There have been plenty of reports which have highlighted the need for, and benefit of, more social housing. There are few which have taken the time to accurately calculate the cost of building them and propose a mechanism to fund them. This work has been done, not by a charity or a lobby group but by one of Britain’s largest and oldest private landlords, Grainger PLC.
The document, “Making Social Rent Homes Viable” was launched in the autumn and challenges orthodox thinking in the UK about how social housing could be funded. The report acknowledges and welcomes the substantial invest made by the Government into the latest grant programme in England. The core programme is £39bn over 10 years. The report posits that this is only a fifth of what is needed to deliver the widely accepted target of 90,000 new social homes per year. Even the provision of free public sector land and delivering social homes through s106 will not bridge the gap between need and financial capacity.
The authors recognise that the Government is in no position to increase borrowing to massively increase its grant. So, it looks elsewhere.
The report provides an interesting example of the financial draw on the state of funding of temporary accommodation. It is an enormous financial cost added to the misery most people experience of living in these conditions. At the time of writing the report the bill stood at £2.8bn, latest figures suggest it is rising above £3bn. In theory if the annual expenditure instead funded a ‘service index linked bond’ it could generate £160bn enough to fund 765,000 social rent homes.
However, even this radical proposal is not the core thesis.
The report looks to the USA, a very brave thing to do in these troubled times, for an answer. In North America affordable housing is mainly funded through tax credits. The legislative framework there is different to Britain, so the proposal does not completely mimic the US system. At its heart, the viability of the tax credit proposal is that a government investment in social housing produces financial returns to the government for example in reduced benefit costs, as rents will be lower, increased economic activity and wider health benefits. The tax credit would work by businesses paying Corporation Tax up front for several years, in return for paying it at a lower rate. The Government’s coffers are boosted; the money is then channelled into social housing subsidy. The cost reductions and increased revenue generated then covers the Government’s subsidy cost.
This is a bold proposition, especially in a country where the word ‘orthodoxy’ often follows ‘Treasury’ in describing its rather conservative approach to finance.
The report is an important contribution to the debate around funding social housing and definitely takes thinking beyond the silo thinking which sometimes grips the sector. Whether this is the right idea and whether or not it is adopted, even in part, its important and exciting to see approaches which test ideas from beyond our shores and our historical approaches. Current funding mechanisms have not ended the housing crisis and fresh thinking, and innovative approaches are needed to make real progress.