Building more social housing Contents

4 Increasing social housing supply

Analysis of social housing need

46.As we set out in Chapter 1, the number of social homes in England has declined in the past few decades, whereas demand for affordable housing has increased. Housing need is used to estimate the amount of housing required so all households can live in accommodation that meets certain normative standards, including affordability, size and quality.117 The Government is committed to increasing the annual delivery of housing to 300,000 per year, as well as supplying a million new homes by the end of the Parliament in 2024.118 Explaining why the 300,000 target was chosen, Melanie Dawes, then Permanent Secretary at MHCLG, told the Public Accounts Committee that “it was based on a number of studies that had been done over a number of years”.119 These included the 2004 Review of Housing Supply, by Kate Barker, the Lyons Review from 2014—which estimated a need for 243,000 a year—and work by KPMG and Shelter, in 2015, which estimated a minimum requirement of 250,000 homes per year.120

47.Although the Government has a broad housing supply target, it has not made a determination of how much is needed of each tenure, including social housing. In 2018, Professor Glen Bramley of Heriot-Watt University was asked by Crisis and the National Housing Federation (NHF) to estimate housing need across England, Scotland, and Wales. Professor Bramley concluded the backlog of housing need was 4 million in England, identifying the following groups:

48.To meet this need, Professor Bramley concluded that, over a 15 year time frame, new housebuilding in England would need to be around 340,000 per year.122 Professor Bramley specifically assessed social housing need, finding that England required 90,000 new social rent homes a year, alongside 30,000 affordable rent properties and 25,000 shared ownership homes.123 Shelter’s Commission on the future of social housing, which concluded in early 2019, called for 3.1 million new social homes over 20 years, an average of 155,000 a year.124

49.We asked Shelter, the Chartered Institute for Housing (CIH) and the NHF, about the difference in the estimates. Greg Beales, director of communications, policy & campaigns for Shelter, said:

Probably the most important thing is to say is that, while the numbers are slightly different, they both agree in terms of being significantly different programmes of social house building compared to where we are. The differences are largely explained by [NHF’s] very good technical piece of work based on the current policy regime. Our commission involved politicians from across political parties and, because politicians were involved, we considered whether the policy regime and who was entitled to social housing should change.125

Kate Henderson, chief executive of NHF, said:

Our research was conducted by Professor Glen Bramley of Heriot-Watt University. He is a noted expert in housing research and these are aggregated figures looking at housing need across local authority areas. We are confident in the figures. The figures themselves come to a total of 340,000 homes each year, of which 145,000 would be affordable. That is very close to Shelter’s figure of 155,000 but we aggregate them into different tenures. Our research, which was jointly commissioned with Crisis, finds that we need 90,000 social rented homes each year. While there are slight discrepancies between those overall big figures, they still both indicate a huge level of increased investment needed, if we are to meet the country’s housing need.126

50.Our evidence was supportive of both the numbers proffered by Shelter and Crisis/NHF. Professor Ian Cole of Sheffield Hallam University said that “the Glen Bramley model is the best we have,” and “the level of estimates that [Bramley] arrives at seem to be sensible.”127 The Affordable Housing Commission recommended that the Government’s “step change” should be 90,000 social rented homes a year “in line with the latest assessments of housing need.”128 George Clarke, the architect, TV presenter and housing campaigner, told us that 100,000 new council homes were needed because of Right to Buy sales, long waiting lists, and 320,000 people officially classed as being homeless.129

Figure 5: Net and gross affordable housing additions per year, thousands of dwellings, England, 2010–2019

Source: MHCLG Live Tables 678, 684, and 1000—note that net additions data is incomplete as no data exists on conversions or change of use

51.The Department told us that social housing had a “crucial role” in meeting the 300,000 homes per year target, which would require a “step change” in social housing delivery, but did not elucidate on what a step change might be in practical terms.130 When we asked the Minister whether he agreed with the consensus from the sector on social housing need, he said “we need more homes, more affordable homes and more socially rented homes”, but that he did not think it was right to put “a number on the number of homes that need to be built of one tenure or another”.131 The Government’s overall target between 2016–2021 was for 250,000 affordable homes, or 50,000 a year, only a third of the overall requirement of 145,000 affordable homes—which includes social rent, affordable rent, and shared ownership—identified by the sector.132 On 30 June 2020, the Minister for Housing tweeted that the 2021–2026 programme would deliver “up to 180k affordable homes” with the majority completed within 5 years.133 At a maximum, this averages out at around 36,000 affordable homes a year, which is a lower output than 9 out of the last 10 years.

