A major shortage of housing is one of the country’s biggest blockers to growth, limiting people’s ability to access well-paid jobs and constraining the growth of the country’s most productive towns and cities.
The Treasury’s statement at the start of the Housing Section of the Spending Review could not be more explicit in its linkage between economic growth and housing supply. The unveiling of £39 bn of investment over the next decade is certainly welcome and on the face of it, a hefty commitment from the UK Government to get things going.
The last five-year affordable homes programme was worth £11.5 billion and with various top ups came in at about £2.38 bn per annum. The new programme which kicks into gear from 2026 will be worth £3.9 bn per annum rising to £4bn by 2030. A sizeable uptick.
However, the last programme is not a good benchmark for what works. The programme faltered and failed in the second half of its life. Look at affordable starts in London over the last two years.
Why? Because the housing sector faced a wave of cost inflation and regulatory increases. In aggregate, this accounts for a roughly 40% uplift in operating costs to deliver new housing.
This means in real terms whilst there is some new money available, it is not going to move the dial as much as some might suggest. Moreover, if the Government wants to target social rented homes, which are subsidy hungry, then we may see fewer homes in a trade off to get deeper discounted housing away.
My other concern is cost inflation has not finished yet. With fewer contractors and more regulation we are anticipating inflation of between 3-4% per annum at the very least over the next five years. Ok, not as bad as the post pandemic surge but the capacity in the sector remains tight and this will erode some of the uplift.
The big opportunity is to align the resources we have available with how we unlock brownfield land. For it is brownfield where the big opportunities for new homes lie.
Currently this Government’s planning reforms mostly benefit urban extensions and land hungry housing typologies. I have no issue with this. We need all types of housing but the big wins are building higher densities in urban environments where people already live and infrastructure already exists.
Unfortunately, this is exactly the area where we are losing capacity in the sector. We need more radical thinking about how we tackle and unlock urban housing if we really want to get general housing supply back on track.
