Britain’s housing splurge is long overdue
The government could save £1.5 billion a year by investing £5 billion annually to build more affordable homes
[LONDON] The £39 billion (S$67.7 billion) boost that Britain’s Labour government has announced for affordable housing still leaves its ambition of building 1.5 million homes over five years looking like a stretch.
That shouldn’t obscure the broader point that the country has underspent for decades on accommodation for its most disadvantaged. Any attempt to reverse this trend has the potential to pay for itself in wider economic benefits and even lead to a healthier private property market.
The state’s retreat from providing housing began with Margaret Thatcher in the 1980s and gained added impetus after 2010 with the Conservative-led government’s efforts to cut expenditure and repair the public finances following the global financial crisis.
Rather than building homes, the government aimed to steer financial support to low-income households to enable them to rent in the private market or from not-for-profit housing associations. The guiding philosophy was that a more market-based approach would encourage a more aspirational society; public housing, by contrast, kept people caught in dependency.
The observed outcomes haven’t been kind to this theory. The market has failed to generate adequate supply, leading to a shortfall of homes estimated at more than four million by the London-based Centre for Cities think tank.
Meanwhile, the presence of more former social-housing tenants competing for private accommodation has helped to drive up rents, underpinning a boom in property values that has made home ownership unaffordable for many.
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The government shelled out £35 billion in housing benefit last financial year – triple in real terms what it was paying at the start of the 1990s. And yet the number of homeless has soared, put at 354,000 people as of December by the charity Shelter.
The self-defeating absurdity of the system is that the state has abdicated responsibility at one end while retaining it at the other. Having pushed people into the private market, the central government can (as it did in the 2010s) squeeze their benefit payments to save money – but if, as a consequence, a family can no longer pay the rent and are evicted by their private landlord, it becomes the responsibility of the local authority to rehouse them.
The cost rebounds on the state. In the worst cases, for lack of alternatives, people can be placed in expensive and unsuitable short-term bed-and-breakfast hotels and hostels. Spending on these rose more than fivefold to £732 million between 2018 and 2024, according to a February report by researchers at the London School of Economics.
It’s a false economy that costs British taxpayers more than it would simply to fund appropriate levels of public housing in the first place. The government could save £1.5 billion a year by investing £5 billion annually to build more affordable homes, a 2023 study by University College London researchers found. The report estimated the costs of homelessness, including housing people in temporary accommodation, at £6.5 billion a year.
This goes beyond financial calculations. The human and economic costs of housing policies must be considered. Safe and permanent shelter is fundamental to physical and mental well-being. A child living in a bed-and-breakfast hotel can’t be expected to learn well at school. An adult won’t be able give his or her best at work.
Britain has issues with stagnant productivity, high rates of long-term sickness and economic inactivity, and poor educational outcomes for socially deprived children. How many of these comorbidities can be traced back to insufficient and substandard housing?
Addressing the problem might just, rather than fostering a culture of welfare reliance, make the UK a more productive (as well as happier) country. Paradoxically, the advent of a large-scale, state-funded social-housing construction programme could also improve the functioning of the private market. For one thing, it will relieve pressure on rents. It could also be used to spur innovation and support small and medium-sized developers that have been increasingly squeezed out over the past four decades.
The UK housing market is dominated by an oligopolistic group of large developers and is resistant to change; new-build quality is often perceived as poor. Counter-cyclical state spending can balance out the boom-and-bust property cycles that smaller builders are least able to withstand.
Design of Labour’s programme will be important. The government describes its 10-year funding plan as the biggest cash injection into “social and affordable housing” in 50 years. Though there’s some blurring between the categories, there’s a difference. Affordable rental housing is charged at up to 80 per cent of the private market rate in the area. Social rents are generally around 50 to 60 per cent of the average local rate, though this can be as low as 30 per cent in London.
Only social housing is genuinely affordable because rents are set by a formula tied to local incomes, according to Shelter. This is where the need is most acute, yet social rented housing has shrunk as a share of the total.
A parliamentary committee concluded last year that England needs at least 90,000 net additional social rent homes a year, while the UCL study projected building 72,000. Even if the entirety of Labour’s programme was devoted to social housing, it wouldn’t come close to those figures.
In broad outline, though, the plan addresses an obvious market failure and is long overdue. As far as financial stability permits, the government should do more.
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