Figure 6: Assessment of total, social and intermediate affordable housing supply targets by English region

Region

Total

Social rent

Affordable rent

Shared ownership

North East

6,963

828

400

1,190

Yorkshire & H’side

18,868

1,795

1,477

2,216

North West

22,574

4,324

3,297

3,288

East Midlands

17,248

1,867

2,202

1,929

West Midlands

21,102

3,129

3,268

2,458

South West

42,171

8,340

3,980

2,540

East of England

46,104

10,999

3,851

3,143

South East

90,179

26,250

6,466

5,319

London

74,464

32,983

2,308

10,523

Total

339,673

90,515

27,249

32,605

Rounded totals

340,000

90,000

25,000

30,000

Source: Professor Glen Bramley, Housing supply requirements across Great Britain: for low-income households and homeless people, December 2018

52.In the past, the Department has defended its record on social housing by arguing that the overall number of people on local authority social housing waiting lists has decreased by 37 per cent since 2012. This is not comparing like with like. The Localism Act 2011, brought in by the coalition government, altered the rules around waiting lists by giving local authorities powers to manage their own lists—the most well-known example being the ‘local connection test’. Councils can remove persons from their waiting list if they do not meet such a test, as dictated by the council.134 The Government’s own statistical bulletin on waiting lists notes that 95 per cent of local authorities changed their waiting list criteria as a result of the 2011 Act, and accepts this is one of the reasons for the decrease in overall households on waiting lists since 2012.135

53.There is compelling evidence that England needs at least 90,000 net additional social rent homes a year. We recommend that the Government publishes annual net addition targets for the following tenures: social rent, affordable rent, intermediate rent and affordable homeownership. This will improve transparency and accountability of the Government’s record on affordable housing. It will also make clear the contribution affordable housing will make to the Government’s 300,000 new homes per year target. This is crucial as housebuilding in England has only ever surpassed 300,000 in a year when social housing has made a significant contribution.

54.It is disappointing that the Government does not have a published plan on social housing, nor has its own assessment of social housing need. We regard an estimate of need to be essential to calculating how much investment the Government may need to make to meet social housing need and deliver such a “step change”.

The potential consequences of a large scale social housebuilding programme

55.As we described in Chapter 1, the country is facing a housing affordability crisis with more and more people living in private rented properties, alongside a rise in homelessness, use of temporary accommodation, overcrowded families, and falling rates of homeownership. We heard that delivery 90,000 social rent properties a year to meet housing need might mitigate these problems in the following ways:

George Clarke said the benefits to everybody would be “massive”:

Think about all the people who are desperate to get a genuinely affordable home for social rent, and all the people who contribute to society as a whole: not just the nurses, those in the fire service, the teachers and people in the armed forces, but cleaners and people who genuinely want to live close to their work and do not want to travel massive distances to work. They want decent, genuinely affordable, social housing for rent.141

56.We heard limited evidence during our inquiry about potential downsides. However, we recognise arguments about possible disadvantages exist. In 2007, the then Secretary of State commissioned a report on the role of social housing in modern housing policy, and set out potential trade-offs.142 While establishing that it was “not hard to make a strong argument for social housing at sub-market rents to be a significant part” of housing policy, the report concluded there were inherent weaknesses:

[…] the strength of the arguments varies across the country, and maybe a great deal stronger in high-cost areas. In relatively lower-cost regions the adverse side effects of more reliance on cash transfers and market-based systems will be weaker. Finally,

there are inherent costs to rationed systems. These include the sharp differences in treatment between those who do and do not make it through the rationing process; limitations on choice for those who do so; incentives to, and suspicions of, fraud or manipulating circumstances; limitations on mobility; and lack of consumer power over providers. Such disadvantages do not necessarily outweigh the advantages described above, but they do suggest at the least the need to try to ensure that systems are designed in a way that they are minimised.143

MHCLG commissioned an independent review of evidence on social housing in 2018.144 The review concluded social housing had several weaknesses, including the lack of choice for tenants; a higher likelihood of being in a flat, the least preferred home type; concerns about anti-social behaviour and being affected by the stigma around social housing, as well as other concerns.

