Where will the money come from for Labour’s housing plans?

Labour was under scrutiny at its conference last week for the announcement of supposedly costly policies that can only be funded by tax increases or extra borrowing. One such promise of course was to end PFI contracts, and it was immediately challenged by Margaret Hodge. However, PFI has continuing high costs and big profits are being made by the contractors: whether the annual cost of rescinding contracts will exceed that of leaving them in place will hinge on the terms of compensation. Ditching PFI could well be a good deal.

Labour’s plan to build up to 100,000 social rented homes is another commitment that needs costing but fortunately there is an argument that it could actually save money. In the long term, as shadow minister John Healey has shown (and, as Steve just reminded us, was confirmed by work by Capital Economics for SHOUT), building to let at low rents will pay for itself via savings in housing benefit. The problem is that the savings accrue over 30 years while the capital cost must be borne now.

Fortunately George Osborne pumped such large sums into housing, with commitments running years ahead, that there is plenty of scope for finding this money from the existing housing budget. None of this appeared in the government’s housing white paper earlier this year, of course, nor can we expect to see figures in Sajid Javid’s promised green paper on social housing. But the details – insofar as they can be pieced together from different government sources – are there in the September update of the annual UK Housing Review.

In a new estimate it says that, from now until 2020/21, some £8 billion will be spent on ‘affordable’ housing (mainly Affordable Rent and shared ownership), and most of this money is made up of the two concurrent Affordable Homes Programmes run by the HCA and GLA. However, far more money – the Review estimates it at over £31 billion – will be spent on propping up the private market (see pie chart).

This is largely Osborne’s legacy – a raft of Treasury-led initiatives aimed either at helping builders directly or helping people to buy. Much of the money is in the form of loans or guarantees rather than grants, but the costs are huge and in some cases will run on into the future, growing year-on-year. (This applies to the Help to Buy and Lifetime ISAs, which give cash payments to people when they buy a house, and will cost over £2 billion annually if allowed to continue beyond 2020.)

The NHF has already suggested that the money for Starter Homes (whose original allocation was £2.3 billion) could be better spent on building for social rent, and CIH has proposed that diverting £1.5 billion annually would allow a programme to build 28,000 social rented homes per year. The list of programmes that could be trimmed or ended is impressive, for example (in addition to Starter Homes):

  • Help to Buy equity loans (potentially over £12 billion, the white paper said £8 billion is already committed)
  • Help to Buy and Lifetime ISAs (£4.2 billion to 2020/21)
  • Home Building Fund (loan finance for developers – £3 billion)

Yet rather than cut such programmes, Sajid Javid has promised today (Sunday) that an extra £10 billion will be pumped into Help to Buy. We’ve yet to see how this will work (and if it is really new money), but if added to the total of private sector support it would reduce the proportion of government spending going to affordable housing from 21% to just 16%.

Of course if changes are made by Labour there will be squeals of rage that the party no longer wants to help first-time buyers, but there is surely scope to target the available money on those who really can’t afford a deposit (rather than those who could save the cash by waiting for another year or two) and release some of it for those who have no hope of buying and are stuck paying ever higher private sector rents.

The point is that Osborne’s schemes may have had individual targets but were not part of an overall plan for housing. The February white paper barely mentioned government spending and made no attempt at an overall appraisal of the different programmes. Untouched, Osborne ‘s legacy will represent a huge commitment for an incoming government. The builders will, of course, argue that the incentives are vital to keep them building, but the truth is that while they have become dependent on subsidy their output has hardly grown in proportion to the extra sums being spent each year. Labour’s Treasury team should commit to a review, alongside the housing ministry, of how the total spend of £40 billion plus can be reconfigured. The aim should be to ensure that much more of it is directed to helping those struggling to rent, not only those struggling to buy.

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2 Responses to Where will the money come from for Labour’s housing plans?

  1. Pingback: Tories try to steal Labour clothes | Red Brick

  2. Spending on Help to Buy Equity Loan (at least) is not so much money spent as a financial investment / asset owned by the government. As such, yes it is “spend”, but it creates an asset on the government books and could potentially provide a very good return – as it returns and interest payment and is linked to house prices. So another approach could be selling off a good portion of this loan book and using the proceeds to fund the building of affordable housing today.

    Shane Brownie

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