Build more houses

John Perry

It is increasingly clear that the UK housing crisis can only be addressed by building more social housing. Ross McKibbin wrote in the LRB last year that this should be a priority for a future Labour government, and even the coalition belatedly accepted the economic benefits of social housing construction in the run-up to the Autumn Statement. The problem is that they are actually doing the opposite. Social housing 'starts' fell to a miserable 454 in the last six months, and although they will start to increase soon, the new investment will have two very important downsides.

First, since their funding from the government has been cut, housing associations will only be able to pay for new housing if they put up their rents, especially in London. This is deliberate government policy: it was announced in October 2010 that housing associations are to be encouraged to charge new tenants ‘affordable’ rents, up to 80 per cent of the market rate. One association says that this would mean rents in central London going up by more than £200 a week. It has also calculated that the housing benefit bill for tenants would rise by more than 150 per cent, mainly because tenants who can afford to pay their rent at current levels couldn’t do so at the new ones.

Second, without more help from the government, housing associations that intend to keep building will have to borrow more money. The government is already talking about what might happen after it has exhausted all the potential development on the back of the new higher rent levels, but doesn't have a clue what to do next. Four years from now, the Tories will have exhausted the options and the ‘affordable rent’ programme will have created only half the number of houses built in the last three years of Labour’s programme, itself inadequate.

At the Tory conference, David Cameron threw into the pot (without letting his housing minister know in advance) the idea of selling more council houses under the right to buy. This potentially generates some cash, but means losing houses at lower 'social' rents and replacing them with ones that have both higher rents and higher debts linked to them. This is not a sustainable solution, even if enough potential buyers are found – which, given that sales are supposed to reach a target of 100,000 and there were only 3700 last year, seems unlikely, even with the increased discount announced just before Christmas.

If there is to be a supply of new low-rent housing after 2015 – when millions of people with low-paid and insecure jobs will still need it – then it will have to be subsidised. Government doesn't need to meet the whole cost, because part can be met from rent. But the subsidy does need to go back to somewhere near the levels of Labour’s programme: about £50,000 per house, compared with just over £22,000 now. If housing is a high-profile issue now it will only be even more of one in four years' time, as waiting lists continue to grow and homeownership (now in its sixth year of decline) falls even further.


  • 4 January 2012 at 11:12pm
    TheNobleman says:
    Social housing fell to only 454 in the first six months of the financial year 2011/12 primarily due to a change in contracts from HCA and the paperwork has not fed through to HCA as yet. If you look at the social housing starts and completions data at DCLG then the number of units has not fallen so catastrophically (yet).

    However, capital expenditure for DCLG is falling sharply (over 60%) and this will inevitably feed through to a very sharp fall in social housing starts and completions. Of even more concern, government does not even talk about public housing. Government talks about affordable housing and the point about affordable rents is made well in this article. 80% of market rents is not 'affordable' in any sense, especially in London.

    If we take private and public housing together, then the number of units built is currently less than half the number of households created (based on government's own household projections), exacerbating the existing housing gap.

    Dr. Noble Francis

    Economics Director
    Construction Products Association

    • 5 January 2012 at 10:03pm
      John Perry says: @ TheNobleman
      Thanks for the comment, Noble, and I note that the CPA published its own pessimistic forecast of prospects for housing in 2012 in the last few days. The irony is that the government could, within accounting rules, give more freedom than it is currently planning to give to councils to invest in housing, when they become self-supporting in April.

      Borrowing by councils, to invest in housing, would not make the government's debt profile worse against the main international measure which the markets use. A simple decision to give councils the power to borrow, according to their own prudential rules, could boost housing production, and the economy, without adding to general government debt. Only Treasury orthodoxy prevents this from happening.