Let’s get serious about building more homes

An interesting day for housing. Nick Clegg made a speech promising more housebuilding… again. Housebuilding figures for London showed that all the dire warnings about Boris Johnson’s programmes were wrong – they are even worse than predicted by the ‘scaremongers’ during the mayoral election.

But a report published today on housing and the economy sets the real agenda for the future. Let’s Get Building is written by John Perry for a group of housing organisations.*

The report marries the well-known information about the need for more affordable homes with the increasingly desperate need to generate economic growth. It shows that housing construction is a particularly rapid means of stimulating the economy and that, unlike the often-talked about but rarely delivered major infrastructure projects, many schemes are ‘shovel ready’. Each £1 spent generates £2.84 of economic activity and, if the £1 is public money, most of the money is returned to the sector in increased taxes and reduced benefit spending as people become employed to do the work. More than 90% of the money would stay in the country, with minimal implications for imports, and there is considerable current capacity in the industry so it would not generate inflationary pressures.

In addition to the general economic argument, the report makes the case for the additional investment to be focused on social rented housing because there is insufficient effective demand for new private housing and because the public spending advantage – in terms of knock-on savings in the system – is strongest.

There is common acceptance that there is huge unmet demand for homes and that buying homes has become unaffordable (the requirement for high deposits now being as important as being able to make repayments). Many more people are now looking to rent privately instead – people who might previously have bought but also people on low incomes who are now no longer able to access social rented housing due to reduced supply and changes to the homelessness legislation.

Demand is therefore rising for private rented homes across the board in all price ranges, putting upward pressure on rents. Yet new caps on benefits and new payment arrangements are making landlords less willing to take people on housing benefit (and remember, the great increase in households on housing benefit is mainly people in work). Where households on lower incomes are or become private tenants this is invariably at rents that are much higher than social rents – so the policy increases rather than decreases the pressure on the housing benefit budget.

The report identifies that there is extra capacity to build amongst councils and councils with ALMOs (arms length management organisations). In addition to using any spare capacity of housing associations, council resources need to be tapped.

The end of council housebuilding led to the long period of inadequate supply that we have been experiencing for 30 years. Housing associations never filled the gap left when Thatcher ended councils’ role in new provision. Only in the last few years have councils looked to take up the role again, and the reform of council housing finance to bring in the self-financing regime has created new opportunities for them to do so. Councils have already shown that the can gear up quickly – for example some 26 councils are participating in the ‘affordable homes’ programme – and most of the actual work – design and build – will be commissioned from the private sector, boosting the order books of struggling companies.

The report shows in plenty of detail how a new programme of homes for social rent could be financed and how councils are now ideally placed to facilitate investment on a significant scale. But it also explains how this investment programme would have a big effect on revenue budgets and help government to stem the rise in housing benefit spending. These savings would be particularly large if the new homes built were targeted towards taking households out of expensive temporary accommodation.

Finally, the report acknowledges that any increase in net spending (i.e. investment minus savings and extra tax income) would add to the currently used definition of public borrowing, PSNB (Public Sector Net Borrowing, still commonly referred to as ‘the PSBR’). Here the authors argue that additional investment is justified under the existing rules, but that a review of the fiscal rules to bring them in line with international conventions would help remove discrimination against worthwhile and prudent investment by the UK public sector. The authors have even gone to the trouble of commissioning Capital Economics to survey the City to discover no adverse reaction to the proposals.

I would go so far as to say that this is the most important report on housing and how to get investment moving for years. It sets a serious agenda for the future.

It should be acceptable to all mainstream political parties. It should be easy for Labour to adopt and offers a way out of Labour’s many dilemmas over housing. And, instead of breaking yet more promises, I strongly recommend that Nick Clegg and Boris Johnson should sit down and read it cover to cover.

* Association of Retained Council Housing; Chartered Institute of Housing; Councils with ALMOs Group; Local Government Association; National Federation of ALMOs.

Courtesy of Red Brick and @stevehilditch and @labourhousing