57.On lack of choice, it is worth noting that although the MHCLG review cited a 2009 survey which found that people saw the PRS as having improved choice over where to live, statistics in 2015–16 found that social housing residents moved as often as other households.145 The degree of choice for social housing can depend on applicant characteristics and the local market in the area; those in high-demand areas will tend to have less choice. Another important factor is that the reduction in supply has led to less choice throughout the system, while the PRS has grown in comparison. Right to Buy is more likely to have been used for houses with gardens, larger flats, and dwellings in more popular locations, which has limited what a provider can offer to existing tenants and new applications.146 The Right to Buy one-to-one replacement promise—which began in 2012—has never expected providers to replace on a like-for-like basis.

58.We also note the wider point to be made about the involvement of the state and strain on the Exchequer. One of the reasons why Right to Buy was introduced and much of the social housing stock was transferred to housing associations was sustained debate on whether it was prudent for the public sector to own, control and manage the housing it originally built.147 As we set out later in this chapter, substantial public borrowing will be needed to meet social housing demand, which inevitably may lead to trade-offs elsewhere in housing expenditure or other government expenditure, and adds to the deficit.

59.Nonetheless, we are persuaded that the advantages outweigh the disadvantages. As we conclude below on alternatives to a social housebuilding programme, it will be important to improve the private rented sector to help those who may not be eligible to benefit from the investment. We heard benefits could go beyond the advantages of providing permanent, safe, secure accommodation for hundreds of thousands of households. There are possible wider economic benefits, too, which we set out below.

Supporting the construction industry

60.The construction industry has been hit hard by the COVID-19 lockdown. Output dropped 40 per cent in April;148 job vacancies were estimated in June to be down 54 per cent on the quarter.149 As we described in the Chapter 1, private housebuilding follows a boom and bust cycle. We are at the beginning of a bust, which will likely lead to a drop in housebuilding and a subsequent drop in demand for construction labour. Savills published a report on housebuilding and the pandemic in June. While admitting the future was uncertain, it made the following conservative projections:

61.Social housebuilding tends to be counter-cyclical, which helps shield the construction industry during a recession—especially important given that the global financial crisis led to many in the sector leaving for good. Building more social housing would create stable, predictable employment for the construction industry, which also is supported by a large supply chain. MHCLG guidance states that every £1m of new housing output supports 19.9 direct and 15.6 indirect jobs.151 The construction industry provides employment for 2.4 million out of 34.3 million people in employment, with another 1 million workers such as engineers, architects and surveyors employed as a result of construction projects.152

Supporting wider housebuilding goals

62.The Government relies on a pro-cyclical housebuilding model to meet its housing targets, a model which is vulnerable to a recession. In contrast, social housebuilding supported by grant funding can be counter-cyclical: providers can build and acquire regardless of the state of the market. Following the global financial crisis (GFC), the UK suffered its deepest recession since the Second World War. Before 2008, net housebuilding supply in England was above 200,000. Following five successive quarters of recession in 2008–09, net supply fell to under 150,000 in 2010.153 It took another eight years before the country once again matched the housebuilding levels seen before the GFC. In comparison, when grant funding for affordable housing increased through the 2008–11 grant programme, it resulted in almost 40,000 social rent homes completed in 2010–11.154

63.Since 2011, however, housing associations have relied significantly on the ‘cross-subsidy’ model, whereby they develop homes for sale and use those profits to develop and fund their social and affordable housing. This exposes social housing providers to the same risk as private developers. Kathleen Scanlon of the London School for Economics described this as a “dumbbell” configuration:

Grant funding for provision of new social housing has declined dramatically in the last decade or so, so there has been a reliance on other mechanisms to provide social housing, particularly section 106 developer obligations connected with the construction of private homes. Those section 106 affordable homes are paid for through the profits on the sale of market housing. It is a pro-cyclical way of doing it so, when there is a lot of construction for the market, you get commensurately more construction for affordable housing, but that is arguably the wrong way round; we should not be doing it on the back of the market but, rather, filling the gap with affordable housing when the market goes down. It also means you get what has been called a “dumbbell” configuration of the housing being produced as, because the social and affordable housing is paid for through the profits from market housing, you have to produce expensive market housing to make enough profits to pay for the social housing […] That exposes [housing associations] to the same market risks and pro-cyclicality that we have in the for-profit developer market.155

