The Disraeli Room

The Disraeli Room

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Building the right homes, in the right places, for the right people

29th April 2015

Moat’s recommendations for the next Parliament

In the middle of an election campaign, the last thing we expect to find is consensus. Yet in contrast to most other issues, we have found near-universal agreement that the UK is not building enough homes. But aside from the low numbers, we are exacerbating the problem by not incentivising development in the right places, or for the people who need housing the most.

 

The last five years

The 2010-15 Parliament delivered unprecedented changes for housing. In particular, there has been a significant shift in the government approach to funding, with less investment in bricks and mortar. This has been partially offset through higher rents and therefore higher spending on Housing Benefit. In other words: a shift from capital to revenue subsidy.

Over that time, we have also witnessed weakening affordability running parallel to a resurgent housing market – fuelled by strong demand and hesitant supply.

Our recent study, A tale of two regions, finds an undercurrent of real deprivation, poverty and homelessness across the South East. It finds evidence of worsening spatial polarisation in terms of affordability, and a gradual shift in the distribution of affordable development from poorer to more expensive areas, where higher values can enhance opportunities for commercial tenures to cross-subsidise affordable homes.

A tale of two regions also highlights the fact that affordability pushes many low income households towards areas that are already among the most deprived. These areas are experiencing acute and increasing pressure on services as a result, and are generally unable to provide the employment opportunities and access to transport that are essential if people and communities are to prosper. The next Parliament must work hard to end this cycle of deprivation.

 

Solutions over the next five years

All major parties agree that we are not building enough homes; so the next government will need to have a credible plan for funding a real and sustainable construction surge. We need to lay the foundations for the future rather than be overwhelmed by a plethora of bit-part solutions to what is now being recognised as a housing crisis. Market solutions alone are not the answer and if housing associations and local authorities are to form part of the solution then the shift from capital to revenue subsidy will have to be reversed to some extent.

Compared to five years ago, Housing Benefit now makes up a higher proportion of the funding required to build each unit. The primary consequence of this is that the Housing Benefit bill – and therefore the overall cost to the taxpayer – has risen under this model.

To correct this, the next government will need to be bold – both in terms of policy decisions and in terms of funding solutions. Perhaps the first order of business should be to ensure that housing objectives align across government departments. It is clear that DWP’s aim of reducing Housing Benefit spending is fundamentally contradictory to DCLG’s objective of increasing housing supply through the Affordable Rent model. This paradox must be dealt with, either by changing the funding model, or by ensuring that decisions on welfare are guided by their impact on housing supply.

Housing associations will need to be equally innovative and bold. Many believe that a social purpose can co-exist alongside commercial imperatives. I agree. The sector is past the point where commercial activities can be seen as an ‘add on’. They form a critical part of our work, not only because they help to cross-subsidise social tenures, but because some market tenures have become a legitimate solution to some groups’ housing needs in their own right. This is perhaps a reflection of the overall shortage of affordable stock, and the pressure it has placed on the private rented sector.

Housing associations have a number of important strategic questions to answer: is our greatest contribution to society through the provision of additional homes? Or should significant investment be diverted into social activities to improve and support existing communities? In spite of Moat’s strong development ambition, our objective for the communities in which we work is to influence outcomes beyond bricks and mortar – with the aim of creating thriving communities.

The regulatory system will also need to play a role over the next five years to ensure that housing associations are given the flexibility to innovate without leaving social housing assets unprotected. Despite movement in the right direction, I believe that friction still remains between the need to stimulate supply and a regulatory system that is overly focussed on the avoidance of risk. I will continue to argue that some level of well-managed risk is not only appropriate, but necessary for the sector.

So it is clear that the next government will need to quickly get on top of the housing portfolio to ensure that things don’t become worse before they get better. With that aim in mind, we’re launching our Recommendations for the next Parliament. I hope it stimulates conversation about what will be needed over the next five years, in which places, and for whom.


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