Debate on the future of social housing, House of Commons, 19 April 2023

In order to tackle the national housing shortage, councils need to be empowered to build more affordable, good quality homes at scale, and fast, where these are locally needed.

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Key messages

  • In order to tackle the national housing shortage, councils need to be empowered to build more affordable, good quality homes at scale, and fast, where these are locally needed. A generational step-change in council housebuilding is required to boost housing supply, help families struggling to meet housing costs, and tackle housing waiting lists.
  • Over recent decades, construction of new homes has failed to keep pace with population growth, demographics and socio-demographic change, particularly due to the decline public house building. At the same time, the stock of social homes has significantly reduced as councils have struggled to replace homes lost through Right to Buy. The housing shortage has seen rents and property prices rise significantly faster than incomes, acutely impacting the lowest income and vulnerable families and individuals. Compared to the private rental sector and homes at affordable rent, social homes provide a genuinely affordable alternative and greater security of tenancy. For many people, social housing remains the only feasible option due to the widening gap between Local Housing Allowance (LHA) and market rents.
  • There are currently not enough social homes to meet current demand. Over 1.2 million households are on the waiting list for social homes in England. While almost 100,000 households are living in temporary accommodation, including 120,710 children. Councils spent £1.6 billion on temporary accommodation in 2021-22 alone.  With the number of Section 21 ‘no fault’ evictions increasing, as well as the cost of living continuing to rise and more Ukrainian arrivals presenting as homeless, councils are facing a national homelessness crisis. These pressures, combined with depleting social housing stock and an unaffordable private rented sector, are a perfect storm which is driving homelessness and disadvantage.
  • Addressing the chronic housing shortage must be a national priority. The LGA is calling on Government to give local government the powers and funding to deliver an ambitious build programme of 100,000 high-quality, climate-friendly social homes a year. As well as being fundamental to tackle the housing crisis, building 100,000 social homes a year would save the public finances by £24.5 billion over 30 years, which includes a reduction in the housing benefit bill and temporary accommodation costs. Research for the LGA and partners found that every £1 invested in a new social home generates £2.84 in the wider economy with every new social home generating a saving of £780 a year in housing benefit.
  • Councils are determined that all tenants should have the security of a safe and well-maintained home. Councils manage more than 1.6 million homes, carry out millions of repairs each year and invest billions in housing services. The majority of social housing landlords are responsible and provide high quality homes for people to live in, and councils are determined to ensure that poor conditions and repairs are swiftly and satisfactory addressed. The LGA is working with Government and professional bodies on possible solutions to poor housing conditions, and we continue to raise with Government the challenges created by mounting financial pressures on Housing Revenue Accounts (HRAs) and across wider local government services. Sustainable funding remains vital to ensure that councils have the ability to invest in and regenerate their housing stock, fulfilling our ambition of ensuring everyone has access to a safe, secure and high-quality home.
  • Funding remains one of the key barriers local authorities face in delivering more social homes. The lifting of the HRA borrowing cap in 2018, which allows local authorities to borrow against expected rental income, has had a positive impact on planned levels of council house building. Councils stand ready to rapidly scale up investment in new builds and the existing housing stock when further funding is made available. However, to meet our ambitions for social housing, there are a range of policy and fiscal interventions that councils need from Government:
    • Continued investment in the One Public Estate programme, including further rounds of the Brownfield Land Release Fund to combat barriers which would otherwise make land unusable for development.
    • A long-term rent deal for council landlords to allow a longer period of annual rent increases for a minimum period of at least ten years. This should include some flexibility for councils to address the historic anomalies in their rents as a result of the ending of the rent convergence policy in 2015.
    • We welcome and support the announcement for councils to retain 100 percent of Right to Buy receipts for the next two years. We would like to see councils have the ability to set discount rates for Right to Buy sales locally and to retain 100 percent of sales receipts beyond the next two years.
    • A reinvigorated multi-year national Affordable Homes Programme with an increased focus on delivering homes for social rent. This should reduce, if not eliminate the requirement for competitive bidding, with funding instead allocated to deliver social homes where they are most needed. Grant levels per home also need to be reviewed to maximise the number of schemes that are viable.
    • Planning reform, including the removal of ‘viability’ as a material planning consideration and the removal of permitted development rights.

Funding

Funding remains one of the key barriers local authorities face in delivering more social homes. The lifting of the Housing Revenue Account borrowing cap in 2018, which allows local authorities to borrow against expected rental income, has had a positive impact on planned levels of council house building. It has allowed some local authorities to considerably scale up build numbers and several councils, such as Liverpool, have begun building homes directly for the first time in a generation. The development plans of fifty local authorities in England demonstrate their intention to build more than 61,000 new homes between 2020 and 2024. This will be three and a half times the number of dwellings completed in the previous four-year period. 

This substantial increase in new builds shows that when increased funding is made available, local authorities have the ability to drive and deliver a significantly increased social housing build programme. Councils stand ready to further scale up building when further funding is available. However, the impact of lifting the borrowing cap is not enough on its own to allow councils to build the number of new social homes that are needed to meet demand. 

