This is the second post of this series delving into the new government’s 1.5m housing target (delivery target), its definition and measurement, its phasing and prospects of achievement, and its relationship to existing public and private delivery systems.
The first showed why the government’s delivery target will not be met; to approach a sustainable 300,000 annual supply total by the end of this parliament will prove a policy and delivery challenge.
Achieving that more realistic but necessary baseline goal, while steering policy direction towards a reformed housing system that mainstreams affordable housing supply across both public and private delivery systems at volumes consistent with national economic and social needs, would be a momentous achievement. Its pursuit should now concentrate government, think tank, and media minds.
The core message of this post is that the contradictions currently inherent within both the existing public and private delivery systems should be relieved by a progressive shift to a partial public contracting model.
Shifting to a that model – at least on large sites – on a Letwin-plus basis (the government’s New Town programme, mayoral and other development corporation housing interventions, and the development of strategic spatial and sub-regional planning are moves along that groove) could and should progressively reduce the current reliance on the currently predominant private speculative model, which, in its present guise, is incompatible with the achievement of the government’s housing objectives.
The first section defines the overarching real crisis of the fiscal state constraint, relating the progressive emergence of affordable housing obligations secured through the planning system (S106) as the primary provision route of affordable housing in lieu of direct public grant support, to its strengthening hold.
It concludes that current economic and housing market conditions combining with the operation of the private speculative model will mean that S106 cannot be expected to contribute substantively in the short term to the expansion of affordable housing levels consistent with the government’s ambitions; prospects of a period of sustained rising house prices might allow S106 volumes to increase in the medium term but will also be accompanied by worsening affordability and access problems for moderate income potential first time buyers.
The second, underscores that a sustainable annual new supply level of 300,000 dwellings-plus requires publicly funded or-enabled affordable housing (predominately public grant-funded) to account for 40%-50% of total supply.
Such a requirement, however, is attached with an additional annual public borrowing requirement that, disregarding even other housing and infrastructural demands, could reach £10bn. This seems wishful thinking in the face of Labour’s fiscal framework that requires public debt to fall by between the fourth and fifth year of a rolling forecast period (debt rule) and other competing demands for scare public resources.
The linkage between increased public investment and the new government’s overall core objectives does, however, make it is likely that debt rule will be tweaked in the October budget to provide some added fiscal space for investment.
Fiscal institutional reform capable of making the selection and implementation of public investment projects more efficient and effective supportive of financial market and wider confidence in the government’s sustainable stewardship of the public finances, would help to protect and increase that fiscal space for productive public investments.
The third section, in that light, presents a broad ‘stocktake’ of the investment case for Social rent (SR), including its direct and indirect financial, economic and social benefits, balanced against some possible disbenefits, beyond merely repeating the need for a 90,000 annual SR programme, to encourage some honest disinterested debate on its utility and desirability relative to alternatives.
The qualitative, selective, and non-systematic nature of such a stocktake, however, underlines the case for the institutional reforms the previous section made to provide a much more granular and evidenced base to inform and support public policy development and discussion, widening the scope for feasible and needed action to weaken the destructive impact of the fiscal crisis of the state.
The fourth and final section sketches out some short-to-medium term contours of a partial public contracting model to further a vision where affordable housing is mainstreamed within a public-private partnership planning model focused on maximising supply, quality, and affordability.
1 The Real Fiscal Crisis of the State and Affordable Housing Obligations (S106)
The new government is committed to both strengthen the affordable housing obligations system and to “deliver the biggest increase in social and affordable housebuilding in a generation”. What it precisely means by that remains to be seen, however.
Unless private supply for sale exceeds 180,000 dwellings on a sustained annual basis (only fleetingly touched during the 1988 Lawson boom, which soon imploded into bust), a future sustainable steady state 300,000-plus dwelling annual supply from 2027 onwards would require a publicly financed or enabled affordable housing annual delivery level of at least 120,000 dwellings, comprising a mix of SR and intermediate ‘affordable’ sub tenures.
