Homes for people priced out of the market

We know that the housing market – whether renting or buying – is prohibitively expensive for many people on typical incomes, let alone those on low incomes. That’s why so many working people cannot pay the rent without support from housing benefit, 90,000 children are in temporary accommodation this Christmas and why homeownership has been falling since 2003.

With the market currently failing to provide enough homes we need to think hard about how to reform it (i.e. unlocking land and encouraging more small builders). But we also need a way of providing affordable and secure homes for those the market is failing now and hasn’t historically served.

This context is what makes proposals from the think-tank Policy Exchange to change the nature of housing associations (who are the main providers of affordable housing) rather worrying.

What exactly are Policy Exchange recommending?

  • They want to create a new category of Free Housing Associations, which gradually pay back the investment that’s been put into them from government in exchange for being able to set their own rents and choose their own tenants. On the latter, this means breaking the link between ‘nominations’ by a local council based on housing need.
  • They want to give these Free Housing Associations the power to sell-off Social Rented homes (which typically charge 40-50% of market rents) when they become available, as a way of funding the construction of expensive “Affordable Rent” homes (up to 80% or market rents).
  • They want Free Housing Associations to be able to build market rent and market sale homes on a much bigger scale than currently, as a way to cross-subsidise.
  • They want to use the Help to Buy scheme to fund the construction or acquisition of Affordable Rent (80% market rent) homes, with the government taking an equity stake in the property which is paid back either through rents or by selling the property after 15 years.

There’s certainly a lot of food for thought in the report. Many of the recommendations have been welcomed by the National Housing Federation: although it’s perhaps not that surprising social landlords want more freedoms for social landlords. There are also some ideas, such as how to reduce borrowing costs for housing associations, use public land and improve shared ownership, which are more attractive.

However, if we bring the debate back to how people on normal or low incomes will be able to afford secure and decent homes in the future the picture looks less rosy.

The implication of the Policy Exchange recommendations is that ‘Free’ Housing Associations would shift from building homes which are affordable for those on low incomes into organisations focused on higher rent homes and sales. They would be building homes that many of their existing residents simply would never be able to afford.

Equally, by breaking the link with local council waiting lists, it would become even harder for homeless families to ever find a settled home – surely not a situation anyone wants to see.

Housing associations are being forced into a fundamental debate between what is good for their balance sheets and what is good for the people they were set up to help. With some private landlords starting to discriminate against less financially secure renters (such as families and those on zero hours contracts), who will provide the new homes needed for people who can’t afford the market? From a purely balance sheet perspective it makes sense to avoid people who can’t afford the rent: but if everyone is thinking that way, where will they live?

Policy Exchange’s approach to affordable housing presents another challenge. Consider that the reforms would make housing associations ever more reliant on market rents and sales as a source of income. This makes their financial model vulnerable to future cuts to the safety net or a fall in house prices – much like private landlords and private developers. In this situation, if one part of the housing system catches a cold, such as we saw with house prices in 2008, the illness will spread much quicker and more seriously into housing associations.

Fundamentally though, I feel that the question Policy Exchange never answer is what has changed about the situation of people who cannot afford homes which justifies this shift in the role of housing associations. I can see no justification at a time in which more and more people find that the private rented sector does not provide them with a decent, settled and affordable home.

Ultimately, we must never forget that homes are for people. They must be affordable, attractive and designed to improve the lives of those who live there. Financial innovation to build more homes is fine, so long as it doesn’t become the purpose of housing.

We need whoever forms the next government to make building more homes a national priority, with an emphasis on homes affordable to those priced out. This must be done through increasing land supply, diversifying the building industry, increasing public and private investment and devolving power to city-regions.

Policy Exchange have recognised this broad approach in much of their work on housing, from supporting new garden cities to encouraging the development of self-build. However on affordable housing I think we need a bolder approach than they have outlined which would allow housing associations to build many more homes, but with the bulk of those new homes being low-rent and secure rather than high-rent with short contracts.

There are few more important questions in housing than how do we support those who can’t afford what the market is currently providing – and these ideas are not the answer.