‘It’s decimated’: Rayner faces a battle to boost Britain’s social housing
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Version 0 of 1. Labour wants action. But rent caps, rising interest rates and restrictions on councils have hit the affordable homes sector hard In the London borough of Harrow sits the site of the old Kodak factory. Built in the 1890s, it employed 6,000 workers at its peak in the 1950s before it closed in 2016. But after producing photographs and rolls of film for more than a century, the site now provides a telling snapshot of the challenges facing the social housing sector. The Harrow View East section of the huge 2,000-home “Eastman Village” development will have nearly 750 much-needed affordable homes when completed. But while construction has started on 246 homes, the rest are stalled. L&Q, the housing association which owns the section, has planning permission. What it doesn’t have is cash. “We’ve got plots for 22,000 homes across London with permission and are ready to go: we just don’t have the capital,” says its chief executive, Fiona Fletcher-Smith. In the last decade, L&Q has built 3,549 social rent homes (defined as those rented at about 50% of market rate). That is the second highest number in the sector. However, Fletcher-Smith says it has now largely stopped buying land. Councils and housing associations dealing with increased borrowing costs – as well as huge bills to fix ageing stock, remediate fire safety issues and decarbonise homes by installing heat pumps and improving insulation – are facing a financial squeeze. A series of rent cuts and caps over the last decade have compounded this, they say. But these pressures are building up at a time when the deputy prime minister, Angela Rayner, is reiterating her promise to provide “the biggest boost to social and affordable housing in a generation”, as she did at last month’s Labour party conference. Labour has promised to build 1.5m homes over the course of this parliament, but has not put a figure on social homes. The National Housing Federation (NHF) and the homelessness charity Shelter believe that 90,000 social homes a year are needed – a huge increase on the 9,500 delivered last year. Labour has the ambition, but can it deliver? The scale of the challenge The last time the UK was building more than 300,000 homes a year – the rate that would be needed to hit the 1.5m homes goal – was in 1970, a figure that was falling from a peak of more than 400,000 in the late 1960s. Council social rented homes made up about half of the total supply. However, funding cuts and restrictions on borrowing introduced in the 1980s were such that councils’ ability to build was weakened, which has meant they have not supplied more than 2% of new homes for more than 40 years. The bulk of development has been taken on by housing associations, which now deliver 78% of all affordable homes. This is done through direct delivery, but also by buying blocks from private builders through “section 106” agreements, and is funded by rents, government grants and, increasingly, private borrowing. While for decades social rent was the main type of tenure delivered by housing associations and councils, in 2011 the coalition government stopped funding this type of housing altogether, with landlords only able to access grants for “affordable rent” homes – that is, those rented at 80% of market rate. This policy ended five years later, but the number of social rent homes being built plummeted, to as low as 5,900 in 2016-17, with providers having to use their own funds to build them. Labour has promised to reverse the decline, accusing the Tories of “taking a sledgehammer” to affordable housing. A spokesperson for the government said: “This government will deliver the biggest increase in social housing in a generation, to help provide the affordable and secure homes our country needs.” But with the current challenges facing the sector, is that practicable? “I’ve been working in housing now for 35 years, and there has never been a time when housing-association capacity is so decimated,” says Paul Hackett, chief executive of Southern Housing. The association, which owns 80,000 homes, has put a block on buying new sites. “In simple terms, the cash we receive from our rents is insufficient to cover all of our costs,” he says. Social landlords in England were promised a 10-year rent settlement in 2012 that would have meant rents rising with inflation, but this was reversed in 2015, with rents cut by 1% for four years. Subsequent inflation-linked rent rises have been capped during the pandemic and cost of living crisis. While this has kept rents down for tenants, it has left holes in the finances of councils and housing associations. Reports suggest the chancellor, Rachel Reeves, could commit to an annual rise in rents of consumer price inflation plus 1% across the next decade in her autumn budget. “Predictability in rent policy is probably the No 1 thing that could help,” says Steve Partridge, director at Savills’ housing consultancy, adding that a 10-year deal would give landlords the confidence to invest. However, Suzanne Muna, the secretary of the Social Housing Action Campaign (Shac), warns the move could force more tenants into arrears. “Two years ago, rents rose by 7.7% and those inflated rents then went up by another 7% last year. People are already stretched to their limit,” she says. The smaller pool of available cash for development is partly being eroded by the urgent need to spend it on existing homes, to make them safer and improve the terrible conditions some tenants face. Existing homes Since the aftermath of the Grenfell Tower fire in London in 2017, nearly 2,000 social housing blocks over 11 metres (36ft) in height have been found to have “life-critical fire safety defects”. The fallout has raised questions about safety, with tens of thousands of tenants housed in potential death traps, while criticism has been levelled at councils and housing associations over the slow pace of remediation. The NHF estimates fixing all housing association homes could cost £6bn, while the Local Government Association has put the bill for councils at £7.7bn. But this is not the only scandal that has shifted funds away from new-builds to existing homes. Investigations by campaigners have exposed the terrible conditions some social housing tenants have to endure. The death of Awaab Ishak, a two-year-old boy who died in 2020 after