Annex-Table-Four puts that into some policy and historical context, reporting that affordable provision peaked just shy of 75,000 dwellings in 1995-96; in 2022-23 just under 64,000 were completed. Affordable starts in 2023-24 are likely to be considerably below that level, deflating 2024-26 completions.
The last SR delivery peak touched 40,000 dwellings in 2010-11, itself lower than the preceding 1995-96 peak of around 57,000.
Since 2010-11, the share of the affordable supply total taken by dwellings let at Social Rent (SR) levels plummeted. Although recovering slightly recently, in 2022-23, only around 14,000 were completed (including London Affordable Rent, let close to SR levels).
Both Labour and Conservative governments in the post-Thatcher period have struggled to maintain affordable supply, especially of SR, due to increased fiscal pressures and a political unwillingness to prioritise housing relative to other spending programmes.
A core overarching constraint was and remains the real crisis of the fiscal state: the mismatch between the public expenditure requirements of the UK (assuming a continuing public desire and demand for accessible and universal public services on the European social democratic model) and the political and electoral willingness for them to be met through forms of taxation that are efficient, sufficient, and transparent.
Its growing grip and impacts pervade public policy development setting, discouraging honest political discussion on and responses to public policy challenges.
Governments increasingly relied upon, first, stock transfers, and then securing affordable housing through the planning system (S106) to bolster affordable housing supply: by 2022-23, as Annex Table Five catalogues, nearly half of all affordable provision was secured through S106 without the use of public grant.
It had become the primary funding mechanism of affordable housing, almost by accident, one manifestation of the fiscal crisis the state, of many: a story recounted in Section 1 of The new infrastructure levy: going-round the mulberry bush.
S106 involves cross subsidising the provision of affordable dwellings at discounted prices from the overall profits generated by private scheme developments.
Its operation ultimately depends upon higher house prices generating higher profits from scheme market sales – a process that tends to perpetuate affordability and access problems for first time market purchasers forced to climb a downward moving escalator.
The mechanism, however, can dampen land prices, especially if affordable housing requirements are made certain in policy and valuation terms causing them to be embedded in the development process, conducive to greater public capture of the enhanced values generated by the granting of planning permission for residential and other development above the existing use value of the land.
This appears to be the government’s intention concerning new housing development on Green and grey (GGB) belt land, where it expects 50% affordable housing (with an appropriate proportion being SR), subject to viability, to be provided alongside the necessary supporting physical and social infrastructure, including transport connections, schools, and GP surgeries, as well as additional or improved green spaces (a-c, para 155).
Three main mechanisms were advanced in the July draft National Planning Policy Framework (NPPF 2024).
First, the above ‘golden rules’, when translated into planning requirements that policy compliant developments must adhere to, should deflate land costs (and/or developer profit margins) as explained.
Second, the setting of benchmark land values (BLVs) that for viability purposes keep land acquisition costs close to their existing value.
Third, further reform of compulsory purchase order (CPO) rules, including use of directions to secure ‘no hope value’ compensation where appropriate and justified in the public interest – in effect to act as a backup default stick and to encourage voluntary exchanges at levels higher than existing use but at still deflated BLV values.
However, para 28 of the accompanying consultation document also recognised that the S106 contributions that can be secured from development will vary between areas, and between individual sites: some areas have lower house prices; some sites will have abnormal costs; Community Infrastructure Levy (CIL) rates vary between those local planning authorities which charge it (and some, like London borough of Ealing do not charge it all); and existing use values of sites will vary.
It also recognised that the limited use of viability assessments could be necessary, where negotiation is genuinely needed for development to come forward, particularly in relation to affordable housing requirements, but emphasised that viability processes should not be used as an excuse to inflate landowner or developer profits, contrary to the public interest.
A 50% affordable housing requirement could comprise different sub-tenure composition permutations, ranging from 100% SR to 100% intermediate, attached with different cost and value implications to the developer and the LPA.
