We need to step up investment in affordable homes – and fast

With the cost of living crisis dominating the headlines, another national emergency isn’t getting the attention it deserves. New figures from the Office for National Statistics show that in England in 2021, people could have typically expected to spend around 9.1 times their annual earnings on purchasing a home. Indeed, the ONS went as far as to call it a statistically significant increase compared with 2020, when homebuyers could expect to spend 7.9 times their workplace-based annual earnings.

Unsurprisingly, London and the south-east remains the most expensive region to buy a home, with Kensington and Chelsea the least affordable local area, where average house prices are 36.5 times average annual earnings.

But make no mistake, this isn’t just a London crisis – it’s a national emergency. The ONS statistics show that at a local level, house prices grew faster than earnings in 91% of local authority districts, leading to a reduction in housing affordability in these areas.

It’s clear, then, that we need to improve delivery of affordable housing. According to research commissioned by the National Housing Federation and Crisis from Heriot Watt University, around 340,000 new homes need to be supplied in England each year, of which 145,000 should be affordable. Yet official government figures show only 52,100 affordable homes were completed in 2020-21, a decrease of 12% when compared to the previous year.

The government made clear it thinks the planning system is to blame for the failure to build enough homes – promising, in its 2020 Planning White Paper, “radical reform unlike anything we have seen since the Second World War” to increase the number of homes built overall. But Tory backbench revolts over the proposed loosening of planning regulations, plus the pause implemented when Michael Gove became responsible for housing policy, means little has happened since. Let’s not hold our breath either – history tells us that Conservative governments will shy away from wholesale reform of the planning system because of the potential political backlash; indeed, the rumour is that these “radical reforms” will be dropped.

Specifying the number of affordable homes that should be built by developers is also a thorny issue. Current national planning guidance says that where major development includes the provision of housing, at least 10% of housing provided should be for affordable home ownership, subject to some exceptions. For one thing, it’s an arbitrary figure – as the Local Government Association has said, local planning authorities are best placed to determine the proportion of affordable homes based on local needs. And in some housing market areas, a proportion of affordable houses will remain unsold, and so will revert to market sale homes, pushing up prices further.

The best way of meeting delivery targets would be to increase investment in an affordable housebuilding programme. In its 2020 report, the Affordable Housing Commission recommended that in order to deliver the necessary increase in the supply of social homes, the government should increase the level of capital investment in affordable housing to at least the level prevailing in 2010.

But we all know public finances are tight, so one solution could be establishing a government-backed fund through which pension schemes would be able to invest directly in affordable housing construction projects, as has been suggested by housing associations. It could be run by the housing association sector, use modern methods of construction to fast-produce new homes, and help fund smaller housebuilders who are currently underused in housebuilding: in 1988, small businesses built nearly four in 10 homes, but now they only build one in 10. Equally, affordable housing could provide pension schemes with a reliable, socially responsible, long-term investment option.  Pension funds are already investing heavily in the private build to rent (BTR) sector, so would already be interested parties in any state-backed fund.

And, as the Affordable Housing Commission also recommended, the BTR sector should also be encouraged to expand to provide additional affordable homes. The government should consider tax changes to remove barriers to growth, including ending the stamp duty surcharge for investors in build-to-rent.

The new statistics show that housing affordability is moving far beyond the realm of reality for most people, and as the cost of living rises further the situation will only get worse. We need to step up investment in affordable homes – and fast.

Clive Docwra is Managing Director of McBains, a property and construction consultancy.