‘I am doubling the housing budget’ said the Chancellor. But what he failed to add was that we’ll have to wait three years to see the extra money. In fact, more than a third of the extra won’t arrive until the next parliament. In the meantime, affordable housing investment will stay at just under £1 billion per year. As John Healey points out, in current prices this is barely 30% of what Labour was investing annually in housing. Even if it reaches £2.4 billion in 2020/21, this will only be a bit more than three-quarters of what Labour was spending before May 2010, calculated at current prices.
Despite this, Osborne claims to have created ‘the biggest house building programme by any government since the 1970s’. ‘We are the builders’ he says. Housing starts are at ‘a seven year high’. But this isn’t true. The DCLG’s own house building figures show 137,490 starts in the last twelve months, slightly under the previous year’s figure and a cool 46,000 lower than starts under Labour in 2007, before the recession hit. Only a fantasist could claim that completing only 135,000 houses in the last year is a roaring success, when we know we need to build at least 100,000 more homes than that.
But I suppose we should be grateful that spending is going up not down. However, it’s only doing so because Osborne is taking a huge gamble by shifting investment to starter homes and shared ownership, away from social rented housing and even from new build at ‘Affordable Rents’. The price is a high one. £2.3 billion of the new funding will go to fund ‘up to 60,000’ starter homes, suggesting a cost in grant of £38,000 each. This is about £14,000 more than the current cost of building a home that is let at Affordable Rent. With an inevitable proviso about right to buy, putting money into rented homes provided through social landlords is at least a semi-permanent investment that benefits a succession of families. Starter Homes can, however, be sold off after five years with the seller pocketing the full value, including the 20% discount. The grant money simply disappears into rising house prices. KPMG had a neat summary when they said that the scheme will, for everyone except the buyers, be ‘purely inflationary’:
‘It also will not create the amount supply the Government says it will, because it will in part cannibalise housing that would have otherwise been built, particularly social housing and rental stock. Such a populist strategy may work for the Government itself, but could cause more issues within the market during the next parliament.’
Delivering 400,000 starter homes sounds a lot, but not when it’s spread over several years and is at the expense of social housing and of conventional new build (since there is nothing to stop builders swapping starter homes for normal ones in order to claim the grant or get out of planning obligations).
Boosting shared ownership to deliver 135,000 units represents another gamble, since at any one time there are only about 100,000 households who currently have a part-share in their property. So for many it’s an unknown quantity that they struggle to understand, it’s not attractive financially in many areas and it becomes a potential liability if you need to sell a home that is still part-rented.
The ‘cannibalisation’ of social housing is evident from the OBR’s forecast of future investment by housing associations. At present, the OBR assumes all £0.96 billion spent in government grants goes to ‘social housing’ (as broadly defined by the Treasury), but forecasts that this will fall to only £130 million for each of the three years 2018/19-2020/21. Overall, housing associations’ investment plans (including capital repairs) are expected to fall to only a little more than half their current level by 2019/20, partly because of the planned cuts in social sector rents. These are potentially massive cuts, even if associations manage to partly compensate for them by getting a share of the action in promoting low cost home ownership.
The point is that with well over £30 billion already committed by this government and the coalition to stimulating the private market before this week’s announcements, they’ve only succeeded in getting developers to complete 23% more homes in the last 12 months than they built in the first year after Labour handed over power. ‘It’s time to do much more’ says the Chancellor. Well, at least we can agree with him on that.