Although the 2024 NPFF reaffirms that LPAs are best placed “to decide the right mix of affordable housing for their communities, including a mix of affordable homes for ownership and rent”, they will be required to explicitly consider the needs of households that require Social Rent (SR).
The government has also signalled that it intends to rebase the Approved Development Programme (ADP) towards SR provision.
The underlying bedevilling problem is that while a national policy requirement offers universal certainty and clarity, differing site and area circumstances are not amenable to a one size fits all approach.
Another is that little consensus exists on what a “reasonable and proportionate premium” to the landowner should be, subject not only to varying technical and policy considerations but also to commercial interests and to political and social value judgements.
According to many developer and property consultancies, this 50% affordable housing requirement will likely render development schemes on GGB land unviable, further noting that a similar requirement on publicly owned land simply led to their mothballing.
The arguments used to justify that position, such as Benchmark Land Value – fine margins (knightfrank.com), are predicated, however, on the unreformed operation of the existing speculative housing model, which is driven by margin rather than volume maximisation, encompassing assumptions that landowners/landowners require approximately a fivefold return on investment for them to promote sites to, and take the risk of, planning approval, as well as 20% developer profit.
The government thus is facing two ways that threaten to pull in opposite directions. To deliver its desired but unprecedented sustainable higher levels of housing, including affordable, supply, it remains reliant on the current private speculative model inimical to its realisation.
Deflating the development cost and value through local planning policies that incorporate affordable housing requirements, including more Social Rent (SR), and moving BLVs for viability purposes closer to existing use values, are inconsistent with the unreformed operation of that model.
Nor will it do anything to encourage, induce, nor force developers to build both more and quicker in contrast to dribbling out supply. For larger schemes that means over decades rather than the short- or even medium-term.
Insofar that recent market conditions and cost pressures have reduced the scope for its operation, S106 cannot be expected to deliver a substantive increase in affordable housing supply – at least across the short term.
Rather a trade-off is likely to be encountered between maximising the overall volume of affordable housing delivered via obligations and the SR proportion – without the injection of additional public grant support that is.
Indeed, a consensus has emerged between public and private stakeholders that the government must substantially increase its direct grant support of SR.
2 Social housing investment, the fiscal framework and its institutional reform
Most commentators consider that to meet the existing and future needs of those not able to afford market costs, an annual Social Rent (SR) programme level of at least 90,000 dwellings in England, plus another 30,000-50,000 intermediate is required – roughly the same level required to achieve a sustainable 300,000 annual housing supply.
But, as the academic who has helped to mould that consensus through a lifetime of research on modelling housing need and affordability, recently recognised in Housing Requirements in England Revisited that “it is one thing to identify (such) requirements in an ideal world, and another to promote a financially viable programme in a fiscally constrained environment”.
The fiscal cost of such a programme would require annual additional public borrowing at £5bn-upwards as the table below indicates on a back of an envelope basis, depending upon average unit grant and provision cost outturns related to geographical and site distribution, as well as its sub-tenure distribution.
Table 1
| Additional volume | Unit Grant | Total (bn) |
| 50,000 | 50,000 | 2.5 |
| 50,000 | 100,000 | 5.0 |
| 75,000 | 100,000 | 7.5 |
Total fiscal cost, accordingly, could exceed £10bn if grant was skewed towards high cost/need areas including London, where land and provision costs, as well as the need for SR, are highest.
Table 1 figures also do not take account of other priorities such as bringing the existing social stock up to post-Grenfell standards, nor includes the pump priming and infrastructural investment that will be needed to fast track New Town and large urban extensions to come substantially on stream within the next ten years.
That said, even such significantly increased levels are not that massive in the wider fiscal scheme of things. For instance, limiting pension tax relief to the basic rate, according to Table 1 of this Institute of Fiscal Studies pre-budget comment, could yield £15bn annually.
Perhaps, more pertinently, on the capital side of the public accounts, public sector net investment this year is forecast to be £67 billion (2.4% of GDP) with the Ministry of Housing and Local government (MHCLG) accounting for around a £7bn share of that.
