An additional £2bn for affordable housing – a big deal or just small fry?

It’s the morning after Theresa May committed an additional £2 billion to affordable housing, so is this a big deal or just small fry?

The announcement is clearly significant in a number of key ways. First, this money represents a sizeable bump to the £7 billion the government had already pledged over the parliament for the Affordable Homes Programme (a 35 per cent increase if we want to be exact). Second, the government has indicated that it will change the rules so that local authorities can use the money, potentially ushering in a new era of council house building. And third, by providing examples of how many social rent properties could be built with the cash, the government has breathed some life back into a tenure that until yesterday looked to be in terminal decline.

There may be a number of reasons to temper our optimism however. In the absence of any ring-fence around the new money there is no guarantee it will be spent on properties for social rent alone. As Figure 1 shows, true social housing has become an increasingly small part of the sub-market mix in recent years, supplanted instead by homes built for intermediate and ‘affordable’ rent or for subsidised home ownership.

Figure 1: Increase in market and sub-market priced housing supply 2006-07 to 2015-16: England

Source: DCLG live tables 120 and 1000, June 2017

Note: Year refers to main year in fiscal year

Second, the briefing note that accompanied May’s speech suggests councils will only be able to bid for funds to build new homes for social rent in areas of the country where rents are ‘high’. Quite what ‘high’ means remains to be seen – nominal rents may not always look excessive but as we’ve shown before it is the relationship between these and local incomes that determines affordability. Regardless of where the bar is set, however, the offer to councils may not be wholesale.

And third, even if such worries turn out to be unfounded there is the question of whether local authorities have the capacity to deliver on a new wave of council homes. The National Audit Office estimates that councils experienced a 37 percent estimated real-terms reduction in government funding between 2010-11 and 2015-16, with the settlement for 2015-16 to 2019-20 constituting a further 8 per cent cut in their spending power. Many local authorities are candid about how their planning and housing departments have been hollowed out as a result.

In fact, when we set May’s conference pledge in the historical context we can see that it falls some way short of a return to form. Figure 2 shows the allocations made to affordable home programmes in recent years. As this makes plain, even with the £2 billion top up the current programme remains below the levels of funding dedicated to programmes in the wake of the crisis (and today’s offer is significantly more generous than the one we saw between 2011 and 2015).

Figure 2: Affordable homes spending commitments over time (nominal figures)

Source: UK Housing Review, 2015 and subsequent announcements

A significant shift in government thinking that leads to a renewed social housing sector would be a real intergenerational win. But under Harold Macmillan’s premiership councils built on average 100,000 new homes a year; even with the best will in the world the new funds will only support local authorities to build an additional 5,000 social rented properties annually. Yesterday’s announcement is a start – and we look forward to the new Green Paper on social housing shortly – but possibly not the breaking of a new dawn…