64.Social housing, especially social rent, provides a set rental income over the long-term, which providers use to secure private financing. Social rented homes do not cost more to build than homes for the market or affordable rented homes rent; the difference is the revenues, as social rents are set by formula at much lower proportions of costs in high pressure areas. This means that the ‘subsidy gap’ (the difference between costs and the stream of revenues) can be large. Clare Miller, chief executive of Clarion, set out the economics of building social rented housing:

The most difficult tenure to build is social rent, and that is purely because of the economics of it. If I give you an example, in London, to build a new two-bedroom flat, it costs us on average just over £400,000. The rent that I can secure for a social rent, if we forecast that across 30 years, which is our planning horizon, is about £100,000. I am looking to fill the gap of £300,000 from either grant or subsidy that I can generate myself. At the moment, the average grant rate that we are securing in London is around £60,000 per home, so for every social rent I build there is a gap of £240,000. That is the pure economics of the situation.156

65.Grant funding creates certainty for both the construction industry and social housing providers, against an uncertain future. LiveWest, a housing association, said that grant funding for social housing “offers the opportunity of counter-cyclical investment that keeps the building industry generating productivity and jobs during a recession.”157 Shelter recommend that Government investment in a large social housebuilding programme would be beneficial in several ways:

Investing in a major programme of social housebuilding, which sits outside the speculative housebuilding model, offers a tried and tested way to expand construction capacity, increase overall housing supply and meet the nation’s housing needs.

In a mixed housebuilding system, the booms and busts of market supply are to some extent stabilised by social supply. As the ‘Farmer Review of the UK Construction Labour Model’ found in 2016, a major programme of social housing – backed up by long-term finance - supports predictability of demand for labour, skills and materials, resulting in a less risky operating environment for housebuilders, developers and planners.158

66.When we put concerns about the strain on the cross-subsidy model to the Minister, he said:

There is some evidence that housing associations are becoming increasingly innovative in the way they finance their building operations. I have spoken to Nick Walkley about this. That should enable them to build out more homes at a lower grant. Bigger grants will mean fewer units being built and that balance has to be struck. We have the right balance.159

When we pressed the Minister further on this through correspondence, asking if he accepted that the main reason housing associations and local authorities struggle to build more social rent was due the ‘subsidy gap’ created by a lack of grant funding, he wrote:

In funding new affordable housing, the Government is seeking to maximise supply, value to the tax payer and the need for the right tenures to meet people’s differing needs.

Affordable Rent was introduced in 2011 to maximise government investment in affordable housing. Since 2010 we have built over 331,000 affordable homes for rent, despite fiscal constraints. As grant rates are higher for social rent, the funding is prioritised for areas with acute affordability pressures to ensure additionality and value for money. Funding continues to be available for affordable rent across the country.160

67.The cross-subsidy model has reached its limit. Without grant funding from central Government, providers will be vulnerable to the economic impact of COVID-19. Housing associations have commendably made up for reduced Government grant investment in the last decade by developing homes for sale and investing these proceeds, but the subsidy gap remains high for social rent. The Government believes housing associations can continue to financially innovate to build more homes, despite registered providers telling Ministers they have reached the limit of their flexibility. If the Government does not increase grant funding, social rent housebuilding will not increase and may drop even further.

Recovery from COVID-19

68.In June 2020, the OECD forecast that the UK would suffer the worst drop in GDP—11.5 per cent—of any country in the developed world, and would not return to early 2020 levels until at least 2022.161 At the daily COVID-19 press briefing on 13 May, the Secretary of State said:

History tells us that in every economic recovery in modern British economic life the housing market has been key to recovery and revival.162

On 30 June, the Prime Minister set out the first steps of the Government’s ‘New Deal for Britain’, which aims to “rebuild Britain and fuel economic recovery across the UK”:

To build the homes, to fix the NHS, to tackle the skills crisis, to mend the indefensible gap in opportunity and productivity and connectivity between the regions of the UK. To unite and level up. To that end we will build build build. Build back better, build back greener, build back faster and to do that at the pace that this moment requires.163

69.Homes for the North said that housing would be an important part of the national recovery from COVID-19, “ especially as those most effected by the crisis are likely to be in poorer areas without access to quality affordable homes.”164 The Office for National Statistics (ONS) found that people living in more deprived areas had experienced COVID-19 mortality rates more than double those in less deprived areas.165 Subsequent analysis of the ONS statistics by Inside Housing—which did not weight for underlying health conditions or concentrations of care homes—found that areas with more households in temporary accommodation and those with the most pronounced shortage of social housing experienced higher mortality rates.166 The Affordable Housing Commission told us that a housing crash caused by COVID-19, whether mild or severe, would expose the “short-comings of a housing system overly reliant on the PRS providing homes for lower income households”.167

70.A social housebuilding programme should be top of the Government’s agenda to rebuild the country from the impact of COVID-19. The crisis has exposed our broken housing system. Families in overcrowded homes have faced worse health outcomes. Private renters have struggled to meet housing costs. A large social housebuilding programme will provide jobs, boost the economy, and help the Government meet its 300,000 homes a year target.

