Last week’s spending review commitment to the Affordable Housing Programme won’t solve the housing crisis in itself, writes Paul Butterworth of Foot Anstey LLP, but it is a step change in the right direction
It is always good news when a government announces significant increases in expenditure where budgets are under strain and there is pressure for delivery.
This is especially true given the pressure on housing supply and delivery in the UK is enormous; and whilst not unusual for Western economies, it is possibly more acute in the UK.
As part of the announcement, Rachel Reeves pledged that the Affordable Housing Programme will be increased to £39bn. This is the affordable homes grant funding for England managed by Homes England. There are a couple of important points to note here, such as:
- This amount is spread over 10 years so is equivalent to £3.9bn per year. It is an increase in the Affordable Homes Programme – extended to a 10 year period rather than the current five year programme, and sees the yearly grant increased by £1.5bn per year
- This funding provides the certainty for social landlords that the permissible rent increases that come through properties developed with grant income will sit at CPI+1%
This is on the face of it good news, because it provides social landlords with the ability to plan knowing what they can factor in as rental streams over a longer period, and apply increases over a longer period of time than is the case at present – which is also good for business planning.
It is fair to say that the previous 10 years had been a rollercoaster. The basis of grant linked rent settlements changed periodically. In the years between 2016-2020 the government required rents to reduce by CPI+1%. The key reason for this was to control the housing benefit bill following social rent increases, which were over and above increases in the private sector.
There are potentially some pitfalls with this approach however, including:
- If a new government is in power at the end of this five-year term, the policy may change. How will social landlords factor this risk into their business planning?
- In 2012, a similar rent increase policy at CPI+0.5% was introduced for 10 years, but this was withdrawn because inflation surged to 7% at one stage. Therefore, economic circumstances may affect whether such a policy is sustainable over a 10 year period
- Any increase in public funding has to be backed by private lending/investor commitments because the public funds available do not fund 100% of any new homes
- The detail is light. It is not clear what impact this funding will have on new build numbers
The government has a target to build 1.5m homes in this parliamentary term. A hard look at the figures shows that the £500m housing package announced by the government in October 2024 estimated that this sum would deliver 5,000 new affordable social homes.
If we take that figure at £1.5m extra per year, in simple terms that would deliver 15,000 extra homes per year and 150,000 homes over 10 years. This doesn’t take account of inflation, nor does it take account of an increase in grant rates which in effect would reduce the number of homes this “extra pot” delivers, because more funding will be pushed into each home.
Looking at the government’s own data, housebuilding starts and completions in 2023-24 in England were 160,390. Of this, housing association completions numbered 35,320. This is a long way short of getting to the magic 1.5m new homes completed in five years.
In context, the only period since 1969 when completions hit anywhere the yearly number required was 1969-70 when there were 306,860 completions. Every year since has fallen a long way short of the required yearly 300,000 new home completions required to hit the government’s target.
Aside from the purely financial, there are other challenges. Supply chains for both skilled workers and materials are constrained. So, even with sufficient funding could the country build the required numbers of homes without the desperately needed skills or materials?
The latest Office for National Statistics figures show that there are over 35,000 job vacancies and employers report that over half of vacancies can’t be filled due to a lack of required skills.
In addition, building materials like timber, cement, and bricks have become more difficult to find. This has caused project delays and price increases, which when added to energy price increases will feed inflationary pressures to the price of new build homes.
So is it all doom and gloom?
It is clearly a positive that the government has put housing so high on the political agenda. Decent, high-quality housing is a critical element of an advanced society, and it has probably been ignored for far too long.
Housing affects so many other things such as healthcare because without decent housing there is a direct impact on the cost to healthcare systems.
There is discussion of housing being classified as infrastructure. With housing so high on the political agenda it would be a good next step for government to classify housing in this way. It will provide longevity of public sector investment coupled with the potential for more private investment from the likes of pensions funds, which take a longer-term view.
Whilst the spending review commitment to the Affordable Housing Programme won’t solve the housing crisis it is a step change in how we view housing and the right for everyone to have a decent place to live.
Main image: Paul Butterworth, legal director, Foot Anstey LLP
Read next: Work starts on UK’s first majority LGBTQ+ housing scheme
Are you a social housing professional? Sign up for a FREE MEMBERSHIP to upload news stories, post job vacancies, and connect with colleagues on our secure social feed.
