Social strength

Patrick Mooney, housing consultant and news editor of Housing, Management & Maintenance magazine asks ‘has the case for an expanded social housebuilding programme ever been stronger’?

During the height of council house building in the 1950s, councils built on average around 147,000 homes a year. In the past 10 years councils have averaged building around 1% of that – just 1,400 new homes a year. This is principally due to a number of Government restrictions and a lack of funding available. At the same time councils are struggling to fulfil their housing responsibilities and billions of pounds each year are being wasted on providing emergency housing, often in unsuitable and unsafe properties. 

Of course this money could be better spent on providing high quality, secure housing at reasonable prices. Instead, councils are housing over 100,000 households in insecure temporary accommodation with many more people living on the streets. 1.2 million households are currently on social housing waiting lists across England, with councils heavily reliant on housing associations to provide them with access to new and affordable housing.

But the HA sector is also struggling in the present climate. An influential group of MPs with a keen interest in housing issues (the Levelling Up, Housing and Communities Committee), recently stated: “The social housing sector is crucial for providing shelter and support for millions of households. The sector is, however, under serious financial pressure, although it remains resilient for the time being. The sector has been presented with massive bills for decarbonisation, fire safety and regenerating old homes. At the same time, the maximum rent that social housing providers can charge has been unexpectedly capped by the Government.”

“In order to deal with the financial headwinds, social housing providers have cut the amount they plan to spend on building new social homes. This reduction in new building has been necessary for social housing providers to remain financially secure. However, this comes at a time when the country needs to build significantly more social housing and if this continues it will present a major problem for individuals that need social housing. Moreover, all stakeholders are clear that England has been facing a chronic shortage of social housing which must be addressed.”

Sector-wide problem

In fact the whole housing industry is in desperate need of a boost as the number of new homes registered to be built in the first quarter of this year was 20% down on the same period in 2023, according to the National House Building Council (NHBC).

The figures show 21,967 new homes were registered to be built in Q1 2024. In the same period, 26,240 new homes were completed, 13% down on the 30,071 completions recorded in Q1 2023. The fall was attributed to continuing economic challenges, skills shortages and poor weather conditions.

NHBC chief, Steve Wood said: “Our Q1 2024 figures reflect prevailing market conditions. Rises in the Bank of England’s base rate have driven mortgage rates higher, leading to a drop in new home purchases and a slowdown in house price growth. Prolonged wet weather has also hampered housebuilding output in Q1, with the south of England experiencing its wettest February since 1836, according to the Met Office, and many parts of southern England recording well over twice the average rainfall.” Despite the negative figures, NHBC pointed to some tentative signs of growth.  New home registrations increased month-on-month in the first quarter. 8,320 new homes were registered to be built in March compared to 6,557 in January and 7,090 in February. Q1 2024 registrations were also higher than Q3 and Q4 2023.

However, housing consultancy Savills has warned that housing completions could fall to just 160,000 next year across the entire country and have emphasised that more affordable housing is “critically important.” Across the country, Mayors of our big cities like Andy Burnham in Manchester and Sadiq Khan in London have been urging the Government to greatly increase the investment in housebuilding and for all authorities to be allowed to get on with the building of tens of thousands of new homes each year, for the next five to 10 years.

Meanwhile, an intervention from the former Conservative MP Natalie Elphicke must have caused huge embarrassment across Whitehall, as she cited the Government’s failure to hit its 300,000 homes a year target as one of the key reasons for her high-profile defection to Labour. The MP for Dover and housing finance expert made headlines when she ‘crossed the house.’ In her statement, she said: “On housing, Rishi Sunak’s Government is now failing to build the homes we need. Last year saw the largest fall of new housing starts in England in a single year since the credit crunch. The manifesto committed to 300,000 homes next year – but only around half that number are now set to be built.” 

A building renaissance

Councils across England are represented by the Local Government Association (LGA). Responding to the Levelling Up, Housing and Communities (LUHC) Committee’s report ‘The Finances and Sustainability of the Social Housing Sector,’ councillor Darren Rodwell, Housing spokesperson for the LGA said:

“The LGA has set out a six-point plan to spark a council house building renaissance, which must include urgent reform to the Right to Buy. “Long-term certainty on powers and funding could help councils deliver an ambitious build programme of 100,000 high-quality, climate-friendly social homes a year.”