Alternatives to a social housebuilding programme

71.Although much of our evidence argued for investment in social housing, there are alternatives, especially as many people facing affordability problems may not be eligible for social housing. The Government is focusing on improving the PRS. The Conservative Party Manifesto for the 2019 General Election confirmed the Government’s intention to “bring in a Better Deal for Renters, including abolishing ‘no fault’ evictions”.168 The Renters’ Reform Bill, announced in the Queen’s Speech, will aim to “introduce a package of reforms to deliver a fairer and more effective rental market”, including improving standards, tenant experience, security of tenure, and redress where rented properties are not safe and healthy.169

72.Solace told us that local authorities needed to do more to provide a wider range of intermediate tenures:

Local Authorities can and should be providing a wider range of intermediate tenures and have clear mechanisms to support and promote affordable private rented units (possibly through an arms-length vehicle) and intermediate rented units for people who are unable to buy their own home but are unlikely to qualify for social housing.170

Crisis said that “private rented housing will continue to play a critical role in meeting the needs of low income households” and said it was essential the Government closes the growing gaps between private sector rents through welfare reform, although recommended this happened alongside, rather than instead of, a large social housebuilding programme.171 Unite called for further regulation in the PRS to improve tenant security, standards and re-introduce rent regulation.172

73.Most tenants are broadly satisfied with their homes in the PRS, with 84 per cent satisfied or very satisfied with their current accommodation.173 On the other hand, private renters have the lowest proportion of satisfaction with their tenure at 69 per cent, compared to 83 per cent of social renters, and spend the highest proportion of their income on rent.174 Additionally, most tenants have no savings and the PRS has the highest proportion of non-decent homes (25 per cent compared to 13 per cent in social housing).175 Furthermore, the average weekly housing costs in 2018–19 were £200 for private renters, versus £102 for social renters.176 In our session looking at the impact of COVID-19 on the PRS on 29 June, Ruth Ehrlich of Shelter told us that while the overall trend in quality in the PRS was of gradual improvement, quality of accommodation remained a concern.177 There are also worries around retaliatory evictions, rent increases, and harassment by rogue landlords—people on lower incomes, who might otherwise qualify for social housing, are at most risk of abuse in the PRS.178

74.We concur with the conclusions of our predecessor Committee’s report into the PRS regarding the need for improvements in the quality of PRS properties, as well as the need for improved rights for tenants.179 It is not, however, an either-or proposition. The Department should be looking to improve the PRS and also expanding the social housing supply. The CIH said social housing investment was not enough on its own, but must be backed by a wider strategy to address the challenges facing low-income households in the PRS, including considering how to limit rent levels.180

75.It will take time to meet social housing need. In the short-term, we support the Government’s intention to improve the experience of tenants in the private rented sector, including on security of tenure, quality of housing, and affordability. We encourage the Government to bring forward legislative proposals as soon as possible. While councils need to be better at enforcing standards, the Government needs to provide more resources for councils to ensure they have the capacity to enforce the law. In the longer-term, the Government should ensure there is sufficient social housing for those that require it.

How much will it cost to deliver 90,000 social rent homes a year?

76.Social housing—and all types of sub-market housing—needs subsidy to be built.181 The UK Collaborative Centre for Housing Evidence concluded that there were only “a finite set of well-established ways” to fund sub-market housing, involving different combinations of land, finance, constructions costs, and equity.182 The current model in England—as described in Chapter 1—is a ‘mixed economy’ framework, involving borrowing against future rental income, cross-subsidy from the profits made on market sales, section 106 agreements, and capital grant. Cross-subsidy is considered earlier in this chapter. Borrowing against future rental income is inherently limited. Section 106 agreements—which compel private developers to deliver a negotiated percentage of affordable homes onto new developments—delivered 49 per cent of all affordable homes in 2018–19, and 57 per cent of all social rent homes.183 This is unlikely to increase during a recession. Land subsidy we considered in Chapter 2. If these forms of subsidy do not provide sufficient funding, what remains is termed the ‘subsidy gap’.184