We continue to raise concerns about the current and future capacity of local authorities HRAs to deliver on wide-ranging local and central government priorities, including building safety, fire safety, decarbonisation, improving housing quality, and delivering new social homes. Fundamentally, councils need additional funding, alongside a review of policies on rent setting and Right to Buy, to deliver social homes at the scale and quality that is needed. Financing larger developments is still a challenge. In many cases, local authorities have sites that could be taken forward, but the HRA is inadequate to fund on a larger scale.

To deliver on their ambitions to build a 100,000 social rent homes a year, there are a range fiscal and policy interventions that councils need in place, including:

The affordable homes programme

As part of the affordable homes programme, the Government is providing £11.5 billion of grant funding from 2021-26 to support the capital costs of developing affordable housing for rent or sale. It is intended to fund 36,000 homes a year, and 180,000 homes in total. This is the largest Government investment in affordable housing since 2010. 

While the funding is welcome, we would like to see a reinvigorated multi-year national Affordable Homes Programme with an increased focus on delivering homes for social rent. This should reduce, if not eliminate the requirement for competitive bidding, with funding instead allocated to deliver social homes where they are most needed. Grant levels per home also need to be reviewed to maximise the number of schemes that are viable. 

Access to affordable borrowing

To fund the supply of social housing we have long been calling for councils to have access to lower borrowing rates through the Public Works Loan Board (PWLB). Government announced in the Spring Budget that they will bring forward a new discounted Public Works Loan Board (PWLB) policy margin to support local authorities borrowing for Housing Revenue Accounts and the delivery of social housing, which is positive and will help provide much needed additional support for vital council housebuilding projects.

Right to Buy

The Right to Buy (RTB) scheme offers tenants the opportunity to buy their council homes with a discount to its open market value. While RTB can deliver home ownership for many, the current scheme is in desperate need of reform so that councils can replace the properties sold on a one for one basis. Since the introduction the policy in 1980-1, almost two million social homes have been lost from the social housing stock through RTB. The LGA remains concerned that rising discounts alongside other measures that restrict the use of RTB receipts mean that one household’s home ownership is increasingly being prioritised over another’s access to secure, safe, social housing. LGA analysis in March 2023, estimated that 100,000 homes are likely to be sold through the RTB scheme by 2030, while at current building rates only 43,000 will be replaced. 

We are pleased that the Government listened to our calls, with their recent announcement that local authorities will be able to retain 100 percent of RTB sales for a two-year period. Councils have historically had to give the Treasury a proportion of RTB sales (this most recently stood at 40 percent), which has prevented councils from replacing sold properties. The policy change is therefore extremely welcome and should be extended on a permanent basis. It is expected to raise around £183 million for local authorities HRA accounts annually (based off the current Treasury share of sales). So, while it’s a positive step in the right direction, alone this change will not deliver the boost in social home delivery that is needed.

We continue to call on Government to reform other aspects of RTB which hamper councils’ ability to replace social homes on a one for one basis. Currently, councils are only allowed to use RTB receipts to fund 40 percent of the build cost of a replacement home, with the remaining 60 percent needing to be borrowed. Meanwhile, the maximum discount on properties sold through RTB has increased significantly since 2012, rising by 150 per cent on average. This has led to a quadrupling in the number of RTB sales. RTB discounts have increased by a further 10.1 per cent from April this year in line with inflation, making it even harder for councils to deliver replacements. The maximum discount is now at a record high of £127,940 in London and £96,010 outside London. Councils are simply being left with too little to replace the homes sold, further shrinking the country’s already stretched social housing stock.

Councils urgently need to be given the ability to set RTB discounts locally, which will enable councils to reflect local house prices, demand for social housing and costs associated with building a replacement home. This will be vital to avoid the continued loss of desperately needed social housing stock. We also want to see the removal of restrictions on how councils spend RTB receipts, including the stipulation that only 40 percent of the cost of a new home can be paid for from RTB receipts, and allowing councils to combine receipts with other funding streams, such Affordable Homes grants, to build new homes.

Developer contributions 

Almost two-thirds of new social rent homes were built through section 106 developer contributions in 2019/20. Although the proportion of social rent homes outlined in local plan affordable housing policies is protected, national policy changes mean that 25 per cent of section 106 developer contributions are now to be allocated to the First Homes scheme. Without new funding mechanisms, this will result in a loss of 22,700 homes for social rent by 2026. 

We are therefore calling for the removal of the requirement for a minimum of 25 percent of all affordable housing units secured through developer contributions to be First Homes, so that councils can determine the most appropriate mix of affordable homes to best meet local need. 

The Government is currently consulting on the proposed new Infrastructure Levy, which is a reform to the existing system of developer contributions. It is good to see that any new Infrastructure Levy will be non-negotiable and set at a local level. We will want to work with Government to ensure that it is a success and that it delivers more affordable housing and infrastructure contributions at a local authority level than the existing systems for developer contributions.

