New data from Halifax shows the average UK house price hit a new record high last month, rising 1% between April and May, making the average price of a home now more than £289,000.
So with affordability and opportunity to buy declining, the government’s new right to buy proposals, enabling council tenants to buy their homes, will ostensibly give those who can’t get on the housing ladder the opportunity to do so.
But this is no magic wand to solve the housing crisis – instead of easing it, the government’s muddled thinking is likely to have the opposite effect.
First, extending the policy means appropriating assets of charities and housing associations – which will either have ethical questionability or be subject to legal challenge, so there’s no guarantee that the numbers of homes the government hopes will be delivered will actually be realised.
Second, even if the numbers are substantial, the extent of the housing crisis means those homes that are sold need to be replaced with more social housing. Boris Johnson may have said there will be a “one for one” approach, but, as other commentators have pointed out, every previous version of right to buy has failed to replace the number of affordable homes lost. In 2019/20, for instance, more than 10,500 homes were sold through right to buy, yet Shelter estimates that more than one million households are still waiting for social homes.
Rather than short term, headline announcements, what’s needed is long term coherent strategy to increase social and affordable housing. Instead we’ve got muddled policy.
Replacing the number of affordable homes lost to the right to buy extension would mean speedy planning permission is required to enable more homes to be built in areas where they’re most needed – often in, or near, leafy, affluent neighbourhoods.
But the government has already diluted plans to reform the planning system in England which would have made it easier for developers to win planning permission after a revolt from Tory MPs in the shires. Instead, it has committed to allowing neighbours to hold ‘street votes’ to approve or reject house extensions in their area.
We all know that these already stir up neighbourly discontent, so this policy will only further clog up planning officers’ time. Are planning officers really going to have the resources to take forward larger planning applications? These proposals, incidentally, were introduced under Michael Gove’s Levelling Up Bill, the day before the right to buy announcement – highlighting just how disjointed the government’s policy thinking is.
The main barrier to ‘one for one’ being delivered, however, is the financial model. The provision of current government funding for affordable housing is at historic low levels as a percentage of investment, at around 20% now compared to f between 50-80% in the 1990s and 2000s.
The government needs to look at how housing associations and the wider affordable housing sector are funded to help them deliver more affordable homes. A recent report by Legal & General and the British Property Federation (BPF) estimates that increasing annual supply to 145,000 homes will require £34bn of additional capital funding per annum – and institutional investment can help plug that gap.
As the BPF has pointed out, new private capital, both equity and debt, has also started flowing into the sector attracted by its stability and returns but extending right to buy risks undermining the interest in investment in the sector and actually reducing supply.
The government should therefore look to help stabilise the environment by redressing the idiosyncrasies between tax treatment of not-for-profit providers and for-profit registered providers. As the L&G/BPF report says, creating a level playing field across the sector would encourage new investment and foster closer partnerships between housing associations and institutional investors. Longer term rent settlements would also provide investors with reassurance to encourage activity, reduce the amount of risk capital required for investment and lower the subsidy requirement per unit.
Unless financial reforms to stabilise and encourage institutional investment and ensure like-for-like replacement affordable housing is delivered, then any spell cast by the government’s latest magic wand idea to solve the housing crisis will simple fizzle away.
Clive Docwra is managing director of McBains, a property and construction consultancy.