The Government has put solving the housing crisis squarely at the centre of its plans for economic growth – 1.5 million new homes within the next five years – which it called “the biggest increase in social and affordable housing in a generation.”
As we know, previous Governments have made similar pledges, and failed to deliver on them.
As a developed economy, why can we not manage to build enough of the right property to house our population affordably?
Housing supply has been in decline since the peak decade of the 1960s, when completions in England averaged 300,000 a year. In the 1990s, it fell to 150,000, and in the 2010s to 108,000.
The collapse has been most marked in the social sector, where housebuilding peaked in the 1950s at 150,000 completions, but collapsed in the 1980s to less than 50,000, largely as a result of the Right to Buy policy.
In the 2010s social-sector housebuilding averaged less than 28,000 units while the private sector managed only slightly over 100,000 units a year, following the collapse in output caused by the financial crash.
Then, of course, Covid-19 struck, and construction fell off a cliff.
So what are the nettles the Government now needs to grasp in order to mend our dysfunctional housing framework and get enough of the most appropriate properties built in the right places and at a reasonable price?
The picture is complex, and a long-term, sustainable solution to our housing problems cannot be found by simplifying the planning system, incentivising builders or throwing more money at the problem. But let’s look at those three elements in turn.
The planning system has been blamed by many for our housing shortfall.
The basic argument is that the system is inherently restrictive and planning applications are overly open to being rejected due to opposition from the so-called ‘Not In My Back Yard’ brigade (NIMBYs).
In reality, this argument does not hold much water, with the number of units of planning permission granted consistently outnumbering the units built. In England, more than 80% of applications are typically approved each year. Strikingly, completions in England were fewer than half the number of permissions granted over the 2011-2018 period – a difference of 1.1 million units.
But the process of obtaining planning permission is painfully slow – frequently taking a couple of years – and also costly for the developers.
Then we come to housebuilding. Incentivising builders is politically and ideologically tricky ground. Construction firms are private companies whose primary motivation is maximising returns for shareholders – they are simply not answerable to the public interest.
What’s more, this is an industry which saw an operating profit of £2.2bn in 2006 become a loss of £2.2bn when the crash hit in 2008.
According to a study by Sheffield Hallam University, since then housebuilders have prioritised profit over volume.
Persuading an industry to change commercially-driven behaviours is a tall order.
What about increasing the overall housing budget?
In fact, the UK Housing Review reveals that Government spending on housing is already at a record high, surpassing the amount spent during the golden age of council housing in the mid-1970s.
In 1975/76, under a Labour Government, the total was £22.3bn, with 95% spent on building homes and improving existing stock. In 2021/22, adjusting for inflation, the total was £30.5bn, but with a staggering 88% spent on housing benefit (£26.8bn).
In other words, due to changes in housing policy over the last 50 years, the vast majority of spending on housing has shifted from the supply side (providing property) to the demand side (supporting rents).
This change in policy, from investing in bricks and mortar to subsidising individuals, picked up during the Right to Buy era of the 1980s and 1990s, resulting in a drastic reduction in the number of social rented homes, and huge growth in the private rented sector (PRS).
The PRS now provides homes for 20% of the UK’s households – and siphons off a large proportion of that £26.8bn housing benefit bill in the process.
This approach, of paying tenants’ rent rather than investing in new properties for the public sector might be more effective if the Housing Allowance were sufficient to meet tenants’ rent, but in increasing numbers of cases it is not: when tenants fall into arrears, landlords may eventually look to evict them, in which case they are thrown back on public housing waiting lists.
Some will wait for a very long time.
Leaving aside the very real challenge of getting the homes we need actually built by the construction industry, as a starting point Labour may need to reconcile channeling billions of pounds away from benefits and into housebuilding, without depriving people of the support they need to pay the rent.
That could be an extremely difficult circle to square.
Kate Davies is executive director at Intermediary Mortgage Lenders Association (IMLA)
