The role of Affordable Housing delivery as a solution to the housing crisis

24 May 2019

A major housing crisis grips the country and is set to have dramatic social and economic consequences for generations to come.

In response, ministers are targeting the construction of 300,000 homes per year by 2025. Having managed just 184,000 in 2016/17, the target remains a formidable challenge to overcome.

Last year, the Letwin review highlighted the need for a variety of housing tenures to drive delivery rates, with a particular emphasis on affordable housing. With private developers struggling to meet government targets alone, the key to unlocking the housing crisis lies in the delivery of more affordable homes and an increasingly interventionist approach from the government at both a national and local level. Indeed, in a country with an abundance of empty homes (635,000, MHCLG), the crisis is one of affordability, not just supply.

Here we discuss what defines affordable housing, how it can maximise delivery and consider what role garden cities may have in unlocking the delivery of homes that communities can afford.

What is ‘Affordable’?

Affordable housing has become a somewhat dirty word in the industry, lamented by some as the barrier to viable projects and by others as not being truly ‘affordable’ at all. Affordable housing is defined by the government through three broad strata:

  • Social Rent – Well below market rent levels and set using an established formula based on local incomes, property values and the size of the property (on average c. 50% of market levels).
  • Affordable Rent – Subject to rent controls keeping rent at a maximum of 80% of market rent (60-65% in London).
  • Intermediate – Housing for rent or for sale which is above social rented levels but below market levels. These include shared equity and low cost homes.

It remains to be seen whether these tenures in isolation provide sufficient breadth to meet the needs of the population. Affordable Rent was introduced in 2010 to stimulate the delivery of affordable housing; the increased rental income designed specifically to fund further development in lieu of government grant. However, occupants of affordable rented housing often required extra state support through housing benefits to pay the higher levels of rent compared to social rented housing. This meant the veritable saving on the public purse was limited. In fact, the graph below shows that overall affordable housing delivery actually declined since Affordable Rent was introduced:

Affordable housing and delivery rates

Diversity and affordability of housing product are widely accepted as the principle answers to accelerated housing delivery. Both the Lyons review (2014) and the Letwin review (2018) support this idea, stating that there is ‘virtually limitless’ demand for affordable housing. A pertinent question remains; who is going to build it?

Traditional volume house-builders have increased total housing output by 55% in the last five years and have a big role to play in reaching the government’s target. However, developers will not deliver housing in excess of absorption rates to ensure their profit margins remain healthy and there is little incentive for them to deliver more affordable tenures than policy requires.

Housing associations have reverted to a cross-subsidy model, (where market housing subsidises the affordable) which, aside from the social criticisms, exposes them to a cyclical housing market slowdown. Given the pressure these organisations have come under it is hardly surprising; the average cost to build an affordable home has risen 42% in the last 10 years, whilst simultaneously government grants have dropped by two thirds. More grant funding is required to enable counter-cyclical sub-market rented homes to be built, which not only de-risks the Housing Associations’ position but also ensures homes continue to be built during a market downturn. Homes England’s recent announcement that it will expand its range of interventions over and above grant funding provides encouragement that this trend can be reversed.

Local authorities have a growing role to play. The recent abolition of the Housing Revenue Account (HRA) debt cap removed one of the biggest constraints on council house building, with local authorities now able to borrow more money to invest in large-scale development. Collaboration and joint ventures with the private sector can help to ensure local authorities have the skills to capitalise on this.

A Garden City based solution

The Garden City principle embeds well planned sustainable communities with a mix of housing for all. The concept dates back to a vision by Ebenezer Howard in 1898 to combine the energy and dynamism of town life with the serenity of the countryside. This seemingly utopian vision led to a number of Garden City experiments and subsequently to the New Towns programme in 1954, which was a ground-breaking achievement in large-scale planned development.

The Town and Country Planning Act’s Garden City Principles today require, “mixed-tenure homes and housing types that are genuinely affordable”, as well as a range of sustainable and community stewardship priorities. Alok Sharma, the former housing secretary, estimates that the new garden cities can deliver around 220,000 homes and will be crucial to long-term housing delivery. With Garden Cities and New Towns firmly back on the political agenda, they represent the opportunity to deliver affordable housing on a large scale, maximising the delivery of quality housing people can afford to live in.

In the current climate, crucial to the success of the new garden cities and the delivery of affordable housing as a whole is significant government funding. It is imperative that this is combined with intelligent intervention, and incorporates sustainable and social values which enable new communities to thrive. Without this, the target of delivering 300,000 homes per year by 2025 will remain extremely difficult to achieve.