Housing set to crumble

By Nick Pearce

Weekend reports suggest that social housing is set to be one of the biggest losers in the upcoming spending review, with cuts of up to 80% predicted in capital spending on social and affordable homes.

It is not difficult to see why this might be the case. Overall net public capital investment is set to fall sharply, from £39 billion in 2009/10 to £20 billion in 2013/14, despite the briefing put out over the weekend that infrastructure spending would be protected. People who need social housing don’t have men in uniforms to march up Downing Street on their behalf, so relative protection for the defence capital budget puts extra pressure on funding for their homes. If you then factor in Crossrail and other transport projects, and some capital for schools and the NHS, there is really no place else to go for cuts but social housing if you want dramatically to cut spending.

Exactly the same thing happened in the 1990s for the same reason: poor people who need homes are not politically powerful. Nor, when you ask them, do the broad mass of the home owning or private renting public attach much priority to social housing – so building a wider coalition of support for social homes is hard. In the end, when low income families can’t get off the council waiting list, it’s easier to blame immigrants. And there will always be someone willing to do that.

This time round, however, the consequences could be worse than in the 1990s. New-house completions are at their lowest level since the Second World War. The recession devastated private developers and the prognosis for the housing market remains bleak. Up until the late 1970s, local authorities built as much (and often more) than the private sector, but they got largely taken out of the picture in the 1990s, in favour of Registered Social Landlords (RSLs). In the last two decades, the overall volume of house-building never reached its previous post-war levels, and this lack of supply fed the housing asset bubble that finally burst in 2007/08.

Now that the RSLs are being cut back to the bone, it is difficult to see where much new house-building is going to come from. Local authorities may be allowed to build more as the Housing Revenue Account is localised, but they will have new debts to service and cuts in spending to cope with, while regional house-building targets have been abolished. Meanwhile, demographic pressures will not abate, as the fertility rate goes up, net migration continues to be positive and more of us choose to live alone.

The Treasury has apparently calculated that social housing doesn’t contribute as much to economic growth as transport. That may be true, on a standard cost-benefit analysis. But what is growth for, if people do not have homes to live in?

Nick Pearce is Director of the ippr and was Head of No.10 Policy Unit under Gordon Brown. This post was first published on his ippr blog.