Increase in grant funding

77.The National Housing Federation (NHF) estimated that the current overall subsidy gap in England means that the capital grant required to deliver 90,000 social rent homes in England between 2021 and 2031 would be an average of £12.8 billion per year in today’s prices.185 In addition to social rent, this would also provide sufficient funding to maintain the current delivery of affordable rent and shared ownership at around 25,000 and 30,000 respectively. This grant funding would cover 44 per cent of the total scheme cost of £46.2 billion, with the rest covered by the current types of subsidy. NHF found that the investment needed was similar to the £11.35 billion spent in 1953 (calculated using 2019 prices), which delivered “a record output of more than 200,000 council homes”, adding that public grant available until 2008 had averaged around or above 50 per cent of total scheme costs for “several decades.”186 The figures are supported by the Chartered Institute of Housing, Crisis, Shelter, and the Campaign to Protect Rural England.187

78.At the first evidence session, we spoke to three of these organisations. Kate Henderson, chief executive of NHF, explained the figures:

There is a moral and ethical case for this investment, and a really strong economic and fiscal case for this investment. We have made this scale of investment in the past. If you look at what Churchill did in 1953, when we built 200,000 council houses a year, we had a similar scale of investment. Yes, it is a lot of money but it is half the housing benefit bill. It is also just a little bit more than the Government choose to spend on road investment each year. This is about political will.188

Greg Beales of Shelter said that it would not all need to be extra funding, explaining that “there is definitely room for some reprioritisation within the housing programme, but there is an increased investment up front, which pays back to the country over time.”189

79.The Government has made some positive steps recently. The removal of the housing revenue account borrowing cap—which previously constrained local authorities from borrowing for housebuilding—should help local authorities contribute around 10,000 extra affordable homes a year, although it is not yet clear how many of these might be social rent.190 This might further reduce the amount of grant funding required. Nonetheless, we were surprised that the Department seemed unwilling to challenge the Treasury on further funding. The Minister told us:

There is a balance between the amount of grant that is available for individual units and the number of units you can build. There is only a certain amount of money that is made available to us. We have £12 billion from the Treasury for the new AHP and £9 billion for the one that is presently underway. We need to balance how we provide grant subsidy with building out volume.191

80.When the Secretary of State spoke to our predecessor Committee in October 2019—in the middle of our inquiry—he said he appreciated the sector wanted the Government to go further:

We have made a significant contribution through this Affordable Homes Programme, the AHP of £9 billion. I appreciate there are many that would like us to go further, significantly further, and that is obviously something I will have to discuss and negotiate with the Chancellor ahead of the next Spending Review.192

As we have set out earlier in this Chapter, the Minister said the Government was not in favour of targets for different tenure, but said he viewed “new reports on social housing need with interest”.193

Redistributing current housing expenditure

81.We explored how housing expenditure might be redistributed to reduce upfront investment, especially as the country enters a recession and Government borrowing is already stretched.194 We heard evidence that the Government balance of housing expenditure favoured home ownership interventions rather than affordable housing. George Clarke said that “other tenures are not given the priority that home ownership is being given”.195 Nottingham City Council argued that:

[…] the focus of government support is too heavily slanted towards financial support for home ownership. That market should not require the levels of intervention government is allocating to it, and evidence indicates that this is not making housing any more affordable for the majority of people in housing need.196

82.The UK Housing Review 2020 analysed the split of planned public investment into the private market versus affordable housing over the next four years. It found that affordable housing comprised just 25 per cent of total investment, compared to 85 per cent in Scotland, 74 per cent in Wales, and 100 per cent in Northern Ireland.197 A significant proportion of the private market investment is through Help to Buy equity loans, which will total £29 billion by the end of the scheme in March 2023.198 Homes England expects these loans to be paid back by 2032, but in the meantime, the National Audit Office (NAO) pointed out that this money was tied up and could not be used for other housing schemes.199 The Department’s second evaluation found that the majority of buyers could have bought a house without Help to Buy’s support, though it did help almost 80,000 first-time buyers join the housing ladder who otherwise would not have been able to afford it.200 It also helped increase the supply of new homes.201

83.Investing in improving access to home ownership is crucial, but the current balance of expenditure means little is spent on increasing the number of affordable homes, which provide both avenues for affordable home ownership as well as affordable rented homes. Only around half of funding from both the Greater London Authority and Homes England—the two bodies who invest in affordable housing in England—is spent on rented tenures. Between 2011 and 2018, there was no grant funding available for social rent, as Shelter set out:

The 2011–15 Affordable Homes Programme gave no grant at all to social housing, and the current Shared Ownership and Affordable Homes Programme for 2016–21 was only expanded to provide some funding for social housing in some areas in June 2018. At the same time, the costs of building new homes have escalated, driven by rising land costs.202

Social rent spending is therefore only a small element of the Department’s total expenditure on housing.

