Soft Cities

Colm Lacey - Soft Cities

Housing desperately needs long term strategy

First published in Housing Today, 14/07/22 – Housing desperately needs long term strategy | Comment | Housing Today.

As the housing development sector backs Housing Today’s ‘A Fair Deal for Housing’ project, Colm Lacey argues for a new strategy to make the delivery of affordable housing more certain and commercially attractive.

There is not much news that makes for easy reading right now. One would be forgiven for developing a kind of professional listlessness under such a perpetual onslaught of constraint. I was therefore delighted and excited to see some of the biggest names in the housing sector lend their support, together, to Housing Today’s ‘A Fair Deal for Housing’ initiative, an undeniably hopeful campaign with a clear focus on increasing housing supply.

As ever, the wider context is very relevant. The housing ‘crisis’ remains severe for most local authorities across the country. Almost eight million people in England are in some form of housing need. More than one in ten households are on council waiting lists for more than five years. The pandemic has made it even harder to deliver new housing, and it is estimated that 100,000 fewer new homes, across all tenures, will be built by 2023 than would have been the case in the absence of the pandemic. The quality of existing housing stock is declining in many areas and for many social landlords, the last significant qualitative investment in stock was over ten years ago as part of the initial waves of the Decent Homes Programme.

100,000 fewer new homes, across all tenures, will be built by 2023 than would have been the case in the absence of the pandemic.

In the same period, there has been a drastic reduction in central government investment in local authorities. In 2019/20, local authorities in England typically received around 50% of their funding from council tax, 25% from government grants and 25% from retained business rates. Central government grants – including retained business rates – were cut by around 37% in real-terms between 2009/10 and 2019/20, from £41.0bn to £26.0bn in 2019/20 prices. These cuts have disproportionately affected metropolitan authorities as they tend to experience more intensive deprivation and therefore rely more heavily on non-local subsidy.

This cumulative impact of this has been troubling for housing related services, including those aimed at the most needy. Covid further compounded this trend, with greater health and financial impacts felt by already vulnerable groups. It has left many local authorities with severe resource issues in crucial areas such as social care, a problem government have latterly focussed on in the Levelling Up agenda with more than £1bn of ‘extra’ funding allocated in December 2021 for frontline council services. However, it is clear that there remain severe resourcing issues for many authorities within their housing budgets, as well as in a variety of service areas which are relevant to new housing supply such as planning, land regulation, regeneration and economic development.

More recently, there has also has been a sea change in the wider political context. The pandemic experience has created an expectation amongst the electorate of political immediacy, driving a relatively short-termist approach to solving only the most pressing problems. Longer term planning becomes almost irrelevant, as we increasingly normalise and anticipate the kinds of seismic socio-political shifts that we have experienced over the last few years. This has led to a change in the very nature of political governance, and indeed the people who undertake it, further compounding the lack of continuity and experience at political and executive level, both nationally and locally. Current events in Whitehall very much fit this narrative.

The pandemic experience has created an expectation amongst the electorate of political immediacy, driving a relatively short-termist approach to solving only the most pressing problems.

What all of this has meant for housing is an ongoing absence of collaborative policy, and a reliance on the market to provide affordable housing. In my view, this policy vacuum has now reached a level of unresponsiveness which amounts to a fundamental abdication of responsibility for those in need. The intensity of housing need has simply not been met by a commensurate intensity of governmental resourcing or even analysis. We have a problem which is not being solved.

This has the potential to be thrown into further relief by the prospect of economic recession. History tells us that a housing system which relies on the market to provide affordable housing will fail during a recession. In 2009, before the full economic effects of the last credit crunch had been meted out, approximately 40,000 social rent properties were delivered in the UK. In 2018, with the market mired in uncertainty, that number had fallen to 5,000.

So it is clear that the current model is not working, and it seems that there is no consensus within government (in so far as it now exists) as to how it should change, nor is there any political momentum to do so. It is therefore entirely appropriate for the housing sector to gather together under a common campaign to inform a workable policy. Now is the time for analysis, for coalface experience, for ideas.

So here are my two pennies worth. For me, any new strategy needs to focus on reducing development risk to make the delivery of affordable housing more certain and commercially attractive. The state has a unique capacity to do this using its powers to compel, through regulation, and to encourage, through purchasing covenant.

On the regulation side, national planning policy should set a minimum affordable housing requirement for every development by region, according to local need. There should be no ability to negotiate on either side of the table. Obviously this would create a viability challenge, which needs a commensurate governmental response (see below), but the idea is ultimately to create a level of certainty which endures and starts to influence land values and investment decisions.

The state has a unique capacity to do this using its powers to compel, through regulation, and to encourage, through purchasing covenant.

On the enabling side, I think government should establish a viable national market for affordable housing by offering a fixed base purchase price for every completed affordable unit. This geographically specific price should be set with reference to build cost, not rental value. In essence it should represent the average local build cost of a unit (factoring in size of site), plus a small margin. This price could even be paid against certified milestones through the development process, offering developers some cashflow certainty, and offering government the ability to efficiently implement post-Hackitt qualitative improvements and/or MMC integration.

Make no mistake about it, this is an interventionist model. The initial purchaser of new affordable homes would be the state (ie Homes England and/or the regional authorities), who could then implement a secondary market in transferring these units on to registered providers and local authorities, perhaps discounted by an amount equivalent to grant. The net cost to the state per affordable unit should not be any greater than under the current model, albeit the risk profile of guaranteeing the purchase affordable units at a national scale is a distinctly different proposition.

The economic externalities of this model, particularly in a post-Brexit scenario, could be very significant. Making delivering affordable housing more commercially attractive could encourage the return of SME domestic developer-builders seeking stable, low-risk, low-margin work. In addition to creating more secure local employment opportunities, this could help bridge the gap between those who develop and those who build, a gap that creates a great deal of time and cost risk. Certainty of value could also offer an opportunity to make affordable housing a tenure of innovation again. Any number of architectural and construction efficiencies could be enabled by the security of a pre-agreed state purchaser, not least the MMC manufacturing and related industries.

Certainty of value could also offer an opportunity to make affordable housing a tenure of innovation again.

Of course, this would only address one element of affordable housing supply and it is likely that other changes would also be required. However, the core point remains –  the government need to take the problem of affordable housing supply seriously and intervene, both economically and intellectually, to address this issue. This requires continuity of strategy and political leadership, both of which have sorely lacking in recent years. I have high hopes that the ’A Fair Deal for Housing’ campaign, with industry engagement, can help hammer this point home.

Colm Lacey is founder of Soft Cities (www.softcities.co.uk), a housing and urban development consultancy, and a Senior Consultant at Coffey Architects.