Any increase would necessarily also be subject to gradual scaling up over the lifetime of this parliament.
Nevertheless, increases in social housing investment on the scale indicated by the table – given also other competing pressures for investment – will likely run counter to the new government’s fiscal rule framework, at least as it is currently construed.
Indeed, Angela Rayner, the Housing and Communities Secretary, one of the handful of cabinet ministers responsible for ‘unprotected budgets,’ who was reported as having written to the chancellor, having asked for an additional £4bn, to complain about the inadequacy of their 2025-26 allocation (presumably less than that) due to be announced as part of the 30 October budget.
While allowing borrowing for investment, Labour’s fiscal framework also requires debt to be falling as a proportion of gdp (gross domestic product) between the fourth and fifth year of a five-year rolling forecast period (the debt rule), as verified by the Office of Budget Responsibility (OBR).
The informed cross-political and economist consensus is that such a debt rule is flawed in design and will prove counterproductive in outcome, as it threatens to crowd out productive investments needed to put the UK economy on the upward growth and productivity trajectory that is fundamental to the government’s growth and sustainable public finances: it should therefore be dropped as a ‘bad’ fiscal rule.
But given the political capital that Labour and the chancellor has expended on the paramountcy of the fiscal rule framework and its “non-negotiable” status, its outright abolition would constitute a surprise.
Rachel Reeves, however, did say in her September speech to the Labour Party conference that it “was time the Treasury moved on from just counting the costs of investment in our economy to recognise the benefits also”.
Indications are indeed swirling that the Treasury will tweak the debt rule component of the framework at a definitional and interpretive level to provide added fiscal ‘headroom’ space for future increased growth enhancing investment (for more detail, see this Institute of Fiscal Studies pre-budget briefing).
What is counted as debt could be changed, excluding, for example, Quantitative-Easing (QE)-related losses incurred by the Bank of England requiring Treasury indemnities.
Another posited change is to make public sector net worth (PSNW) a key measurement metric for fiscal planning purposes.
PSNW records not only the debt incurred in creating a public asset but also its value as a non-financial asset within PSNW.
Its adoption, according to the Institute of Fiscal Studies (IFS), could also give the government greater incentives to invest in higher-quality projects and to manage and maintain its assets better.
At a balance sheet level, private companies and individuals when they borrow to buy a fixed long-term asset as an investment, such as housing or plant, measure its net value by subtracting remaining debt liability (principal outstanding minus repayments) from its current asset value, and then budget to meet the resulting debt costs.
Public assets cannot usually be sold to repay debt nor directly produce tangible direct revenue streams to offset their debt costs (but see below regarding SR). Their valuation would also be complicated and possibly contentious and would risk becoming itself a fiscal measurement issue.
The IFS has made the sensible point that the specific measurement metric chosen matters less than making a coherent case for government to borrow more for productive investment purposes, rather than prioritising investment within a framework that has debt falling (as the chancellor declared was her intention before the July general election).
It is not alone. A Labour List article by a city economist made a similar argument that “the (fiscal) rules themselves are not what determines fiscal credibility, but the reputation of the government setting them”.
Accordingly, eliminating waste, securing better value-for money from departmental budgets by effective review and scrutiny mechanisms and having robust arrangements to allocate scarce resources most effectively “will have a bigger impact on how investors rate the government’s ability to pay its debts than the precise wording of the fiscal rules”.
Fiscal Institutional Reform
Public investment must be productive in terms of the returns it generates relative to actual costs and resources consumed rather than invariably optimistic projections. Any increased investment budget must be demonstrably spent effectively.
That requires selecting the right set of projects and then designing and delivering them in a cost-effective way, a task that governments have all too frequently failed to achieve: HS2 providing a prime example.