Social rent cap

The Government has introduced a seven per cent social rent cap for 2023/24. Councils support moves to keep rents low, but we have warned that the loss of funding will slow down or halt essential housebuilding projects, key maintenance and improvement works and retrofitting of existing social housing stock to deliver on net zero and provide tenants with more energy efficient homes. LGA-commissioned research shows that the seven per cent cap on social housing rents, compared to the usually permitted Consumer Price Index + one per cent limit, will amount to a cumulative deficit to the sector of £664 million after two years, which will not be made-up by the changes to Right to Buy or the discounted PWLB rate. 

To give councils landlords long-term certainty over rental income which can be reinvested in the local housing stock (building new units, retrofit and maintenance), we’d like to see a long-term rent deal which allows a longer period of annual rent increases for a minimum period of at least ten years. This should include some flexibility for councils to address the historic anomalies in their rents as a result of the ending of the rent convergence policy in 2015.

Planning system reform

National planning policies are also hampering local authorities in their efforts to develop a locally responsive mix of tenures, which includes social homes, homes for sale, as well as other affordable homes for those who are not ready or are unable to buy. 

There also needs to be further reform to the way that affordable homes are secured through the planning system. Too often still, councils end up in lengthy negotiations with developers about the level of affordable housing contributions that will ultimately be provided on new developments. 

Viability 

‘Viability’ pressures remain one of the greatest challenges for local authorities trying to bring forward affordable housing units. At present, ‘viability’ is a material planning consideration, meaning that developers can avoid meeting their full affordable housing requirement if they can prove that it is not financially viable for them to do so. We welcomed the Government’s amendments in the Planning Practice Guidance for viability in 2019 which stated that “under no circumstances will the price paid for land be a relevant justification for failing to accord with relevant (affordable housing) policies in the (local) plan”. However, councils continue to report that the local plan-led system is still being undermined by the use of viability arguments from developers to avoid the need to meet local plan policy requirements, including the provision of affordable housing and providing infrastructure contributions. We would like to see the removal of viability as a material planning consideration entirely. 

Permitted development rights

Under permitted development rights, there is no requirement for developers to provide any affordable housing. The LGA estimates that more than 20,000 affordable homes have been lost as a result of office-to-residential conversions under permitted development since 2015. We have long called for the removal of permitted development rights to ensure all developments contribute to the delivery of desperately needed affordable homes across the country. 

Delivering high-quality, sustainable social homes

Councils are determined to build high-quality, sustainable social homes, that people want to live in. However, decarbonising the existing social housing stock and making homes fit for the future will require significant investment, which councils cannot fund through already over-stretched HRAs alone. Recent analysis undertaken by Savills estimates the additional costs to deliver net zero, compared to what is currently provided for in Housing Revenue Account (HRA) business plans across the country, is £23 billion over 30 years. 
    
As well as being necessary to reach net zero commitments, greener and better insulated homes will be vital to help tenants to cut their energy bills and stay warm amid the cost-of-living crisis. To allow councils to accelerate the retrofit of social homes before next Winter, Government should bring the Social Housing Decarbonisation Fund, rather than phasing it over 10 years, and allow councils to use the Social Housing Decarbonisation Grant to be used flexibly to reduce emissions.

Meanwhile, the Building Safety and Fire Act introduces a significant additional expenditure requirement on the HRA. LGA-commissioned research estimates that the cost to achieve compliance with the Act across the entire HRA council housing stock will be £7.7 billion between 2023 and 2030. We are continuing to call on Government to fully fund all new building safety costs to protect the HRA.

Social housing conditions and regulation

Councils are determined that all tenants should have the security of a safe and well-maintained home. Councils manage more than 1.6 million homes, carry out millions of repairs each year and invest billions in housing services. The majority of social housing landlords are responsible and provide high quality homes for people to live in.

Poor conditions in any tenure are unacceptable and councils are determined to ensure that any issues with social housing are quickly and satisfactorily addressed. The LGA continues to work with professional bodies, as well as the Government, to discuss possible solutions on improving housing standards – including those relating to damp and mould. We also continue to raise with Government the challenges that councils are facing due to the significant and mounting financial pressures on Housing Revenue Accounts and across wider local government services. Sustainable funding for local government remains vital to ensure that every council has the ability to invest in and regenerate their housing stock, and fulfil our ambition of ensuring everyone has access to the highest quality of homes.

We support the introduction of the Social Housing Regulation Bill, which will strengthen the powers of the Social Housing Regulator to improve standards by taking a more proactive, regulatory approach, increase the rights of tenants and enable tenants to better hold their landlord to account on consumer issues.

The LGA also continues to support councils to improve their housing management services and engagement with tenants through the delivery of a social housing management peer challenge and promotion of best practice, as part of our sector-led improvement offer.

Contact

Megan Edwards, Public Affairs and Campaigns Adviser
Email: 
[email protected]