommodation to its citizens.8 By 1939, 1.1 million homes had been built by local councils, and 10 per cent of the population lived in social housing, up from 1 per cent at the end of the war.9 The aftermath of the Second World War again saw the government of the day embarking on an ambitious social housebuilding programme. The need to build new homes was one of the drivers behind the passing of the Town and Country Planning Act 1947. The 1947 Act introduced a requirement for planning permission to be granted for both constructing and changing the use of a building. It also enabled the state to compulsorily purchase land at levels close to existing land value, and, alongside powers provided within the New Towns Act 1946, enabled the establishment of the New Towns.

8.The state used these new powers to acquire cheap land for social housing. The Conservative government of 1951 was elected on a manifesto to build 300,000 homes a year, calling housing “the first of the social services”10. It built over 200,000 social homes a year in the early 1950s, which we named MacMillan homes after the Minister of Housing at the time.11 Almost 1.8 million social homes were built between the passing of the 1947 Act and the end of the 1950s: the pinnacle of social housing completions to this day.12 Substantial contributions followed in the 1960s, meaning that in the quarter of century following the end of the Second World War, 3.1 million social homes were built by local authorities.13 By the late 1960s, more households were renting socially than privately for the first time.14 Overall, this period saw housebuilding in the UK reach its peak, with over 425,000 homes built in 1968.15

A new social housing model

9.The 1980s represented a seismic shift in housing policy. After two decades of record housing delivery, supply was no longer considered a significant issue by many. The Town and Country Planning Act 1959 and the Land Compensation Act 1961 had introduced new compensation arrangements for landowners, which reduced the ability of the public sector to purchase land at low cost. The newly-elected Conservative government of 1979 campaigned on the desire for the country to become a “property-owning democracy.”16 The Housing Act 1980 introduced the Right to Buy policy—a cornerstone of this new approach—which allowed occupiers of social homes to purchase them from the local authority and become homeowners. Another key change introduced in the 1980s was restrictions on borrowing. Local authorities could only borrow money for capital expenditure to the limits imposed by central government. In comparison, housing associations were given access to public grant funding, which they could combine with private finance. In 1988, to further reduce public sector borrowing, councils were asked to transfer much of their social housing stock to housing associations. This led to a long-term shift in the ownership of social housing. In 1980, housing associations provided 7 per cent of all social housing. By 2008, housing associations provided over half, and as of 2019 they provide 61 per cent. The removal of rent regulation and the creation of the Assured Shorthold Tenancy would help revive the private rented sector by the mid-1990s. Following the deregulation of private sector rents, the Minister for Housing at the time said Housing Benefit would “take the strain” where rents had been increasing:

Housing benefit will underpin market rents—we have made that absolutely clear. If people cannot afford to pay that market rent, housing benefit will take the strain […] the housing benefit system exists to enable people to pay their rent.17

10.Overall, the period between 1980 and the turn of the millennium can be characterised as a transition from mainly supply-side subsidies—or ‘bricks and mortar’—to demand-side subsidies to help tenants pay rent. In 1975, 80 per cent of housing expenditure was spent on the construction of social housing; by 2000, 85 per cent was spent on housing benefit.18 This has led some academics to divide the post-war reconstruction period and the modern period into two separate models. The “public housing model”, or the post-war period, aimed to accommodate a broad social spectrum, and featured municipally-owned houses financed by public sector loans and subsidies.19 The “social housing model”—the modern day system—is residual (catering for the needs of household who cannot afford other tenures),20 owned by both local authorities and housing associations, and funded by a mix of public and private finance (‘mixed economy model’). Housing associations also began to use a cross-subsidy model: as grant subsidy was reduced, housing associations innovated, using proceeds from the sale of houses on the private market to subsidise new social housing. Furthermore, the introduction of the Town and Country Planning Act 1990 enabled authorities to negotiate with private developers to provide affordable housing on new developments via section 106 agreements.

