James Brokenshire the secretary of state for the Ministry of Housing, Communities and Local Government (MHCLG) has been having a busy week. On Monday, the department published its rough sleeping strategy, while Tuesday saw the release of the long awaited social housing green paper.
Neither has filled commentators or the housing sector with much confidence – not least because they offer no new support for genuinely affordable homes. This is a problem because, well, there aren’t enough and building more will cost money.
Since 2010, affordable housing funding has taken a significant hit. Financial support for building social rented homes, where rents are linked to local earnings, has been cut in favour of rents set at 80 per cent of market rents. As a result the supply of new homes at social rent has dwindled dramatically. IPPR research has shown that, across the country, the so-called affordable rents which have replaced them are simply too expensive for many households on low incomes.
This lack of a support stands in marked contrast to government’s approach to homeownership, as figures released today on sales through the Help to Buy show. Help to Buy loans, in which government lends a household 20 per cent of the value of a new build home (40 per cent in London), are at a record high. To date, around 170,000 homes have been sold through the scheme.
But the Help to Buy policy has two key problems. Firstly, far from supporting those who otherwise couldn’t afford to buy, the scheme is instead assisting households who would be able to buy at some point without support; lower income households continue to be priced out. The government’s own analysis shows that many of those buying through the scheme would have been able to buy at some point in the future without the scheme.
At the same time, the data released today shows that more than a third of those who have made use of Help to Buy to date have household incomes of £50,000 or higher. Around 1 in 10 of those who have bought through the scheme have a household income of over £80,000.
Secondly, far from improving affordability, Help to Buy worsens it. Research by the housing charity Shelter has shown that, through boosting demand for scarce housing, Help to Buy has inflated house prices.
The main beneficiaries of this are the developers who have factored the scheme into house prices and as a result have seen a significant increase in their profits. Take, for example, the excessive bonus paid to the CEO of Persimmon Homes earlier this year of £75m (originally £100m), which stoked such shareholder and public fury: that was linked to a surge in profits driven by the Help to Buy scheme.
Both of these critiques demonstrate that government is currently not putting its balance sheet to best use. To date, Government has leant out £8.9bn through the Help to Buy. In 2017 alone, the money could have been used by councils to build somewhere in the region of 22,000 homes for social rent, over 400 times the amount actually built in 2016-17.
Letting councils borrow to build affordable housing would make significant steps towards delivering the 145,000 affordable homes which are needed each year, tackling poor housing conditions, over-crowding and poverty. At the same time, it would generate a return for councils, which could in turn be used to invest in more affordable homes and improve existing ones.
Yet, our absurd national accounting rules currently prevent this from happening. Help to Buy lending is not counted towards the deficit. This is because, asGeorge Osborne boasted when launching it, the Help to Buy scheme is a financial transaction, and therefore the taxpayer would be “making an investment and getting a return”.
By contrast, under rules imposed by the Conservative Government of 2010-15, councils are subject to a debt cap on what is called the housing revenue account. This prevents them from borrowing prudently against future rental streams to build council homes. This is despite cries from the Local Government Association that councils want to get building in order to tackle the housing crisis.
On a more positive note, the social housing green paper indicates that the government is starting to budge on this. It has already lifted the borrowing cap slightly in areas with pressure on affordability and is using these schemes to test the possibility of going further.
This is welcome, but as the social green paper shows warm rhetoric on its own is not enough. Government should commit to changing the borrowing rules, lifting the local authority debt cap and phasing out help to buy.
Darren Baxter is a Research Fellow at IPPR he tweets @DarrenBaxter.
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