The overwhelming case for new public housing

We face a housing and cost of housing crisis greater than at any point since the aftermath of the second world war. Britain is not building enough new homes, and the accommodation that is available is increasingly unaffordable to millions of people.

It is a measure of a nation’s politicians whether they can rise to the big challenges their country faces. Housing is now such a test.

We need to build around 250,000 homes a year but are currently managing less than half that. One in five homes is classed as ‘non-decent’, rising to one in three in the private rented sector. Housing is the largest single cost for many households, and poorer families face the highest costs as a proportion of their income.1 More than a quarter of a million households now face homelessness each year, and the figure is rising.

Meeting the challenge of this housing crisis means more is required of all who can make a contribution – commercial housebuilders, housing associations and councils. Above all, strong leadership and smart action from government is imperative. And investment to build new public housing – council and housing association homes at a genuinely affordable rent – must be a central part of a new national political mission.

Almost everyone concedes there’s a serious problem, across the political spectrum. Even David Cameron has admitted many young people now watch the tv show Location, Location, Location “not as a documentary, but as a fantasy”. shout, the new campaign for social housing was launched last year with backing from all political parties. And Conservative pressure group ‘The Good Right’ has recently advocated “a Harold Macmillan-sized, statesupported housebuilding programme”.

But the government’s policies are falling far short. Having promised that ‘we will become a nation of homebuilders’ before 2010, two years on just 107,980 new homes were completed in England in 2012–13 – the lowest peacetime total since the 1920s. Last year, 118,770 new homes were built. Current government policies are also intensifying rather than relieving the cost of housing crisis. Government capital investment in social rented housing was cut by two-thirds in 2010 and by shifting the remaining subsidy to build only so-called ‘affordable rents’ – a perversion of traditional social housing at up to 80 per cent of market rents – the provision of truly affordable social rented homes has been choked off.

In the next parliament there must be a change, and that means putting the overwhelming case for social housing to politicians and the public. Here’s our summary of that case – five reasons why we believe the case for social housing is so strong, and the three biggest challenges to tackle.

Five reasons we need more social housing

1. To build enough homes

There’s now a broad based consensus that we must build more homes. We need 250,000 extra homes a year, but under the coalition average build rates have been only 113,000 a year. Under 13 years of Labour government until 2010, the average was 146,000 – higher, but still far too few.

Absent from this housing debate is an honest admission that we have no chance of coming anywhere close to building 250,000 homes a year through the private market alone. Nor is this a route to reach the more modest annual target of 200,000 new homes by 2020. There has only been one year since the end of high-volume council housebuilding when we have managed to build 200,000 homes in England, and that was at the height of the unsustainable ‘Lawson boom’ in the late 1980s. Even then, councils were still building 15–20,000 homes a year.

Social housing used to make up a large part of the new overall housing supply each year. After big reductions in the 1980s, the figures flat-lined for two decades until a small revival began, boosted after the global financial crisis by the reform of council housing finance begun by Labour in 2009–10 and completed by the coalition. If we are to build the houses our country needs, the next government must ensure many more council and housing association homes are built.

2. To make homes affordable

The cost of housing crisis blights the lives of at least three groups of people. First, it is estimated that there are 1.3 million households in low- to middle-income groups who spend more than 35 per cent of their income on housing – an internationally recognised threshold of affordability. Second, there are those who cannot buy or rent at all. There are over 4.6 million ‘concealed’ households: single people or couples living with others, such as parents, relatives or friends. Today, official figures show 1.4 million fewer young households (under 44 years old) are buying their own homes compared with ten years ago. Third, there is rising homelessness. In 2013–14, some 280,000 households were assisted as homeless, 38 per cent more than in 2009–10.

So several million households are hit by the lack of affordable housing, paying excessive costs, denied a home of their own or actually homeless.

More social homes would help all of these households. But policy changes made by coalition ministers now mean that what used to be affordable housing, is often no longer genuinely affordable. Up until 2011–12, the majority of affordable housing was built to let at ‘social’ rents linked to local incomes as well as building costs, which on average means 50 per cent of market rents. But current government policy has aggressively increased ‘affordable’ rents to as high as 80 per cent of open market prices. Starts on site to build new social rented homes have fallen by 90 per cent – from 40,000 to 4,000 – since 2009–10 and on current plans will soon be close to zero.

The government also forced ‘conversion’ of existing homes at social rent levels to the new affordable rents, and increased right to buy discounts without replacing those social homes lost through sales. As a result, we’ve lost 63,000 more social rented homes than we’ve built in just two years (numbers based on local authority and HCA statistical returns).

The impact on affordability is severe. In some parts of the country, hiking social rents to 80 per cent of market prices can mean that they are double average take-home pay, putting them completely out of reach for families on low incomes. In the London Borough of Camden for example, raising rents to 80 per cent of the market would necessitate an after-tax income of almost £50,000.

3. To secure value-for-money from public spending

Public spending on social homes pays for itself. Every £1 invested in social housing pays back £1.18 into the public purse over 30 years because of lower housing benefit payments.

Despite the deepest cuts to housing benefit ever in this parliament, spending on housing benefit has risen by £2.5bn and is set to rise in real terms in every year of the next parliament, in part because social rents have been hiked to ‘affordable rents’ (according to Autumn Statement outturn figures). Cutting back on investment in social housing and raising rents is a false economy for the taxpayer: savings made in one department only push up costs in another. The policy switch away from traditional social rent to ‘affordable rent’ in this parliament alone will add £5.4bn to the housing benefit bill over 30 years.