The case for creating a policy environment that provides sufficient fiscal space for increased public investment at economically and socially needed levels, including on SR, should be accompanied and assisted by fiscal institutional reform making the selection and implementation of public investment projects more efficient and effective in a way conducive to the maintenance of financial market and wider confidence in the government’s stewardship of the public finances.
Some years ago in Investing in productive infrastructure this website presented a possible institutional model for that purpose, involving an expanded remit of the well-established National Infrastructure Commission (NIC), revisited earlier this year in Starmer and the Spring 2024 Budget, as an institutional complement to the Office for Value for Money (OVM), which, Rachel Reeves, when shadow chancellor, had signalled would help guide the strategic spending decisions of a future Labour government.
The remit for the OVM that she sketched out included identifying and defining system and budgetary changes to make programme revenue spending more effective, efficient, and economical in tune with long-term societal needs and demands, consistent with long-term fiscal sustainability.
Such a move to an institutional fiscal council type approach to major public investment appraisal and delivery would also be consistent with both better ultimate outcomes and for growing political support for borrowing for public investment, as well as for identifying successful possible complementary linkages with, say, the housing, research and development, and training programmes.
In that light, it was deeply disappointing that the Starmer government did not grasp the opportunity within its first 100 days to adopt such a timely institutional reform emblematic to its core purpose, as the Cameron-Osborne-led coalition government did in 2010 with the establishment of the OBR and Blair-Brown did in 1997 with its granting of an independent monetary policy mandate to the Bank of England.
Institutional reform focused on effective investment and strategic spending planning and prioritisation could have provided some effective political and technocratic support for the its overarching growth and productivity mission and public service agenda within a period of necessary fiscal constraint.
Instead Its absence allowed a lot of ephemeral political noise to fill policy and political space that it could otherwise have filled.
It is possible that the Treasury as part of the autumn budget process will be required to produce a statement of benefits connected with key investment proposals.
That would be a start, but a sustainable and systematic process will undoubtedly require the establishment and development of clusters of specific institutional expertise, protected by an independent remit providing standalone clout similar to the OBR institutional model.
3 Why invest in Affordable and Social Rent Housing
Investment in SR provides public assets yielding direct income (rent) that will tend to rise in real (inflation-adjusted, Consumer Price Index plus one per cent into the medium term) terms: an increasing financial flow.
SR dwellings could, at least in an accounting sense, also be sold for a price broadly reflecting the aggregated net present value (time discounted to reflect that money received in the future is worth less than the same amount received now) of their future rental streams, providing an asset value that could be used for PSNW measurement purposes taking account of depreciation (relating to cost of maintaining the asset as new, or replacing it over its deemed lifetime, which can be taken as 60 years or more in the case of housing).
As a historical illustration, council dwelling stocks were sold to housing associations from the late eighties onwards to generate a capital receipt, reflecting their future net present values, which was potentially available to finance additional social housing.
Receipts previously had been and continued to be generated by individual right-to-buy sales (this time at discounted market values to encourage sitting tenant purchase) that were mainly recycled back to central government to net off public expenditure totals.
Prior to 1996 (when the government introduced a mechanism to recycle such surpluses back to central government to net off rising centrally financed expenditure on HB), some councils with a large stock of interwar or early post war housing with low historic construction costs, such as Barking and Dagenham, generated large surpluses. As rents rose with inflation or higher, revenue outpaced outgoings on the debt incurred to build their stock, which by the eighties had either been paid off or had fallen to very low levels, eroded by successive decades of post war inflation.
Investment in council housing can likewise be expected to generate future financial surpluses at least over a similar long-term timespan. But by the same token, the real cost of its provision will be front-loaded in the short-to-medium term as will up-front public grant support (in lieu of recurrent revenue subsidy).
SR is let at around 50% of market levels (often less in London and other high value/cost areas; sometimes higher in low value cost areas) and that will be reflected in its PSNW asset value.
The other side of that coin is that the sub tenure tends thus to be more affordable to lower income households than other types of more expensive rented accommodation; and where SR households need HB support, the public expenditure costs of such supporting them on comparable unit basis is less than it would be if they were in higher rented accommodation, especially in high cost/value areas (leaving aside impacts of housing allowance and other benefit caps).
