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The Chartered Institute of Housing is the independent voice for housing and the home of professional standards

Shifting focus onto affordable housing could prevent construction slump

22/07/2016


As a number of reports signal a slump in house building could be on the horizon, CIH chief executive Terrie Alafat says investing in affordable housing could be key.

While the long-term impact of Brexit remains unclear, a number of reports this week add to a growing body of data pointing to a weakening of the housing market and a slowdown in construction.

Findings from a new Centre for Economics and Business Research (CEBR) analysis show that a slow in housebuilding could be on the horizon and that a slump similar to that during the 2008 recession could have a devastating effect – potentially wiping out more than a third of GDP growth and result in the loss of nearly 120,000 construction jobs.

To prevent this the government must act now and shifting the focus of its housing programmes away from the uncertainty of home ownership and onto affordable housing would be a shrewd start.

Our recent work showed that of the £45 billion invested in housing in the five years up to 2020/21, only £2 billion is directed to sub-market rented properties. There is a real risk that the current investment programme will be unbalanced if there is a dip in the housing market and spending is being aimed at homeownership products for first time buyers which will then be far less attractive.

We know the positive impact of housing on the economy, with every pound invested in construction stimulating an extra £2.84. And long-term savings can be made from the building of sub-market rented homes because of lower rents and reduced housing benefit spend.

Boosting affordable housing when the market is uncertain is not a new concept and proactive action has been taken by previous governments. Less exposure to the volatility of the market meant between 2007 and 2009 the non-profit housing sector upped the number of homes it built by 22 per cent, while private development dropped off 37 per cent.

We believe there are five opportunities for the government to boost supply of affordable rented homes which we have outlined in a report this week

The current Affordable Homes Programme represents the first opportunity. This allocated £4 billion mainly to shared ownership products and rent to buy. There is a substantial case for introducing greater flexibility to the programme for a larger number of rented homes, including some at social rent. Housing associations should have more flexibility over design and mix of their development programmes to enable them to keep development going even if the market slows.

Secondly, we believe the Affordable Homes Guarantee should be restarted. The programme was popular and would have been subscribed to if extended beyond March 2016. Funding for this could potentially come from underspends on other programmes such as the PRS guarantee scheme or Help to Buy mortgage guarantee.

Thirdly, the housing revenue account borrowing programme for local authorities should be extended and reshaped with increased borrowing caps for local authorities and exemption from the remaining stages of the scheme to cut local authority rents in return for extra investment in rented homes.

Reshaping the local authority housing investment programme would release the capacity that was created by the original settlement in 2012, when local authorities were expected to build an additional 550,000 new homes across the next thirty years. The ability to do so has been thwarted by subsequent policy decisions, but they are all reversible, and with the right settlement local authorities can again become major players in the provision of new homes.

Fourthly, the £400 million to develop specialist homes for older, disabled and vulnerable people should be boosted to meet growing demand for more appropriate accommodation and also to free up homes for new buyers and renters. Recent research has indicated a significant appetite among older people to move to more suitable downsized accommodation but a lack of options to do so. In the 1980s around 30,000 retirement housing homes were developed every year – this has reduced to 8,000 in 2014 despite an ever-growing older population. Uncertainty around the future funding for supported housing is not helping, and we now know we won’t hear anything until at least autumn. Providers need certainty on this to deliver existing schemes, let alone commit to building new ones.

Finally, the government should rethink planning gain requirements. Planning gain, the mechanism that allows local authorities to set conditions on a planning consent, for instance that a proportion of the homes on a site should be affordable housing, has delivered substantial affordable housing - 14,000 homes in 2014/15 with no extra grant investment, and helped get sites moving in a tough market, so there needs to be local flexibility to meet local housing needs and what fits for each site. Continuing to require affordable or social rent properties as part of planning conditions would help underpin building projects in the near term because it gives builders a guarantee of selling stock.

One thing is clear - the time to act is now. Not only because of the economic benefits which could be realised, but because of the price that individuals, families and communities will pay if we fail to get housing right.


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