15 Dec 2021

Could building social rented homes save the government money?

The government spends more than £30 billion a year on supporting people’s housing costs through the benefits system, around 15% of its benefits budget. Couldn’t some of this money be saved if part of the budget were spent instead on building social rented homes?

This question has provoked several studies over the last few years, focussed on the cost of supporting low-income tenants who pay high private rents who could potentially move to social rented homes if they were available. The problem is that the real cost savings only pay part of the cost of the grants needed to build new units. If a private tenant on housing benefit or universal credit moves into a social rented home, we calculate the crude saving as £2,250 annually. But once the calculation is weighted to take account of factors such as jobseekers or working claimants likely to have short claims, the saving falls to £1,100. This isn’t enough to pay the loan charges on the grants needed to build the dwelling.

In a recent study published jointly by CIH and the Centre for Homelessness Impact, we’ve taken a fresh look at the calculation, using a realistic target of building 10,000 more social rented homes annually (in England). Although the National Housing Federation reckons that the cost of grant for the much bigger social-rented larger programme that the country really needs would be nearer £183,000 per unit, we’ve assumed that a more modest addition to the Affordable Homes Programme might need grants of £70,000. Each grant would cost central government about £4,000 annually in loan charges.

The new factor the study takes into account is the cost of temporary accommodation (TA). Currently, councils are spending over £1.2bn each year on TA, mostly in high-cost private rentals. If all those in private lettings could be moved into social rented ones, the saving could be £572 million per year. Every household moved saves as much as £7,760 annually.

Let’s suppose the Treasury were to agree to provide the grants for 10,000 more social rented homes per year. When completed, if the new units were allocated 50:50 to private tenants and to households in TA, or if they created relets used in those ways, the revenue savings would be considerable. They would amount to approximately £6m from rehousing private tenants and £38m from replacement TA, or £44m in total. This would offset the loan charges on the grants of around £40m annually.

Our argument is subject to caveats about how the costs are calculated and how the savings would be achieved in the real world, but they show that there is a convincing case to spend more money on building social rented homes from a purely financial viewpoint.

Of course, there are many more advantages to doing so than simply the cost savings. For example, tenants paying lower rents would be at much less risk of arrears, which have increased alarmingly in the private sector during the pandemic. Many working tenants may no longer need to claim housing benefit or the housing cost element of universal credit, taking them out of the system. And social tenants enjoy more security than their equivalents in the private sector. Evictions and homelessness, likely to increase after the pandemic, could be reduced.

The aim of the study is to persuade the government to take a fresh look at the case. The prime minister is keen on bricks and mortar investment. Here’s an opportunity to increase it at no – or very limited – cost to the Exchequer. Why not launch a large-scale experiment to see if it works?