Why social house building could fall by a further 2,500 this year – at least

I’ve written twice recently about how social house building has fallen to historic lows and how that is playing out in different local areas.

Unfortunately, there is still more bad news to come. Although the level of new social rented house building has collapsed from over 35,000 to just 10,000 in the last four years, it still hasn’t fallen as far as it will.

We can realistically expect the number of new social rented homes built to fall again this year, perhaps by as many as 2,500 – or more.

The reason for this is that the full effect of funding cuts for new social rented homes has not yet been fully felt. This is despite the fact that the main cuts to funding for social rented homes took place way back in 2011, when the total pot for new affordable homes[1] was cut by 60% and the rules were changed to make it more difficult to build social housing with what was left.

The extended delayed reaction is caused by the length of time it takes to build a home. So the number of new social rented homes that we have seen finished over the last few years has been bolstered by homes that were started before the cuts were made.

The number of new social rented homes funded by the Homes and Communities Agency and Greater London Authority (HCA and GLA)[2] that were started fell by 90% from over 35,000 in 2011/12 to just over 3,000 in 2012/13. Since then the number of starts has hovered between 3,000 and 5,000.

However, the number of completions of HCA and GLA funded social housing still only fell down to 7,700 last year, leaving a gap of 2,500-5,000 homes that were completed in 2013/14 than were started in the years preceding.

Barring miracles and counting errors, homes do not get completed unless they’ve been started. So at some point the completions number must come down to the 3,000-5,000 range.

Just taking the gap between starts and completions into account, then, we can expect a further fall of at least 2,500, bringing the number of newbuild social rented homes nationally down from 10,000 to somewhere just above 7,000. This is equivalent of just 0.004% of the number of households on housing waiting lists across England.

This is not the end of the story, though, because social housing is also funded in other ways, as well as through national grant. Some may hope that these other funding mechanisms will step into the gap that’s been left by grant and soften the blow.

Unfortunately, levels of social rented homes delivered by other sources are at the very best likely only to maintain around their current level – and they may actually fall as well.

There are a number of different ways that new social housing is funded other than by national grant, but the largest of these is funding via obligations that are placed on planning permissions for new developments, called Section 106 obligations. Because these are tied to new developments, affordable homes delivered through Section 106 trend to track private house building.

Even when the private market was at it its height before the economic crisis, new social rented homes fully funded through Section 106 were only 1000 higher than they were last year.

So while the recent pick-up in the private market may lead to an increase, we shouldn’t expect it to fill the gap left by the absence of grant.

What’s more, there have been a number of changes to Section 106 in recent years (and forthcoming) that may actually decrease the number of social rented homes that it is able to deliver. These include provisions that make it easier for private developers to renegotiate Section 106 on the grounds that they make developments ‘unviable’ and a future change that will remove Section 106 obligations from developments of fewer than ten homes.

Social rented homes are a vital part of our housing market and provide long-term, affordable stable housing. Without more, the housing benefit bill will continue to spiral, homelessness will grow, total house building will remain below the amount we need and thousands of people will be left with little chance of finding a good home that they can afford.

We will be publishing a report this Thursday which sets out how many new social rented homes Shelter believes need to be built every year, as well as the numbers of new market and intermediate homes that are needed.

It will set out how we can reverse the downward spiral in social house building and deliver considerably more new homes of all types. Because we can’t conscionably go another Christmas with 90,000 children homeless and not have a plan for how we can make things better.

[1] Under the umbrella of ‘affordable homes’ comes:

  • Shared ownership homes (part-rent, part-buy homes)
  • Intermediate rent homes (short-term homes charged at up to 80% of market rents)
  • ‘Affordable Rent’ homes (long-term homes charged at up to 80% of market rents)
  • Social rented homes (long-term homes charged at social rents – typically about 50% of market rents)

[2] The HCA is the national body responsible for distributing government funding for new affordable housing except in London where the GLA is the responsible body