Was the Spending Review a good deal for Britain’s struggling households?

People struggling to pay their rent or mortgage or to get on the housing ladder may not all have followed the Spending Review or today’s infrastructure announcement, but undoubtedly it will have an influence on their future housing prospects.

Today’s statement did little to help those trapped renting and dreaming of home ownership and was a further cut to affordable housing that is desperately needed. For housing investment, it was an opportunity missed. The annual spend on affordable housing grant will actually be less in real terms under the plans announced today, which comes on top of the 60% cut to the affordable housing budget in the 2010 Spending Review.

Currently we are building around 125,000 fewer homes than the 250,000 we need each year just to keep up with demand. These plans – which don’t include fundamental reforms to boost private building either – mean that the government seems resigned to not building the homes we need for the foreseeable future.

What are the numbers?

The latest announcement provides £2.8bn for direct grant funding squeezing the government subsidy per home down to £17,400. The current Affordable Homes Programme (2011 – 2015) cost £1.8bn plus rollover cash and provides £22,000 per home. The programme before that (2008-2011) cost £8.4bn and provided £60,000 subsidy per home.

These numbers matter because the long squeeze on subsidy from government means the remaining cash for new affordable homes comes from higher rents (on these new homes and many more existing ones) and more borrowing from housing providers. As rent rises are to be capped, the pressure falls on housing associations. Borrowing – and therefore risk – will have to increase.

It’s unlikely though that housing associations have capacity to borrow enough to meet the target of 165,000 – we’ll be watching closely to see how much today’s figures therefore rely on cross-subsidy through sales and market rents or have pulled in other figures to boost the total.

What about longer term reform?

To tackle the underlying causes of rising house prices and rents you need to look at the dysfunctional land market and the insufficiently competitive developer sector. The government’s plans do include some small positive interventions on land – pulling together public land sales into one body and conducting a strategic review of public land assets. The plans also introduce a ‘right to contest’, allowing communities to lobby for the release of public land.

While these changes are welcome, they don’t go far enough. We must ensure that subsidy is locked in for future generations – so land release should be combined with innovative methods (such as Community Land Trusts) to ensure assets aren’t snapped up cheaply by private developers. We need to make sure the private land market is more functional also, as it is the lynchpin of housing affordability.

How can we solve the housing shortage?

To close the gap between the homes we need and the number we are building we need real political leadership.

In the short term, investment must relieve pressure. We (along with the CBI and the Business Secretary) think that a £12bn programme to provide around 200,000 social rented homes would be politically realistic.

However, to close the gap over the long term, structural barriers must be overcome. We must tackle high land prices and ensure that developers compete on quality of homes, not just on cramming little boxes onto smaller and smaller pieces of land.

The numbers priced out of a home of their own will grow over the coming years and today’s announcement won’t alter that fundamental shift. For parents, concerns over their children’s prospects of home ownership or genuinely affordable rents won’t be addressed. We need to try harder.