By contrast, an ambitious public housing programme would save the exchequer money over the long term. Recent modelling by John Healey shows that working up to building 100,000 new social rented homes a year by the end of the next parliament would not only pay for itself in less than 30 years but provide a net benefit to the public purse of £12bn through lower housing benefit costs.

What’s more, public investment is a lever for private investment. The record of this government has shown this relationship in reverse: alongside the cut in public housing investment over the last four years, there was £1.4bn less private housing investment in housing association homes last year than in 2010–11 (UK Housing Review 2015).

4. To increase work incentives

Housing costs are a critical factor in making work pay. The steep taper on housing benefit withdrawal is a disincentive to earn more, and higher rents mean that disincentive lasts for longer. This problem is built into and will continue under universal credit. Lower, social rents can make it more worthwhile for people to work by increasing their take home pay.

For example, take a family with one child and two parents who are both working part time at the national minimum wage when one of the parents is offered the chance to work full time. If they are living in private rented accommodation paying an average private rent, their net income will increase by £1,400 per year as a result of the extra hours. But if they are living in social housing, paying an average social rent they will take home an increase of £2,700.

Two key coalition changes – universal credit and ‘affordable rents’ – will combine to drag many more council and housing association tenants into benefit dependence: the very opposite of stated government aims.

5. To boost jobs and the economy

The economy is still operating below capacity, and building homes provides a direct boost. Every £1 spent on house building generates £2.84 in total economic activity and, according to government estimates, supports 12 year-long jobs for every £1 million of building investment (see L.E.K. Consultants’ report ‘Construction in the UK: The benefits of investment’ for details). If we built 100,000 homes a year, it has been estimated that we could create 90,000 jobs.

When the financial crisis and downturn struck, and the private sector was unwilling or unable to build, the Labour government switched spending to housing as a stimulus. A big programme of social housing now would have a direct positive economic impact as well as helping provide jobs and apprenticeships.

…and the three biggest challenges

Any government that is committed to build more genuinely affordable public homes will face three big challenges: cost, public support, and delivery. We’re convinced they can be overcome – here’s how.

1. Cost

The extent to which further austerity measures are needed to reduce government borrowing (currently just under 6 per cent of GDP in 2013–14) is subject to political debate. Politics is always about choices and proper fiscal targets can be set and met in different ways. But whoever leads the next government will first need to consider the cost of a significant social house building programme.

There are a range of policy changes which will increase the number of social homes built at little or no cost to the public purse. Restoring the private contribution towards public homes by tightening up developers’ obligations to include social housing in their projects could yield big rewards without harming overall viability. As recently as 2007–08, ‘planning gain’ from private developers was worth almost £5bn and contributed to the provision of 48,000 new homes. By 2011–12 this had fallen by one third and today’s figure is likely to be much lower still because of changed government rules (see the DCLG report ‘Section 106 Planning Obligations in England, 2011–12’ for more details). Ending the giveaway of tax-payer investments through indefensible right-to-buy discounts by insisting that ‘one-for-one replacement’ of all homes sold really means one-for-one would safeguard thousands of social homes. The Lyons Review on housing set out a number of further ways in which we could increase the supply of new homes within existing fiscal constraints.

Even with these changes, a bigger social housebuilding programme will require more capital spending. But this is borrowing to invest, just like people take out a mortgage to buy a house. This investment creates a long-term asset and yields a financial return to the public purse in rents and lower housing benefit payments – and savings in the latter, as set out above, would pay for the upfront cost of investment over less than 30 years. Above all, such investment provides new homes that that will last for decades, and each home built becomes an asset against which the council or housing association can raise further funds to build more new homes.

Right now it’s a particularly attractive investment for the public purse to make. With yields on 10-year gilts currently below 1.5 per cent, UK government borrowing costs are just about the lowest they’ve ever been.

2. Public support

There are good levels of public support for social housing. Polling by YouGov for the Fabian Society last year revealed that a majority of people (57 per cent) back more social housing being built, and more support than oppose social housing being built in their area (44 per cent vs 27 per cent). That’s true across social class, gender, age and region.

We also know how we can increase support for social housing: good design standards, and allowing local people to stay in their area by giving them greater access to social homes built in their neighbourhood can both help.

But the wider challenge is to correct the marginalisation of social housing. Fewer social homes means only those with higher support needs can often get new social tenancies which reinforces the perception amongst many people that council or housing association homes are not for them or their family and reduces public support for new social housing.

Part of the answer lies in building to make more homes available but an important part is also ensuring that developments are mixed so communities are mixed. This is why powers to require social housing to be built alongside open market housing through ‘planning gain’ are so important, not just to ease pressures on the public purse but because they are essential in creating mixed-tenure developments.

3. Delivery

Building public homes on the scale required is a huge delivery challenge, for central government, local authorities, housing associations and the private sector.

To kick-start construction, the next government should strike a national ‘new deal for housing’ – a national target for new social homes and a commitment from all the players in the housing field that they will do their bit. Government needs to provide funding and land, developers must build and be mindful of the social obligation they have to cater for all who need a home and not just a few, and local authorities and housing associations must focus on increasing the number of homes built while staying true to their social mission of providing genuinely affordable accommodation.

The case for social housing is overwhelming. We need the political will and a government this May who is willing to make it happen.

John Healey is a Labour MP and a former housing and treasury minister

John Perry is a researcher and writer on housing policy, writing in a personal capacity

This article originally appeared in the Spring 2015 edition of the Fabian Review.