Instructively, a 2022 Audit Commission Review of the AHP since 2015 reported, using government research, that in London, future housing benefit savings over 30 years would cover the cost of 69 per cent of the grant cost of providing new homes for social rent, rising to 110 per cent over a 60 year period, leaving aside any further savings in temporary accommodation and social care costs that may be realised.
That, however, is way beyond the short-term political horizon of governments anxious to demonstrate their fiscal probity and responsibility and economic competence within the parameters set by the fiscal crisis of the state.
Another problem is because such indirect posited or assumed returns are also not amenable to precise measurement or demonstration in outcome terms.
In short, we cannot be sure that a new SR dwelling will create a vacancy for a household currently in the PRS or temporary accommodation, allowing the higher HB or TA costs previously incurred by such a tenant to be saved on a permanent flow basis.
Public expenditure on HB could continue to increase in total real terms because of other socio-economic developments, including an expanded SR sector providing housing opportunities to a greater number of low-income people needing HB support. In truth, we don’t really know.
That said, the acquisition of poor standard PRS properties that tend to be inhabited by low income residents in need of HB support for conversion into SR, say, as part of a wider long term process of the replacement of PRS by SR for such households, leaving the PRS to cater for specific market segments aimed, such as Build to Rent (BTR), does appear to make intuitive and logical sense, albeit one attached with considerable execution risk.
Broader direct economic and external benefits, as well as some possible disbenefits
At a broader macro-economic level, proponents of increased public funding of SR, argue that it would lead to direct and accumulating multiplier effects on output and employment often at multiples of its initial investment cost, sometimes concentrated at a local or sub-regional level, generating public revenue receipts.
Their magnitude will depend on whether the resources utilised were previously employed. Gains will be higher during periods of recession, but during economic upswing periods higher investment in SR could contribute to emerging material and labour bottlenecks, rekindling inflation.
Higher interest rates could also be demanded by the gilt or bond market participants where they were concerned that government debt levels associated by rising public investment levels could undermine fiscal sustainability.
A recent OBR impact of public investment on output paper estimated that a permanent, sustained 1% of GDP increase in net public investment allowing for depreciation would increase the potential output (increase in the sustainable growth rate) of the UK economy by 0.4% after five years and by 2.4% after fifty years, although that the return to the exchequer would be smaller with less than half of that estimated gdp increase recouped in additional tax revenues.
Its modelled results, if realised, therefore would be long delayed and less than transformative (although still necessary and useful) across the lifetime of this parliament.
As an econometric study it is heavily dependent on its methodological and parameter assumptions (including time lag effects). And, as the study itself recognised, the economic impact of public investment will vary according to its type and implementation effectiveness and efficiency.
Yet another manifestation then of the need for the institutional fiscal reforms that the previous section outlined. If executed properly, these should have an independent impact on future sustainable growth performance.
Investment in housing is more akin to investment in economic infrastructure, such as power, water, and transport infrastructure. SR investment could have a bigger and quicker impact on growth than an ‘average’ unit of public investment.
Certainly, publicly financed or enabled housing provided at levels sufficient to bring total supply delivery to a sustainable and steady level of annual level of 300,000 dwellings and above could by reducing inherent housing market volatility and its compounding impacts on wider cyclical macro-economic fluctuations, itself could offer an additional and potentially transformative benefit in making growth more constant and sustainable in time and composition terms.
An enlarged public-enabled affordable segment should ameliorate the proneness of net new supply to fluctuate in a lagged response to wider macro-economic and housing market conditions and public funding cycles: expanded public delivery of affordable housing to a higher steady state annual provision level would help to stabilise and smooth out the cyclical volatility that has bedevilled housing supply and the wider economy for past decades
As the housebuilding industry is not shy to point out, economic and housing market volatility presents a source of uncertainty for their business models, increasing their desired/required risk-adjusted rates of return, recognised by the 2024 CMA report as a possible partial justification for their supra-normal profits.