11.The housing market started to be characterised by a pattern of boom and bust from the early 1970s.21 In times of rising house prices (‘boom’), there is generally fierce competition for suitable land. In contrast, in times of falling house prices (‘bust’), developers tend to stop purchasing land, cut build-out rates, and avoid selling. In the past, social housing supply has been protected from these market impacts—although not necessarily from wider macroeconomic pressures—through consistent state investment and powers to acquire land at a reasonable value. In the past, social housebuilding programmes were counter-cyclical, as consistent central government grant funding provided protection against the fluctuations of the market. The transition to the ‘mixed economy’ and ‘cross-subsidy’ models exposed social housing to some of the same risks as private housebuilder.22 These risks were compounded by the 2007–08 global financial crisis. In its aftermath, the coalition government from 2011 reduced social housing grant by more than half, compared to the 2008–11 programme, as part of the overall austerity strategy to reduce government spending.23 To continue to meet social housing need, housing associations began to rely more on ‘cross-subsidy’ from selling houses on the market. We note that back in 2009, at the height of the credit crunch, the Communities and Local Government Committee heard evidence that the cross-subsidy model was broken and unsustainable.24

Figure 3: Housebuilding by type of developer, England, 1946–2019

Source: Office for National Statistics, UK house building: permanent dwellings started and completed, 24 April 2020

Social housing today

12.Social housing stock peaked in England in 1981 at 5.49 million homes.25 As of 1 April 2019, the number stands at 4.13 million, some of which are rented out at a higher rent.26 The House of Commons Library noted that the decline in social housing can be attributed both to a decline in new supply and depletion of existing stock, including through Right to Buy.27 On the decline of social rent properties in particular, factors they list include: the lack of a requirement to replace Right to Buy sales on a like-for-like tenure basis; the switch of new-build output towards affordable rent; and the conversion of social rent to affordable rent when re-let.

13.Between 1946 and 1980, an average of 126,000 council homes were built every year.28 Last year, just 6,827 were built.29 In the early 1990s, social rent made up over 75 per cent of all new affordable housing supply; last year it made up just 11 per cent (see Figure 1). Social housing delivery has dropped to an average of around 35,000 a year in the last decade, with the majority of these let at more expensive affordable rent levels (see Figure 2).

Figure 1: New homes for social rent as % of all new affordable housing supply, England

Source: Ministry of Housing, Communities and Local Government, Live Table 1000

14.As the amount of social housing has declined, demand for affordable housing has increased. The statistics are stark. According to the Government definitions of those in priority need for housing, around half a million households are homeless or living in unsatisfactory housing conditions.30 One in every 200 people are without a home.31 The number of people rough sleeping is estimated to be up 165 per cent from 2010.32 One in 9 children live in overcrowded homes.33 The number of households in temporary accommodation—used by local authorities to fulfil their duty to house homeless households with priority need—has grown 82 per cent from 2010 to a total of 83,700, which includes 127,890 children.34

Figure 2: Additional affordable homes provided by type, thousands of dwellings, England

Source: Ministry of Housing, Communities and Local Government, Live Table 1000

15.Over the past 20 years, poverty rates for low-income households who are homeowners or social renters have dropped, whereas for those in the private rented sector (PRS), poverty rates have more than doubled.35 The Affordable Housing Commission found that 40 per cent of people in the lower half of the income distribution suffered from serious housing affordability issues.36 More and more households have no option but to rent privately, where national market rents are much higher than social rents, causing rent arrears and debts, and preventing tenants from saving for a deposit.37 The PRS has more than doubled since 1996 alone: 2.1 million households rented privately then, compared to 4.7 million in 2017.38 But private renters spend the most on household costs, averaging around 45 per cent.39 It means renters find it hard to save money to pay for a deposit. One in six households rely on housing benefit.40 The Government spent an estimated £23.4 billion in 2018–19 to subsidise renters, representing 2.9 per cent of total public spending.41

16.The housing market in England has changed substantially since the last time there was political consensus on the need to build large numbers of social housing. The decades in which social housing was delivered at scale featured different mechanisms than are used today—some of which might be revived and reused in modern circumstances—but ultimately the most important factor was shared political will.

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