84.Help to Buy is being phased out from 2021 and will end completely in 2023; the Government currently spends around £3.3 billion a year on the scheme.203 Sage Housing pointed out that this presented “an opportunity for the Government to reassess their investment” by redirecting this funding to social housing.204 The Campaign for the Protection of Rural England recommended “a rebalancing from demand-side initiatives like Help to Buy to supply-side programmes of affordable and especially social housing delivery.”205 Professor Ken Gibb, director of the UK Collaborative Centre for Housing Evidence, said there could be more value for money in a social housing programme compared to Help to Buy.206

Reforms to the cost and availability of land

85.In Chapter 2, we explored how changes to land value capture and public land disposal could reduce the cost of a social housebuilding programme.

Reduction in housing benefit bill

86.As we described in Chapter 1, one in six households are now reliant on housing benefit. It is estimated that around a third of the total is paid to private landlords.207 Research by Capital Economics in 2015 concluded, even using their “tough test”, that widescale construction of new social rent housing is viable “economically and fiscally” due to the future savings on the Government’s housing benefit bill.208 Capital Economics concluded that after twenty years, a programme would begin to create a surplus for the Government.209

87.It is important to note that it would take a long time to transition housing benefit spend on the private rented sector into grant funding. Professor Ken Gibb said that it would not be “feasible” to simply move the housing benefit bill from the people who are on housing benefit now.210 The LGA commissioned Cambridge Economics to analyse the impact on government finances if 100,000 social rent homes had been built between 1997 and 2017. It found that it would have enabled all housing benefit claimants to move to social rent homes by 2016; these claimants would have benefited from £1.8 billion in extra disposable income; and that the Government’s investment costs would have been fully offset by additional tax revenues generated by the construction industry, as well as welfare savings from all housing benefit claimants living in social housing.211 This suggests it would take the best part of two decades to transition.

88.The Government gave no assessment of the impact of building more social housing on the housing benefit bill.212

Conclusion

89.The Government should count investment in social housing as infrastructure spending, rather than day-to-day spending. Evidence shows that spending on a long-term social housebuilding programme pays back to the Exchequer over time. Furthermore, such a programme could be counter-cyclical, both protecting and creating jobs during a wider housing downturn caused by COVID-19 economic uncertainty.

90.It is time for the Government to invest so the country can build 90,000 social rent homes a year. We appreciate that even with the funding we set out below, any programme will take time to scale up, but we expect the Government should be able to increase delivery to 90,000 within five years.

91.The sector estimates that £12.8 billion a year in grant funding will be needed to deliver 90,000 social rent homes every year, alongside continued support for affordable rent and shared ownership. Central government grant funding is necessary because the current funding model is not delivering the numbers required to meet demand. The removal of the borrowing cap for local authorities will contribute only a small percentage of what is needed. This is around a £10 billion increase on current future funding for affordable housing.

92.We estimate that land value reform could reduce the cost of the programme by up to 40 per cent. By building more social housing on Government-owned public land, the overall cost of the programme could be further reduced. Some of the money could also be redistributed from existing budgets within the Department, and the rest could be borrowed while interest rates are historically low. While the overall savings gained from the long-term reduction in the housing benefit bill are difficult to quantify, it is clear that, over time, as the programme delivers social rent homes, the Government could use savings in housing benefit to subsidise the programme. Therefore, although there are many factors that might impact the overall cost of the programme, it is unlikely to cost £10 billion in extra spending.