Smoothing such volatility would generate an immense macro-economic overall dividend, especially if it was meshed with effective supply side workforce planning and training interventions that should also help – at least across the medium term – to upskill and thus increase the real wages and career pathways for expanding numbers of the indigenous population to enter and progress in the construction/housebuilding industries, as well to mitigate the inflation risk associated with increasing housing investment across a construction industry with depleted capacity.
Such a supply intervention certainly should be integral the new government’s housing delivery plans and policy actions; otherwise, as increased housebuilding is likely to be held back by material and labour bottlenecks.
Increased investment in SR and affordable housing, however, could be capitalised into higher land prices, as occurred in the nineties and early noughties, generating private rather than public returns.
Policy mechanisms such as the 2024 NPPF ‘golden rules’ and associated CPO reforms could potentially could counteract that tendency contingent on their implementation path and outcome.
The opportunity costs (potential alternative benefits foregone) involved in investing in SR rather than for alternative public investment purposes will also have to be weighed – even within MHCLG capital programmes – against alternatives, including pump priming investment in infrastructure by development corporations designed to unlock large sites for development as part of a wider strategy to further the government’s delivery target, as the final section will outline.
More generally, the emerging identified cross-sector stakeholder consensus that the government needs to build 90,000 SR homes annually can conveniently ignore or downplay the need to change the nature and interaction of both public and private delivery systems, leaving the associated lack of innovation, poor productivity, inflated costs, and sticky supply response features inherent to the private speculative model, unchecked to cause further damage to economic and social outurns.
A September Housing Forum report on housebuilding costs reports that average costs to build a traditional three-bedroom, two storey, 90 sqm semi-detached house in the midlands on a greenfield site, where it is one of 200-plus similar new homes, would cost, assuming ‘average abnormal’ costs, £242,000, rising to £251,700 to future proof homes for emerging standards, including, for instance, electric charging.
These estimates apparently exclude both allowances for ‘contractor’ profit and for land purchase (study assumes that these will reflect ‘build costs’ and presumably expected contractor/developer profit), which when factored-in could take the estimate well north of £300,000.
‘Onerous’ S106 requirements, CIL, planning-related costs would also be additional, as would be the costs of “paying for infrastructure and to subsidise affordable housing which is required to be built”.
Costs in London would be roughly 25% more, as would building flats, especially high-rise blocks.
Well, such cost levels would make a mass SR programme very expensive, underscoring that widely recognised levels of endemic waste, inefficiency, and project ‘padding’ should be pared back both to secure best outcomes for both private purchasers and for the public purse.
Some possible longer term social disbenefits
A continuous 90,000 SR programme would imply a near-binary housing system, where people either relied on SR or market purchase to access housing.
A 2007 seminal study by the late Sir John Hills, End and Means: The future roles of social housing in England systemically catalogued and analysed the possible positive and negative features of social housing.
It still repays careful rereading, pointing out that while sub-market social rents combined with security of tenure, when compared with substantially higher and less secure private rents and tenancies, should lighten the potential employment and poverty traps and thus encourage working age social tenants into employment, that posited advantage had not been fulfilled in practice.
Rather, he found that social housing tenants – even when personal characteristics were controlled (taken account of) – were more likely to be economically inactive, as well as less likely to move.
Hills suggested a range of possible reasons for that, including neighbourhood effects, lack of tenant understanding or information on employment options or their impact on net incomes, or even a dependency effect (and, as market rents have increased and restrictions on HB have tightened, it can be rational and prudent for SR tenants to stick tight), before concluding that no clear causal connections could be drawn, which as far as this website is aware, remains the case (see also discussion in rent and letting chapter of Making Sense-of-the-English-Housing-Statistics.
He offered in response a reform agenda encompassing targeted employment and tenancy support, and more flexible tenure options, including equity shares, designed to mitigate some of the above problems those connected with rationing identified below.
