How public money is spent on housing

As a nation, we just aren’t building enough homes. There is a housing crisis in England. In most places, this is a crisis of affordability caused by a chronic lack of supply.

It's time to rethink government policies on housing in the UK, and start building more homes for social rent.

How many homes are we actually building? 

Homebuilding peaked at around 353,000 completions in 1968, but it has been caught in a downward trend in the decades since. In 2010, only 107,000 homes were completed, the lowest level since World War II.

It is widely accepted that we need to build around 250,000 new homes a year. Even in a year like 2016, when the number of new homes completed increased to 141,000, this is a long way off the number needed. In fact, that means in 2016 just over half of the new homes were built that the country so desperately needs.

This shortfall is pushing up house prices and rents.

The answer seems obvious – we need to build more homes. But it isn’t quite as simple as that. What we really need is to build more homes for social rent. Homes that offer safety and security to families that are struggling to make ends meet. Homes for the poorest and most in need. And for that to happen on the scale needed, government investment in homebuilding is vital.

Funding for new social homes at an all-time low

Over the last eight years, the Government's capital commitment to building homes has fallen from £11.4billion in 2009 to £5.3billion in 2015 – from 0.7% to 0.2% of the total GDP.

To make matters worse, there is currently not a single penny available for social rent – homes for those on the lowest incomes.

In 2010, the Government decided that there would be no new public money for social rent – construction of these homes ground to a halt almost overnight. In 2010/11, just under 36,000 social rented homes were started, the next year work started on just over 3,000.

Now the only homes for social rent being completed are those delivered through previous funding programmes, s106 (private developer obligations) or through housing associations’ own cross-subsidies. 

Official figures recorded just under 1,000 new homes for social rent started with government subsidies in 2016/17. And although the Federation’s own research shows many more of these homes are being built by housing associations without government subsidies, it’s not enough.

This doesn’t mean that the Government isn’t spending money on housing. Far from it. It just isn’t spending money in the right place.

Increase in housing benefit spending

While spending on building new social homes has decreased, the Government is spending more than ever supporting people to live in rental properties through housing benefit.

Between 1995/96 and 2015/16, spending on housing benefit increased by 51%, going from £16.6bn to £25.1bn. Not an inconsiderable sum of money.

The increase has been most pronounced in the private rented sector, where there has been an increase of 57% in real terms over the past two decades. Housing someone in the private rented sector costs an additional £21 per week – an average of £110 per week in housing benefit compared with £89 in social housing.

Not only is it 23% more expensive to house someone in the private rented sector than social housing, but none of that money increases the supply of new homes. Social landlords do reinvest in new homes, building a third of all new homes last year including for social rent from their own funds, but the same does not happen in the private rented sector.

All of that money has been spent without moving us any closer to solving the housing crisis.

This shift from investment in building towards housing benefit spending isn’t unique to the UK. Let’s look at what is happening in Europe.

How do we compare with Europe?

Across Europe spending has shifted from being split equally between benefits and development in 2009 toward benefit spending; in 2015, three quarters (75%) of all money went towards housing allowances and only a quarter (25%) towards building homes.

However this shift has been even more pronounced in the UK. In 2015, the proportion going spent on new homes had fallen to 15%, while the proportion spent on housing benefit rose to 85%.

The UK is also an extreme case when it comes to how much we pay in housing benefits. We are spending more on housing benefit than any other European country – three times more in fact. The average annual housing benefit spend in the UK was 520 Euros per person, in stark contrast to the European average of 159 Euros.

How much do European countries spend on housing benefit?

Of course, we aren’t arguing for a cut in housing benefits. This is a vital lifeline for those who need it, but without investment in new homes, it’s just propping up a broken housing market. And this problem isn’t going away.

Bad news – demand is actually going to increase

Demand for new homes is not going to slow down. Quite the opposite, in fact, the population of England is projected to increase by 17% until 2039 – that’s 9 million more people.

That’s not all. We’re experiencing a demographic shift towards an ageing population. The proportion of the population of pension-age will increase from 18% in 2014 to 24% in 2039.

Not only do we need to build more homes, but we need to build high-quality homes that can be adapted and work for people at every stage of life.

Urgent action is needed

This chronic shortage of new homes will push house prices and rents further and further up. Spending on housing benefits will continue to increase and we’ll see the impact of further negative consequences – families being pushed into poverty by housing costs, communities divided by incomes, and many people finding themselves further and further away from labour markets and better paid jobs.

So what can be done?

It is time to rethink government policies on housing in the UK.

Spending public money on building new affordable and social homes is a vital investment, for society and for the economy. More funding needs to be available to social homebuilders, like housing associations, so they can build high-quality, adaptable homes that can meet the needs of young families and older people alike.

Housing associations are the natural partners for the Government if it is serious about investing in social housing. For every £1 of public money housing associations receive for building new homes, we invest another £6 of our own or private finance.

With more government investment in social homes, they could do so much more.