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«high aspirations, sound foundations: a discussion report on the centre-ground case for building 100,000 new public homes By John Healey MP THE SMITH ...»

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Each generation faces the responsibility to redefine a vision for the future, renew the arguments for progressive change and refresh a public conviction that things can be better.

It falls to us now as politicians, housing professionals and campaigners to remake the case for public housing in these most testing times.

For as the post-war health and housing minister Nye Bevan said of the NHS, so it is for public housing – it “will last only as long as there are folk left with the faith to fight for it”.

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The need for affordable public homes 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. And a measure of wider civil society whether they demand our politicians do so. Housing is now such a test.

Experts say we need to build around 250,000 homes a year, but we 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.2 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 house-builders, housing associations, councils and institutional investors. Above all, strong leadership and smart action from government is imperative. And mixing public and private 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 Macmillansized, state-supported housebuilding programme”.

But the government’s policies are falling far short. Having promised that ‘we will become a nation of homebuilders’ before 2010, just 125,000 homes were completed in 2014/15.

Incredibly, during the last Parliament the number of new homes built dipped to levels last seen in peacetime in the 1920s, almost a century ago.

Current government policies are also intensifying rather than relieving the 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 at so-called ‘affordable rents’ – a 2 http://www.ons.gov.uk/ons/publications/re-reference-tables.html?edition=tcm%3A77-370146

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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. The effects of this shift are profound, and discussed further in section three below.

The prospects for social housing in this Parliament look worse still with further cuts in investment, and unprecedented sales of existing homes mooted. Turning the tide starts with putting the overwhelming case for social housing to politicians and the public. Here’s the five reasons why I think everyone should back more social homes.

1. To build enough homes There’s now a broad-based consensus that we must build substantially more homes. There is a wide agreement amongst housing experts that we need to build 250,000 extra homes a year in England, but under the Coalition average build-rates were only 114,000 a year.

Under 13 years of Labour government until 2010, the average was 143,000 – 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 house-building 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 brief revival began, boosted after the global financial crisis by the extra investment as part of Labour’s economic stimulus and 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 government must ensure many more council and housing association homes are built.

2. To make homes affordable The cost of the 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. There are 1.4 million fewer young households buying their own homes compared with ten years ago. Third, there is rising homelessness. In 2014/15, some 275,000 households were assisted as homeless, 38 per cent more than in 2009/10.





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Source: DCLG Live Table 244 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 people. 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 averaged around 50 per cent of market rents. But current government policy has aggressively reduced the level of public subsidy in such homes and replaced this with 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 twothirds – from 39,000 to 11,000 - since 2010 and on current plans will soon be close to zero.

To further fill the subsidy gaps, the government have 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.3 3 Analysis by John Perry for the 2015 UK Housing Review. Estimate based on local authority and HCA statistical returns.

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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 necessitates an after-tax household income of around £50,000 to remain affordable.

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3. 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.

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Figure 3: Varying costs to a working household of private and social rented housing Source: author’s calculations The affordable rent model is working in the same way - dragging many more council and housing association tenants into reliance on benefits, and making it less worth their while to move off: the very opposite of stated government aims.4

4. 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 £1m of building investment.5 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. That direct stimulus is less needed now, but a big programme of social housing now would still have a direct positive economic impact as well as helping provide jobs and apprenticeships.

What’s more building enough homes is necessary to help even out the cycle of boom and bust – we know that wider economics swings are often driven or exacerbated by a volatile 4 See also Affinity Sutton (2015) Affordability: a Step Forward 5 L.E.K. Consultants (2012) Construction in the UK: The benefits of investment. London: UK Contractors Group (see www.

ukcg.org.uk)

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housing market. Ensuring more consistent and substantial investment will help moderate these swings to the benefit of the wider economy too.

5. To secure value-for-money from public spending Finally, public spending on social homes pays for itself.

Despite the deepest cuts to housing benefit ever in the last parliament, spending on housing benefit has risen by £2.3bn or 10% in real terms, and is set to continue to rise significantly over the long-term according to Office for Budget Responsibility forecasts. 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.

So, by contrast, an ambitious public housing programme would save the exchequer money over the long term. As I show in the following chapters, working up to building 100,000 new social rented homes a year by the end of this parliament would not only pay for itself in less than 30 years but provide a net benefit to the public purse of almost £6bn through lower housing benefit costs. Continuing to build at this scale beyond the present 5-year parliament would multiply these savings.

But before coming to what could be done differently, we must first diagnose the problem.

THE SMITH INSTITUTE

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Housing benefit and affordable homes A big part of the case for public investment in new homes turns on the saving to the Exchequer through lower housing benefit spending. High housing benefit spending is housing’s ‘canary in the mine’ – signalling that for far too many families, their incomes simply don’t cover their high housing costs.

It is also by far the most significant way in which government helps families with high housing costs. More than one in six households claim housing benefit.6 This wasn’t always the case. The almost £25bn we spend every year on housing benefit now is eight times higher in real terms than 35 years ago.7 It’s an increase in public spending not matched by any other social security benefit.

To be clear what that means - if unemployment benefits had grown at the same rate per claimant as housing benefit the average award wouldn’t be around £65 per week as it is now, but £275 per week.

Over this same period in which housing benefit costs have soared, the number of new council and housing association homes being built in England has fallen dramatically, by 67% since 1978/79 to only 28,400 completions last year.8 This is one of the great social policy shifts of the last century – a conscious decision to let the cost of renting rip and to try to balance household books by relying on spiralling housing benefit spending.

Today, the mismatch in public housing support means that in this Parliament the present government has committed £3.3bn of public money from 2015 to 2018 under the latest round of the Affordable Homes Programme, and in the Autumn Statement it pledged a further £1.9bn for the two remaining years of the Parliament. But if we compare this with government forecasts for housing benefit then this means that 96%, or around £120bn, of the central government expenditure on housing in this Parliament will be on housing benefit with only 4%, or around £5bn, spent directly on building new homes.

Even if we take into account local authority capital spending on housing as well, over which central government no longer has direct control, alongside general capital spending 6 Labour Force Survey household estimates (used as a proxy for benefit units) and DWP administrative data 7 DWP administrative data, consistent with the March 2015 Budget 8 CLG live table 213

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on maintenance and upkeep of social homes too, gross public investment is still below £5bn per year, down from around £14bn at the end of the 1970s in today’s prices.9 It’s the polar opposite of the trend in housing benefit spend.

Public expenditure on social housing and housing benefit Figure 4: Public expenditure on housing benefit and investment in social housing 25,000 20,000

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10,000 5,000

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