Can the next government deliver affordable homes at the scale needed?

Examining the challenges of affordable housing creation and possible solutions.

There is an exceedingly broad consensus that we in this country need more affordable homes.  A £21bn government programme to build more affordable housing by 2026 in England is missing its target by 32,000 homes, with many now feeling that living in good accommodation in a large city or economically active area is simply beyond them. As of March 2022, there were 1.21 million households on local authority waiting lists for affordable housing for rent.

While few deny the problem, no solution has been found that is both practical and financially viable for the government.  Those in favour of increased government spending are keen to see incentives such as subsidies put in place for developers, with the British Property Federation (BPF), a group of the UK’s biggest construction companies, has urged the next government to invest an extra £14 billion to build 145,000 affordable homes every year. However, while this investment would make a significant impact, the current condition of the public finances makes it unlikely that either party would spend such a large amount. The current government has pledged to build 180,000 new, affordable homes by 2026, but there is some doubt as to whether this will be achieved. Even if delivered in full, the government-funded programme, equivalent to around 30,000 homes a year, would produce just a fraction of the new affordable homes required.

Indeed, the Conservative government’s housing secretary Michael Gove for handed back £1.9bn in housing funds back to the Treasury after failing to spend it in the 2022/23 financial year. The Labour party, who polling suggests will form the next government, have promised the biggest boost in affordable and social housing delivery “in a generation”, but have not been more specific as to how much would be spent, where the funding will come from, or exactly where it would go.

Given the fact that a truly transformational funding arrangement seem unlikely in the short term, the governments most effective lever to pull to increase affordable housing is remove some of the myriad other barriers in the way of building more affordable housing.

One of these is the cost of land, with suitable sites proving prohibitively expensive for the council to buy. Even if the council owns the land, Local authorities have a duty to dispose of land for the best value that can reasonably be obtained, and many local authorities cannot afford to sell their land to affordable housing providers for less than a competitive market rate. Labour have proposed a change to the law to allow Council officials to buy land under compulsory purchase orders without having to factor in the “hope value” – a massive price premium granted to any land on which developers hope to secure planning permission. Apart form raising questions around property rights, while this could result in a larger number of social rent (council) homes, is unlikely to solve the problems of the wider affordable housing sector.

Red tape and bureaucracy in the planning system is often an issue, but measures to resolve it can often lead to further problems. Nutrient neutrality rules for instance, state that new developments must ensure that any phosphates and nitrates that enter the water course must be offset by measures elsewhere in the catchment to reduce inputs. This has led to significant delays in the construction of affordable (and other) housing. While this might sound like a simple barrier to remove, there would be considerable environmental and political consequences to doing so, with polluted rivers already a major issue for many people.

Costs associated with creating affordable homes have also risen drastically in recent years, particularly with regard to new demands around fire safety and decarbonisation. This has resulted in turn in housing associations and other affordable landlords spending a greater proportion of their income on their existing stock as they bring it into compliance with new standards. One idea suggested is to increase the maximum rents housing association may charge, to allow them to invest more in new properties. This however has a cyclical and somewhat paradoxical effect, whereby people have their homes made less affordable in order to increase affordable housing. Suffice to say that in the current cost of living situation, large rent increases for those who already rely on below-market-rate housing carries its own political and social risks.

With a change of government considered a strong possibility in the coming months, we may well see a change in the approach to tacking the barriers listed above. While it is clear that there is no magic bullet to resolve this problem, a government that could balance the interests of renters, taxpayers, landowners and developers to square this circle would gain both substantial short-term popularity and an impressive long-term legacy.