The LGA is calling for the Government to go further and faster in order that councils can properly resume their historic role as a major builder of affordable homes, by implementing a six-point plan for social housing.

The six points in the LGA’s plan are:

Roll out five-year local housing deals to all areas of the country that want them by 2025 – combining funding from multiple national housing programmes into a single pot. This will provide the funding, flexibility, certainty and confidence to stimulate housing supply, and will remove national restrictions which stymie innovation and delivery;

Government support for a new national council housebuilding delivery taskforce, bringing together a team of experts to provide additional capacity and improvement support for housing delivery teams within councils and their partners;

Continued access to preferential borrowing rates through the Public Works Loans Board (PWLB), introduced in the Spring Budget, to support the delivery of social housing and local authorities borrowing for Housing Revenue Accounts;

Further reform to Right to Buy which includes allowing councils to retain 100% of receipts on a permanent basis; flexibility to combine Right to Buy receipts with other government grants; the ability to set the size of discounts locally; and the ability to recycle a greater proportion of receipts into building replacement homes paying off housing debt;

Review and increase where needed the grant levels per home through the Affordable Homes Programme, as inflationary pressures have caused the cost of building new homes to rise, leaving councils needing grant funding to fund a larger proportion of a new build homes than before;

Certainty on future rents, to enable councils to invest; Government must commit to a minimum 10-year rent deal for council landlords to allow a longer period of annual rent increases and long-term certainty.

Rent levels a key factor

The importance of rent levels and policies which control the rents which councils and housing associations can charge has been clearly demonstrated by research undertaken by a group of the largest HAs operating in London. They found that differences in rent levels for similar properties are costing HAs in the capital more than £2bn a year with more than half of their social rented homes being at risk of becoming unsustainable to manage due to the Government scrapping its rent convergence policy. Historically, the level of social housing rent paid to councils and housing associations has varied depending on when and where their home was built. To counter this, from 2002, the Government allowed cheaper rents to increase by the Retail Prices Index (RPI) + 0.5% and a maximum of an additional £2 per week, every year; but this policy was scrapped in 2015.

Analysis of rents by Hyde for the G15 group consisting of London’s largest housing associations shows more than half (57%) of social homes managed by London’s largest landlords have now diverged away from the higher ‘formula rent’. This has cost the G15 members £211.4m a year, meaning they have an equivalent of £400 less to invest per social rented home, per year.

Andy Hulme, chief executive of Hyde Group, said: “The evidence is clear, scrapping rent convergence has sucked resources away from social housing providers being able to invest in customers’ homes. This move will mean G15 members alone will have more than £2bn less to invest over a decade, and this is equivalent to losing almost a quarter of the money we invest in each social home every year.”

Hulme added that the losses come at a time landlords are investing record sums to address building safety and damp and mould issues. He said: “With more than half of homes not meeting the formula rent, in the long-run they become unsustainable for social housing charities to continue providing. We simply have to avoid this happening.” 

The G15’s analysis also showed the ending of convergence has led to “unfairness and tension” about unequal rents, with some social housing residents “being charged more than 30% less than a fellow resident to live in a home of a very similar standard.” The G15 has also calculated that large London housing associations have lost £6.6bn as a result of the Government’s 2016/2020 1% annual rent reduction and last year’s 7% rent cap.

London Mayor Sadiq Khan has repeated his call for the Government to inject £2.2 billion in emergency funding into affordable housebuilding and criticised ministers for failing to take action to kickstart “a stalling market”. He warned that a failure to boost funding was exacerbating “a national housebuilding downturn” and that extra funding was needed to keep housebuilders on site in London and across the country. The latest Greater London Authority figures show that between April 2023 and March 2024, building started on just 2,358 grant-funded affordable homes in the capital, down from 25,658 in the previous year.

It is increasingly clear that the Government is being provided with lots of evidence and advice on what it needs to do to tackle a housing sector stuck in the doldrums battling to solve huge and costly problems, with homeless households and unsuitably housed people paying a very high price as a consequence. 

There are only weeks until the General Election. Hopefully an incoming Government will be minded to accept the LGA’s six point plan, and will take the step to investing in the building of 100,000 new social rent homes a year. This will not only give a welcome boost to the construction sector, it will also finally provide decent home to people who are currently stuck on council waiting lists.