Election 2017: what we’re saying on. . . supply
As the build-up to next month’s General Election continues, our deputy chief executive Gavin Smart looks at three ways the next government could boost affordable house-building.
The roots of our housing crisis can be traced back to one big issue – lack of supply. We know that we need to build around 250,000 homes a year in England alone to keep pace with our growing population, but last year just 140,660 were completed. And this is not a short-term issue – we have failed to build anywhere near the number we need for decades. As a result, housing is becoming increasingly unaffordable. Our analysis shows that average private rents are more than a third of average monthly incomes across England, a percentage that rises to more than 40 per cent in the South East and almost 70 per cent in London. Meanwhile, average house prices are more than seven times average earnings, while Shelter estimates that it would now take a childless couple 6.5 years to save for a 20 per cent deposit, rising to 13.5 years in London. For a couple with one child, these figures rise to 12 and 26 years.
Meanwhile we are losing cheaper social rented housing. Our research shows nearly 250,000 of these affordable homes could be lost between 2012 and 2020. This is a long-term challenge that needs a long-term plan – which is why it has been so encouraging to see all three major parties make housing a central plank of their election campaigns so far. Whatever the next government looks like, here are three ways they can boost supply to where it needs to be.
Remove the barriers stopping local authorities building homes
To get to a position where everyone can access a decent home at a price they can afford, we need all parts of the sector (private developers, councils, housing associations etc) firing on all cylinders. Removing the barriers to councils building is crucial – the last time we were building anywhere near the number of homes we need was in the 1960s and 1970s when councils were regularly contributing more than a third of the total. In 1977-78 for example they built more than 40 per cent of total homes completed that year. Our research with The Chartered Institute of Public Finance and Accountancy shows that since local authority self-financing was introduced, subsequent policy changes (notably the introduction of the one per cent per year rent reduction), councils’ capacity to build over the next 30 years has been cut from 500,000 homes to just 45,000. Many are also constrained by lack of borrowing headroom. Allowing individual councils to enter into deals where government allows them greater flexibility around things like rent levels, use of receipts and borrowing levels in return for specific, concrete commitments to build new homes would help them deliver more of the homes we need. Manifesto commitments suggest that the political parties share our analysis of the situation. Labour’s manifesto promises to "remove government restrictions that stop councils building homes", while the Liberal Democrats would similarly lift the borrowing cap on councils. The Conservatives said they would enter into new ‘council housing deals’ with "ambitious, pro-development" local authorities to build new fixed-term social houses. These would be sold privately after 10-15 years with an automatic right to buy for tenants, and the proceeds would be invested in new homes.
Target more investment in affordable housing
It’s not just about building more homes, it’s about building more affordable homes – we need to think about people on lower incomes who can’t afford to or don’t want to buy. Just 32,110 affordable homes were delivered in 2015/16, which is the lowest level since 1991/92 at a time when need is increasing. We need more homes across the spectrum – for home ownership, for private and social rent, and for shared ownership – but we believe more investment is urgently needed in genuinely affordable homes to rent. The next government needs to look at rebalancing the housing budget – affordable housing currently accounts for 16 per cent of direct total investment and we think this needs to increase. A return to funding new homes for social rent would require more upfront investment but would result in long-term savings in the housing benefit bill because rents would be cheaper. Our political parties seem to agree. The Conservatives say they would provide councils with "significant low-cost capital funding", and also give housing associations "greater flexibility" to increase their stock. Meanwhile Labour’s manifesto states: "Labour will invest to build over a million new homes. By the end of the next Parliament we will be building at least 100,000 council and housing association homes a year for genuinely affordable rent or sale." As well as lifting the borrowing caps on councils, the Liberal Democrats have promised they would increase the borrowing capacity of housing associations. The Green Party said it would implement a major programme to build affordable, zero carbon homes, including 100,000 social rented homes each year by 2022.
Relaxing restrictions on right to buy receipts
Our research has shown that most councils only expect to be able to replace half or fewer of the homes they sell under right to buy. It’s always been clear that there would be a time lag between homes being sold and homes being built to replace them, but it’s now been more than five years since right to buy discounts were increased and there is mounting evidence that replacements are simply not keeping pace with the level of sales. According to the most recent figures, from April to December last year councils sold 9,597 homes through right to buy, while 2,736 were started or acquired to replace them. We know from our research that councils could be replacing many more homes if the complex funding rules of the scheme were changed. Making some quite modest changes would help make sure that more vital social and affordable housing isn’t lost. For example, the government could allow local authorities to keep all of the receipts from right to buy sales rather than handing a proportion over to the Treasury, give them more flexibility to combine the receipts with other grants, funding and land to deliver replacement homes, and allow them to vary the discount locally in some circumstances. As might be expected, the parties are split on right to buy – the Conservative manifesto doesn’t mention the local authority scheme in its current form, while Labour’s pledges to suspend right to buy, with councils only able to resume sales if they can prove they have a plan to replace homes sold like-for-like. The Liberal Democrats say they would allow councils to end right to buy if they wish to.