Patrick Mooney warns the Government’s 1.5 million homes target requires urgent funding and policy reforms if it is to be achieved.
Has the Government already signalled that it is unlikely to meet its ambitious target of building 1.5 million new homes over the course of the next five years? In public it has not, but behind the scenes there are rumours of a longer timetable being set which would take us beyond the next election.
Given the many challenges it inherited from the previous administration this was always going to be a tough target to meet, but after six months in office it appears the sheer scale of the problem has forced Ministers to admit there are huge industrywide issues to resolve and they under-estimated the scale of these before the election earlier this year.
In a landmark report from the housing consultancy Savills, which was sponsored by the National Housing Federation, there are predictions that without significant levels of Government funding and support the sector is likely to deliver no more than one million homes by 2029.
Difficult inheritance
Appearing before the Housing, Communities and Local Government committee, the Housing Minister Matthew Pennycook told MPs that “delivering 1.5 million homes is going to be more difficult than we expected in opposition”. He said Labour knew it would be grappling with a “difficult inheritance”, and that changes to the National Planning Policy Framework in December 2023 had exacerbated a fall in housing supply.
On assuming office he said “we discovered the situation was even more acute than we expected.” This is understood to be a reference to the Office for Budget Responsibility’s forecast that new housing supply will drop below 200,000 homes in the current year.
He said it was essential that the headline target of 1.5 million new homes was met due to the lack of affordable housing and because 1.3 million people in the UK are on social housing waiting lists. However, he could not provide a figure for the number of affordable or social rent homes to be delivered within the overall new homes target.
The committee chair Florence Eshalomi MP pointed out that since 2017, previous governments had only managed to deliver around 234,000 net additional homes per year. When pressed by Eshalomi on whether the new Labour Government would set interim annual targets for housing delivery, the Minister said they would not. He explained: “You referenced 300,000 homes per year in your initial question, that was obviously the previous Government’s target and it didn’t hit it once in 14 years.”
Annual targets
On interim housebuilding targets, Pennycook said this Government “deliberately didn’t pick an annual target because we knew that we were going to inherit a very constrained supply and in particular, what amounts to essentially a collapse in affordable housing supply.”
The Minister said the number of planning permissions granted and additional new completions will still be published as normal, saying “the sector will be able to see whether we’ve turned the system around and are making progress towards that final full Parliament target.”
He added that “the trajectory is an upward one, with large amounts of housebuilding delivered in the later years of the Parliament.” Pennycook said he is “comfortable” that the Government will reach the target by the end of its five-year term, but he clearly did not convince all of the committee members on this point.
Liberal Democrat MP Lee Dillon asked Pennycook how many of the planned 1.5m homes will be for social rent. Pennycook said: “I can’t give you that figure, although we will have more clarity as we progress through Parliament”. He explained that it is “not as simple” as taking a proportion of the total supply and saying 20% or 25% of it will be social housing, noting that around half of all social and affordable housing is currently delivered through Section 106 planning agreements with housebuilders.
Social rented homes needed
Matthew Pennycook said that the Government is committed to strengthening the existing developer contributions process, and also that pushing supply up through planning reform will help to deliver more affordable homes. However, he added: “We won’t know until the spending review settlement precisely how many social and affordable homes will come through that route.”
The Minister acknowledged that less than 10,000 social rented homes were delivered per year over the past 14 years, with the numbers typically around 6,000 to 7,000. He insisted that “We need to do better than that.”
However, housing industry experts are warning the Government that it could miss its overall target by at least 500,000 homes without increased funding and policy intervention. The National Housing Federation (NHF), the Home Builders Federation (HBF) and Savills have warned that significant support for new social housebuilding and homes for first time buyers are required to make a real difference. Without this they predict there is likely to be a shortfall of up to 95,000 new homes a year on average.
According to the findings of the Savills report, the quickest way to plug the gap in delivery is through targeted grant funding for social housing, including social rented homes, as part of a wider support package for social housing providers. This would also help ensure that councils and housing associations can afford to buy Section 106 homes from private developers, which they are struggling to do at present because of the strain on their finances.
This could sit alongside a Government-funded support scheme for first time buyers which in turn would increase the demand and delivery of new homes for sale in the private market.
Record levels of demand
As we already know demand for social housing is at record levels with 1.3 million households on social housing waiting lists in England. This is affecting families across the country, with one in five children currently living in overcrowded homes, and over 150,000 children homeless and growing up in unsuitable temporary accommodation – which is also the highest level on record.
Since grant-funded social housing does not rely on market conditions, Savills and the NHF say it is resilient to market downturns and can help ensure a steady demand for homes, propping up the construction industry, securing jobs and boosting growth. This would help sustain growth across the wider economy which is probably the highest priority for the Government.
While the ambitious planning reforms (to the NPPF) announced by the Government are vital in increasing the number of plots available to build on, the number of new homes built will still be determined by local demand to buy those homes, particularly in the five years of this Parliament.
The state of the current housing market limits this demand – with high interest rates, high house prices, and fewer mortgages available to first time buyers all acting as barriers to purchasing homes on the private market. Without additional funding to build social housing, the Government’s target relies on delivering an average of 200,000 new homes per year for private sale as the key component in the 300,000 net additional homes per year required.
The Savills report reveals this to be near impossible to achieve by 2030 without additional Government support, based on historical trends and on current and projected market conditions. This is not due to capacity or lack of ambition within the housebuilding sector, but to the likely state of the wider housing market over the next five years.
A mix of solutions
Since the 1940s net housing supply has only reached close to 250,000 homes per year on a sustained basis either alongside a substantial social housebuilding programme, or with Government support for first time buyers, as with Help to Buy between 2013 and 2022.
Because new private homes are sold into a market dominated by the sale of existing homes, new private homes typically only make up about one tenth of all private sales in any given year.
This means we would need total sales of over two million homes a year to achieve 200,000 new private home sales. Projected market conditions, without any intervention to support first time buyers, would indicate total sales of around half this level (1.16 million). This will test the persuasive powers of Mr Pennycook and Deputy PM Angela Rayner, over what they can secure from the Treasury.
The NHF and HBF have called for support to bolster the financial capacity of social housing providers through a long-term rent settlement, funding to invest in existing social homes, a rapid boost to the current Affordable Homes Programme and commitment to a new long term and expanded programme. Some of this has already been approved, but Savills say this needs to be complemented by support that the Government can offer to first time buyers and ensure that all housing providers are able to invest with confidence in the new sites and labour resources to get the country building again.
It is uncertain how much capacity local authorities currently have for them to assist in building more council homes, as council finances hang in the balance with rising costs and increasing pressures pushing their budgets to the brink. Many councils face the near-impossible choice between record spending on homelessness services and the provision of temporary accommodation, while at the same time their housing revenue accounts are going into deficit.
They also have to meet new statutory repair obligations, under Awaab’s Law which will require landlords to fix reported hazards, such as mould and damp within specified timescales. Alongside this they are being required to improve property standards and the energy efficiency of tenanted housing and prepare themselves for a new, Decent Homes Standard. This is a scenario to test even the most gifted and imaginative of council treasurers and housing directors, as well as the Housing Minister and the Deputy PM.