prolonged exposure to damp and mould in his social home in Rochdale, has further pushed the case for improvements. This has led to increased scrutiny, more stringent regulations and added costs. “Awaab’s law” now compels landlords to fix health hazards more quickly, while a review of the decent homes standard, which applies to social housing, is also likely to push landlords to make more improvements. Savills has estimated the sector will need to invest up to £50,000, on average, in every social home over the next three decades to ensure they are safe, high-quality and decarbonised. Robert Colvile, director at the Centre for Policy Studies thinktank, says this has led to a “financial crunch”, with providers being asked to renovate and repair existing stock and reduce emissions, while not being able to pass on inflationary costs through rents. “Now, on top of this, the government is saying, ‘we want you to build more houses’, which they just don’t have the money to do,” he says. Muna at Shac questions the idea that housing associations are facing a cash crisis, pointing to the £3.8bn surplus the sector collectively holds. Sign up to Observed Analysis and opinion on the week's news and culture brought to you by the best Observer writers after newsletter promotion While associations argue the money is reinvested, Muna says widespread conditions of disrepair show this is not true. “This idea that it is an impoverished sector ploughing all of its money into supporting its tenants and residents is just not borne out by the facts,” she says, highlighting the significant salaries housing association bosses receive. The average salary of a chief executive at the 100 largest associations is £164,589, according to Inside Housing. However, it is clear that there has been a slowdown in affordable housing delivery from associations and councils. Government figures show that they started 13,900 homes in England in the three months to July, down 52% year-on-year, and the lowest across the period, excluding the pandemic year, since 2016. Section 106 sales, where affordable housing providers buy stock from private builders, and which account for more than half of all new homes, have also dried up. The Home Builders Federation has said that tens of thousands of new homes are being held up because of a lack of appetite from housing associations to pick up these deals. Partridge believes the promised ramp-up in development could be challenging. “We are starting from a low base,” he says. To try to turn the tide, Rayner has put forward a complete overhaul of housing policy that is aimed at reinvigorating housebuilding, with a focus on affordable homes. This includes new mandatory housing targets for councils as well as plans to review and release green belt and “grey belt” land for development. Developments on green belt land will have to meet “golden rules” that stipulate 50% of the homes built are affordable. Colvile says that while he welcomes Labour’s ambitions, he has concerns that the rules may hit overall numbers. “That’s great in theory but it could reduce the amount of houses being built, because 50% affordable reduces your profit margins on projects quite substantially and could make some developments unviable.” The government has asked Homes England, its housing delivery body, to prioritise funding social rent homes through its remaining affordable housing budget. A government spokesperson said: “We have already announced an additional £450m investment in England’s councils through the local authority housing fund, and given councils increased flexibility to deliver more social housing using right-to-buy receipts.” And ultimately it is government funding that will stimulate the change needed. Gavin Smart, chief executive of the Chartered Institute of Housing, says if the government wants to significantly increase the number of social rent homes, it will need to invest much more than the current five-year, £11.5bn package for affordable housing. The government has promised to set out details of investment at the next spending review. But it is facing its own spending squeeze. With what Reeves has described as a £22bn black hole in the public finances, it will not be able to bear the cost alone. So, are there other untapped sources of investment that could help? Private sector money Jane (not her real name), a 32-year-old single parent, lives with her three children in a three-bedroom house in Oxford. When her youngest son, now three, was born with cerebral palsy and a health official told her that her privately rented house was not suitable for his needs, she went on the council waiting list. “I always assumed that social housing was off the cards just because it would take so long,” she says, but considered herself “quite lucky” to wait just one and a half years. But Jane does not live in a council or a housing association home – her home was delivered by the pensions provider Legal & General (L&G). In recent years, investment companies, led by L&G and the US asset manager Blackstone, have spotted an opportunity in social and affordable housing, which offers a steady, predictable income stream from rents. L&G set up an affordable housing division five years ago and has built or committed to a total of 8,000 homes, including 9% at social rent. This year, it expects that just under 20% of its new homes to be for social rent. Blackstone’s vehicle Sage Homes, set up in 2017, has a portfolio of 22,500 properties across England bought through section 106 deals, making it England’s largest provider of affordable new homes, it says. About 10% will be for social rent. For-profit providers currently own just under 30,000 affordable homes – less than 1% of affordable housing stock, according to the estate agent Knight Frank, but it expects this figure to hit 86,000 by 2029. Alison Thain, who chairs Sage and ran Thirteen Housing, the largest housing association in the north-east, says: “Given the constraints on public spending, private capital can help fill the gap and provide much-needed affordable housing.” And this will be welcomed by Labour, which will require all sectors to be firing if it is to get anywhere near hitting its “once-in-a generation” ambition for social housing. Fletcher-Smith is willing to do her part. “I’m confident, by that last year of parliament, we will see it all come together,” she says. “And I will be hoping construction on those 22,000 plots will also be well under way.” |