Pragmatix Advisory has been commissioned by the Local Government Association, the Association of Retained Council Housing, and the National Federation of ALMOs to evaluate the case for building 100,000 new council homes a year to support economic recovery post-covid. This report sets out how a programme of building 100,000 new social rent tenure homes each year will help address the challenges facing England after the pandemic, whilst delivering gains to the public sector finances. The report also outlines case studies of where councils are delivering this through the themes below.
The challenges of housing shortages and affordability predate and have been exacerbated by the pandemic.
Over recent decades, construction of new homes has failed to keep pace with population growth, demographics and socio-geographic change. Housing shortage has seen residential prices and rents rise faster than incomes. Affordability is a problem across the board, but no more so than for the lowest income, financially insecure, and vulnerable families and individuals.
Almost 8 million people in England are estimated to have some form of housing need. For 1.6 million households, social rent tenure is the more appropriate solution to their problems. But more than one in ten households are on council waiting lists for more than five years. Failure to provide appropriate and affordable accommodation impacts negatively on individuals’ health and wellbeing, as well as on their employability, education, and propensity for criminal and antisocial behaviour. It also imposes wider costs on society. Poor quality homes are estimated to cost £2 billion a year to the NHS alone.
The pandemic has made it harder to deliver new housing. Over 100,000 fewer new homes, across all tenures, will be built by 2023 than would have if not for the pandemic. Although rates of construction are picking up, this backlog is unlikely to be cleared until 2025 or beyond.
Building 100,000 new social rent tenure homes each year will not only help address the national housing shortage, but will tackle head-on its impact on those families and communities most disadvantaged by it.
Challenge of covid recovery
Having lost the equivalent of a third of a year’s output, the United Kingdom faces the challenge of economic recovery.
Growth has picked-up quickly since lockdown restrictions were eased, but economic activity and employment levels are expected to remain below their pre-covid trajectory to 2025 or beyond. Future public finances have been thrown off-course most by covid, with higher levels of public debt to last for a generation or more.
Uncertainty remains about what will happen as the various (largely successful) covid-period emergency interventions, such as the furlough scheme, are unwound. Unemployment may not have yet peaked. Increases in bankruptcies and insolvencies are likely. Mortgage arrears generally remain low but are rising, especially among buy-to-let borrowers; repossessions have been kept low by the Government’s emergency moratorium.
Nineteen per cent of rental tenants are in arrears and evictions are expected to rise.
Covid has had greater health and financial impacts on already vulnerable groups. Although every region has been impacted, already disadvantaged communities have often fared worse. The number of households waiting for council accommodation could hit 1.4 million this year and could double next year to as many as 2.1 million.
Building 100,000 new social rent tenure homes each year will provide a £15 billion boost to the economy. With a large proportion of the money spent on the construction of new homes staying local, it can be targeted at communities that need both the homes and the jobs.
Levelling up challenge
The Government has rightly prioritised improving the economic opportunities and outcomes among disadvantaged communities. Covid has compounded this challenge of levelling up.
The highest priority council areas for levelling up have some of the greatest concentrations of housing need. Their waiting lists for council accommodation are 56 per cent longer than those in low priority districts, and they have a higher incidence of ‘urgent’ need cases. With housing costs accounting for over a quarter of all expenditure by families with the lowest incomes, access to decent affordable homes is central to the success of any attempt to level up the poorest communities. Access to a social rent home provides families with greater housing and financial stability. Compared to private rental, a household typically saves £37 per week in social housing.
Council homes offer the potential for social mobility. The majority of social rent tenants are under 45 years of age, and the share of them in employment is growing. Those in social rent tenancy typically have higher incomes than those waiting for a social rent home. Social rent is an avenue for homeownership – through right to buy, and by allowing families greater scope to save and accumulate wealth.
Building 100,000 new social rent tenure homes each year provides opportunities to target directly communities most in need of levelling up. Social rent housing can provide families with stability and the potential for social mobility.
To meet the challenge of climate change, investment is urgently needed to improve the environmental performance of homes.
Residential buildings are the second biggest source of carbon emissions and were responsible for 72 megatons of carbon dioxide equivalent greenhouse gas emissions in 2020. New technologies, like heat pumps, are needed to reduce emissions. Building homes with these green measures designed-in is more cost-effective than retrofitting to existing properties, but equipment and installation costs are currently a barrier to mass rollout in the new-build and retrofit market. Increasing the number and rate installations will help drive down product costs – but demand will only increase when prices fall.
There are a number of challenges facing councils including under-investment in the supply chain, a shortage of engineers and fitters with green-tech skills, and Government grant schemes to support housing improvements being unpredictable.
Greener homes can be cheaper for tenants. Lower running costs of homes built to today’s environmental standards have the potential to cut bills for occupiers, even if they already have access to cheap gas. A family moving from an old, poorly insulated and fossil-fuel heated home into a modern home could save up to £500 per year.
Building 100,000 new social rent tenure homes each year could deliver carbon emissions reductions worth £600 million as well as deliver savings on energy bills to tenants.
A credible construction programme can provide consistent and predictable demand for green-tech, encourage investment in the supply chain, especially in training, and provide the critical mass to kick-start a sector vital for the mass adoption of net zero.
As well as helping to address key housing, covid recovery, levelling up and climate emergency challenges, building new homes for social rent bolsters Government finances, and will help ease covid’s long-enduring fiscal hangover.
Although councils cannot typically finance the building of new homes by borrowing against future social rent income alone, the funding gap can be bridged by monetising the benefits brought to other parts of the public sector.
To better understand the potential benefits and costs of increased construction of new homes for social rent, we have developed a bespoke regional evaluation model. Funding needs vary by location and home size – and, although in some regions for the smallest properties they are small, councils face funding gaps against future rent income across dwelling sizes.
While councils face a funding gap, central government finances are improved. Moving families reliant on benefits from private into social rent tenancy saves the Department for Work and Pensions money on Universal Credit and related housing payments. These savings more than cover the homebuilding funding gaps faced by councils.
Once additional impacts on the whole public sector’s finances are taken into account, the construction of new homes for social rent makes sense fiscally as well as socially and economically.
Details of the assumptions used in our modelling can be found in the report’s appendix.