Affordable homes: a five-point plan
Housing in England is in crisis: despite being one of the richest nations in the world, we are failing to provide enough homes for our people. If we don’t, as a country, get serious about building more houses, our children will pay for it in the years to come.
So, the big question vexing policymakers of all parties is: ‘How can we pay for the new homes we need?’ That’s the question which we at the Institute for Public Policy Research try to address head-on in our new report, Build now or pay later?, published yesterday. In it, we suggest five ways of funding new housing supply, despite straitened economic times.
First, by domestic institutional investment in new residential property, especially by local authority pension funds. Local authorities have large, patient pension funds. The councillors who sit on their boards hear first-hand of the impacts of our shortage of housing every month from constituents in their surgeries: they understand the need for more housing better than most. Concerns about investing in their own backyard can be addressed by teaming up with other local authorities’ pension funds to invest across a wider area. Over the long term, housing is a solid investment, in every sense of the word.
Secondly, by local authorities releasing their own public land for development (perhaps in return for an equity stake) and adopting a more assertive ‘use it or lose it’ approach to private land (for instance through greater use of time-limited planning permissions). Local authorities control 51 per cent of the developable land which is owned by the public sector. They should also exploit to the full the house-building potential offered by Housing Revenue Account reform, including exploring the possibility of sharing borrowing headroom between authorities.
Thirdly, through shifting central government expenditure on housing, over time, away from personal subsidy through housing benefit and towards investment in bricks and mortar: this means reversing 40 years of drift in the opposite direction, without, crucially, pulling the rug from under existing tenants. Setting a single housing strategy and budget in Whitehall would help with delivering this change. We could experiment with localising responsibility for all housing spend, including Housing Benefit, starting in London. This would give the Mayor (or local authorities elsewhere) more of an incentive to keep rents and therefore Housing Benefit bills down to invest more in new supply. And deals to form hybrid social-private landlords could keep rents down in return for guaranteed tenants, helping us to get more out of the private rented sector, where Housing Benefit has sometimes looked like a landlord enrichment scheme.
Fourthly, by expanding the nascent Green Investment Bank into a fully fledged National Investment Bank to fund infrastructure development, including new homes. This would mean using the state’s resources to enable the private sector to borrow cheaply to build new homes, inverting the operating principles of PFI.
And fifthly, through reform of the development industry to get construction going: at the moment, the normal laws of supply and demand don’t work in housing because developers do not respond to more demand with more supply, preferring instead to bank their land and make large profits on small volumes of building. Reforming the planning system is only one side of this coin. The other side is about getting developers to develop, once they have the land.
The government’s new Housing Strategy, due out next month, mustn’t simply recapitulate existing policy; overplay peripheral low-cost home-ownership schemes; or pin too much hope on the single proposition of release of central government land. The housing challenge we face as a country is a daunting one. The present predicament is one of low supply, low finance and low confidence, despite low interest rates. Some big ideas are needed. IPPR is doing what it can to help us come up with them in time.