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Why more intervention is needed if the government’s 1.5m housing target is to be met

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Angela Rayner was one of the last to agree her budgets with Rachel Reeves and her colleagues at the Treasury ahead of the recent spending review.

Not surprising perhaps, given her unsolicited advice to the Chancellor on how to raise additional revenues to fund more spending. Less surprising still, given the scale of the challenge she faces in meeting the ambitious targets for new housing delivery which the government has tied itself to.

Her play for additional funding sat against the context of planning reform which, while significant, is struggling to deliver the immediate results it needs to in the absence of some form of demand-side stimulus.

Housing delivery

Indeed, in the days leading up to the spending review, our research suggested that housing delivery over five years might be confined to 840,000 homes without substantial intervention – well short of the magic, perhaps mythical, figure of 1.5 million.

While calls from outside of government for a Help to Buy replacement grew louder, the right honourable MP for Ashton-under-Lyne had other ideas. And in truth, at this stage in the journey, “son of Help to Buy” was never going to marry with the objectives of a deputy prime minister more readily focused on increasing the provision of affordable housing.

Funding Commitments

And so, instead, we had a £39 billion funding commitment to a 10-year Affordable Homes Programme (AHP) and a 10-year rent settlement (of CPI plus 1%), with Homes England separately receiving a share of £10 billion pointed at financial investments.

But, alone, these measures are not going to get the government close to its target, particularly as the full ramping up of the AHP won’t come until 2029. Getting anywhere near 1.5 million homes is going to require the private sector to substantially increase its output.

That is going to be tricky when it sits against the backdrop of a relatively fragile housing market recovery. It is more difficult still when there are some big unanswered questions around land value capture that will be critical to landowners’ willingness to bring land through a reformed planning system.

The role of the public sector

In the absence of any more funds, the government will be hoping that the less stringent application of mortgage regulations which has been adopted by lenders over recent months will lead to a more liquid housing market. The theory is that, in turn, this increases the capacity of private housebuilders to increase volumes.

Much depends on the extent to which the increased borrowing available to home buyers feeds directly into house prices. And, even then, it is unclear how much of the increase in housing transactions will be accommodated by more housebuilding.

And so while Angela Rayner will probably regard the outcome of her negotiations with the Chancellor as a feather she can add to her cap, she will do so in the knowledge there is still more, much more, to be done.

 

Further information

Contact Lucian Cook

This blog first appeared in Property Week

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