1. Governance
April 24, 2018updated 04 Aug 2023 8:31am

Enough squabbling over supply versus demand. Let’s build the social housing that Britain needs

By David Adler

In the long fight to fix the housing market, it’s Supply versus Demand. Each time a think tank or a government ministry releases a new statistic on the state of the housing crisis, these two camps spring to action to advance their diagnosis of the problem and their own solution to it.

In one corner, the Supply camp argues that prices are high because housebuilding is low. We used to build 300,000 houses a year; right now, we build half of that. New builds are not keeping up with new household formation. It’s a simple mismatch – simple enough that a parrot could teach you. If we want to solve the crisis, the Supply camp insists, we must build more houses.

In the other corner, the Demand camp argues that prices are high because animal spirits are high. They wave compelling evidence that the number of dwellings in Britain has actually grown faster than households. The real problem is that houses are no longer homes, but speculative investments. Building more houses, the Demand camp claims, won’t end the crisis. We need to clamp down on speculation.

But the choice between Supply and Demand is a false one. Both camps point to real problems in the housing market – but both camps overlook the obvious middle ground between them. The simple truth is that Britain needs more affordable homes. And so the real solution to the housing crisis – the solution that can not only satisfy both sides of the debate, but also mobilise a winning coalition of voters – is social housing.

The decline of social housing in Britain has been swift and decisive. Since the introduction of Margaret Thatcher’s Right to Buy policy in 1980, roughly 1.5m social homes have been sold into private hands – and only a fraction of those replaced. Under the Conservative’s programme of austerity, the state of social housing went from bad to worse. Since 2010, social housing construction has fallen 97 per cent, to just 1,102 new builds each year. Today, council housing is at its lowest level on record.

While the government refuses to fund social housing from Westminster, it also prevents local councils from doing it themselves. Strict limits on council borrowing has all but eliminated the prospects for new council housing construction. Meanwhile, councils are given easy access to low-interest credit from the Public Works Loan Board, with which they are free to invest in commercial property of any kind. It is a twisted set of incentives, driving councils away from sustainable investments in social housing and toward speculative gambling on the property market.

The result is an entire generation that has never known social housing. Over the last quarter-century, the proportion of young people that live in social homes has actually declined faster than the proportion that owns their own home. The vast majority reside in the private rental sector, where quality is low and rent is high. To keep up, the government’s housing benefit bill has swollen to £25bn each year – more than 1.5 times the total budget for all new housing construction in 2017.

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In short, the ‘austere’ Tory housing policy has been spectacularly self-defeating. Far from bringing down government costs, the assault on social housing only inflated them further. Supply of affordable units fell, demand for private units rose, and the government foots the bill – over £190bn in housing benefit just since 2010. The only difference is that, under austerity, government spending takes the form of a subsidy to private landlords, rather than an investment in a public good. It’s facepalm economics.

To get the clearest sense of this ludicrous situation, look at council housing. Four out of ten properties purchased from councils under the Right to Buy policy are now owned by private landlords. They charge, on average, twice the rate of the local authority, forcing less fortunate tenants to seek housing benefit. In other words, the government pays for private landlords to own the properties that the government built itself. It’s absurd.

Returning to the guiding debate, then, the Supply camp is right to say that Britain needs more homes. But they are wrong to think that the private sector will sort it out on its own. All the evidence suggests that, left to its own devices, the private market prefers to serve a high-income clientele. And in Britain’s global property market, there is little guarantee that new units would even flow to local residents rather than overseas investors.

Social housing solves these problems. All social units can be designated as affordable, pegged to renters’ needs and incomes. Access to these units can be restricted to residents, 1.8m of whom currently sit on social housing waiting lists. And the returns to investment can be captured by the public authorities, rather than flowing to private landlords. More affordability, zero speculation, and a fraction of the £25bn housing benefit bill we pay out each year.

It’s smart money, and it’s good politics: 73 per cent of voters support the construction of new affordable homes in their local area, including 69 per cent of homeowners. NIMBYs are simply not the real obstacle when it comes to social housing.

The new Labour Party green paper, “Housing for the Many,” marks a step forward in this regard. The pledge to build one million ‘genuinely affordable units’ is a welcome, bold ambition. And the establishment of a new “English Sovereign Land Trust” – much like the Sovereign Property Fund we advocated in our report, Home Truthsis a necessary reform along the way.

But the Labour Party can go further in rebalancing the upside-down housing budget. The benefit bill is woefully high, pushing many Conservative observers to call for its retrenchment. But there is another way to lower the cost of the housing benefit: a new social housing campaign that applies downward pressure on private rents across the country. A new target for housing expenditure should be created to keep the government accountable to housing affordability. For every pound saved in benefits, one extra pound is invested in social housing construction. The target creates a virtuous cycle as well as a balanced budget.

For Theresa May, it’s time to see the writing on the wall. Her government continues to advocate for policies that merely nudge the private sector toward housing construction. She leaves on the table the simplest, smartest, and most popular solution.

If the Conservatives hope to hold onto their thin margin, social housing is their best bet. Time to build.

David Adler is a research associate at the campaign group Generation Rent.

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