93.In 2008, in response to the global financial crisis and its impact on the housing market, the Department for Communities set up a National Clearing House to enable house builders to sell their unsold stock for affordable housing.213 A similar scheme might work in these circumstances, given that it will take time to build up to 90,000 homes a year. Councils and housing associations could focus on acquisitions of existing properties, or properties close to completion, using grant funding from Government and Right to Buy receipts. The National Housing Federation suggested allocating some of the current affordable housing grant:

The funding should prioritise new social and affordable homes built by housing associations but could also be available for bulk-buying homes from developers at a discount to convert to rent, as long the homes are high quality, the right size and in the right places.214

94.To ensure the programme can get off to swift start, we recommend the Government allows grant funding to be used flexibly to allow providers to purchase new build homes or homes close to completion from developers which may go unsold in a recession. We suggest the Government looks at the National Clearing House Scheme from 2008—which served a similar purpose during the last recession—as a starting point.


117 House of Commons Library, Tackling the under-supply of housing in England, CBP 7671, 9 March 2020

118 The Conservative and Unionist Party, Get Brexit Done: Unleash Britain’s Potential, November 2019

119 Oral evidence taken before the Public Accounts Committee on 29 April 2019, HC (2017–19) 1744, Q9

120 Ibid

123 Ibid

125 Q2 (Session 2017–19)

126 Q3 (Session 2017–19)

127 Q51 (Session 2017–19)

130 MHCLG (SAH 038)

132 HC Deb, 27 February 2020, col 509

134 Localism Act 2011, section 147

136 Shelter (SAH 052), para 5.3

137 UNISON (SAH 058), para 7

139 Ibid

140 United (SAH 021), para 4.2

141 Q26

144 Rebecca Tunstall and Nicholas Please, Social housing: evidence review, September 2018

145 Ibid

147 Colin Jones and Alan Murie, The Right to Buy: Analysis & evaluation of a housing policy, 2006

148 Office for National Statistics, GDP monthly estimate, UK: April 2020, 12 June 2020

149 Office for National Statistics, Labour market overview, UK: June 2020, 16 June 2020

152 The Chartered Institute of Building, The real face of construction 2020, February 2020, p14

153 MHCLG, Table 118, 14 November 2019

154 MHCLG, Live Table 1000, 3 December 2019

156 Q86 (Session 2017–19)

157 LiveWest (SAH 056)

158 Shelter (SAH 052)

163 Prime Minister’s Office, PM: A New Deal for Britain, 30 June 2020

164 Homes for the North (DSH 023)

167 Affordable Housing Commission (DSH 019)

168 The Conservative and Unionist Party, Get Brexit Done: Unleash Britain’s Potential, November 2019

169 HM Government, The Queen’s Speech 2019, 19 December 2019

170 Solace (SAH 049)

171 Crisis (SAH 023)

172 United (SAH 021)

177 Oral evidence taken on 29 June 2020, HC (2019–2021) 309, Q108

178 Housing, Communities and Local Government Committee, Fourth Report of Session 2017–2019, Private rented sector, HC 440, 19 April 2018

179 Ibid

180 Chartered Institute of Housing (SAH 012)

181 Q51 [Kathleen Scanlon] (Session 2017–19)

182 UK Collaborative Centre for Housing Evidence (SAH 007)

183 MHCLG, Affordable housing supply: April 2018 to March 2019, England, 20 November 2019

184 St Mungo’s (SAH 008)

186 Ibid

188 Q14 (Session 2017–19)

189 Q19 (Session 2017–19)

190 Office for Budget Responsibility, Economic and fiscal outlook – October 2018, 29 October 2018

192 Oral evidence taken on 28 October 2019, HC (2019) 24, Q47

194Public spending on crisis soars to £190bn”, BBC News, 9 July 2020

196 Nottingham City Council [SAH 060)

197 Chartered Institute of Housing, UK Housing Review 2020, Chapter 4: Housing expenditure plans, March 2020

198 National Audit Office, Help to buy equity loan scheme – progress review, 13 June 2019

199 Ibid

200 Ibid

201 Public Accounts Committee, One Hundred and Fourteenth Report, Session 2017–19, Help to Buy: Equity loan scheme, HC 2046

202 Shelter (SAH 052)

203 National Audit Office, Help to buy equity loan scheme – progress review, 13 June 2019

204 Sage Housing (SAH 042)

205 Campaign for the Protection of Rural England (SAH 036)

206 Q56 (2017–2019)

207 Royal Town Planning Institute (SAH 020)

210 Q57 (Session 2017–19)

211 Local Government Association (SAH 024)

213 Communities and Local Government Committee, Third Report of Session 2008–09, Housing and the Credit Crunch, HC 101, paras 38–41

214 National Housing Federation, Coronavirus: social and economic recovery, 2020




Published: 20 July 2020