While supporting the case for social housing at sub-market rents to be a significant part of housing policy, he also suggested that the case varied across the country: stronger in high-cost areas, less so in relatively lower-cost regions, where the adverse side effects of more reliance on cash transfers and market-based systems could be weaker.
Hills also did not shy away from problems inherent to public rationed systems. These include the sharp differences in treatment between those who do and do not make it through the rationing process; limitations on choice for those who do so; incentives to, and suspicions of, fraud or manipulating circumstances; limitations on mobility; and lack of consumer power over providers and applicant dependence on local bureaucratic rules.
But it will take many years to scale up to a large SR programme, which, given the undoubted priority need to increase its supply, especially in areas with ballooning homeless and temporary accommodation numbers, clearly is an urgent ‘today’ problem and necessity.
Mono-tenure estates should still, however, be avoided, and tenure distinctions should be both blurred and variegated, as much as is possible and is feasible.
The multi-tenure approach adopted by Barking Council and its development company, BeFirst, appears, in that light, to be a model that could repay granular investigation and review in relation to its possible replication and development across future large site developments, whether undertaken by New Town, development corporations, or combined authorities acting strategically in partnership with other authorities.
Intermediate tenures requiring public subsidy provided at a lower unit level than SR should be better targeted towards households who would otherwise be unable to afford full market purchase.
This is to ensure additionality and thus avoid the deadweight costs associated with using public subsidy to help households who could have purchased anyway without it.
Yet such targeting could lead to the same rationing – akin to those associated with means testing – problems identified with SR above.
But then, perfect answers to present imperfect problems are seldom available.
4 Moving to a partial public contracting and partnership planning model
The core message of this post is that the contradictions currently inherent within both the existing public and private delivery systems should be relieved by a progressive shift to a partial public contracting model.
This would be marked by public authorities supported by increased levels of enabling public investment, and by new financial intermediaries/instruments levering-in varied sources of private finance.
These authorities would set the masterplan requirements, secure the necessary planning and other approvals, assemble the land, and forward-fund enabling pan-site infrastructure, where necessary and appropriate.
Masterplan briefs would split sites into different segments/lots allowing a range of housebuilders to compete to build different types of properties offered at different price points, including those targeted at local potential purchasers at lower quartile levels.
They would harness private sector skills and initiative to provide but not fund enabling infrastructure and to build larger scale developments, according to set best design, quality, and efficiency standards.
Obviously working up such a model to practical realisation would be a detailed and complex process, involving many different stakeholders. It is a process that the New Towns Task Force will need to kickstart and pioneer and provide demonstration examples.
Outline indications of what a shift to a partial public contracting model should comprise and progress are offered below.
Short term
- Development Corporations develop expertise cluster in land assembly, using CPO as a last resort;
- Mayoral, Combined Authorities and Development Corporations to work together and develop strategic plans/projects that could contribute to the progress of the government’s delivery target prior to more formal arrangements being put in place;
- Identification of early demonstration projects linked to the government’s Growth Mission. Oxford/Cambridge arc;
- CPO clarification and strengthening within Planning and Infrastructure Bill;
- Infrastructure funding intermediary to lever-in private finance, perhaps linked to regulatory reforms of public pension funds to encourage institutional investment into housing.
- New Towns Task Force scopes and presents blueprint options.
Medium term
- the development of innovative forms of institutional infrastructural funding that would reduce the cost of development funding supporting development corporation activity;
- ramping up and facilitating development corporations to master plan and manage large scale developments offering a range of property types and tenure at different affordability levels on a Letwin-plus model that would bring on stream a transformational step change delivery within ten years;
- promote and foster partnership planning between public and private sectors through the mainstreaming of affordable housing across both;
- Funding intermediary- cheap and certain loan finance, pension fund involvement, supplementing more certain and known public forward funding of infrastructure.
Lasting changes
Affordable housing mainstreamed within a public-private partnership planning model focused on maximising supply, quality, and affordability.