Affordable Housing: Supply

Viscount Chandos Excerpts

Thursday 25th April 2024 Lords Chamber

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[Viscount Chandos]

That this House takes note of the supply of genuinely affordable housing, its impact on the economy, and the steps needed to increase supply, particularly for key workers and those on lower incomes.

[Viscount Chandos (Lab)]

My Lords, 105 years ago, Lloyd George made a commitment to building houses for those returning from the horrors of the First World War—“homes fit for heroes”—central to the general election campaign immediately following the armistice. The heroes we have applauded more recently, while never forgetting the bravery and dedication of our Armed Forces, have been the NHS workers who through the Covid pandemic displayed a courage and commitment to public service no less than those in the military. Covid’s evolution from pandemic to endemic has not relieved the pressure on the NHS and its workers, who are still widely regarded as heroes in their care for patients. However, for many of them, and other individuals and families on low incomes, truly affordable housing is as scarce as it was for those returning from the front in 1918.

I am privileged to have the opportunity to introduce this debate today on affordable housing, even if it is depressing to confront the sheer scale of the problem. I am conscious of the profound knowledge and experience that other speakers today have in this field, and I am very grateful that they will bring their expertise to bear on this problem. I am truly delighted that the noble Baroness, Lady Smith of Llanfaes, has chosen today’s debate in which to make her maiden speech, which I look forward to hearing.

There is rarely a day when the problems of the housing market are not central to public debate and news coverage. This week, the Nationwide Foundation and the Church of England led a powerful group of organisations and individuals in the publication of Homes for All: A Vision for England’s Housing System with wide-ranging analysis and suggested priorities, to which a cross-party group of your Lordships contributed.

Much of that debate was around the overall housing market, rather than the affordable and social sectors on which we are focused today. Of course, this overall market is not just relevant to the affordable and social sectors; it is the context for and driver of the underlying problem. If housing costs generally were not so high in the UK, then market rents and purchase prices would be affordable further down the scale of household incomes.

One vivid illustration of the underlying problem has been given by Paul Cheshire, professor emeritus of economic geography at the LSE. In 1955, a dozen eggs cost a little under six shillings—how nostalgic it is to express it in the currency of my childhood—or 28 pence in this newfangled decimal currency. If the price of eggs had increased in the subsequent 50 years or so at the same level as the price of housing land, the price of a dozen eggs today would have risen to £91.

The sclerotic and political planning system lies at the heart of the shortage of housing land and its consequent eye-watering price. I welcome the Labour Party’s clearly and rigorously defined intention to reform the planning system. Even if, later this year, the electorate choose to give the Labour Party a mandate to push through its planning reforms, the need for more affordable and social homes will remain. Even if, in time, a Labour Government can address low pay and the position of those who—through no fault of their own—are on benefits, there will still be a need for more affordable housing.

I promised myself not to overload my remarks with figures, but there are a few which are inescapable in illustrating the scale of the problem. There are 1.2 million individuals or families on local authority waiting lists for social housing. More than 100,000 are in temporary accommodation. Over the 10 years to 2021, the completion of affordable and social homes averaged 50,000 a year. Critically, during this period, homes built for social rent—defined as 65% or less of market rent—fell from around half of that figure to one-fifth. Affordable rent—80% of market rent, which represents a still intolerable burden on the lowest-income households—has become the largest part of this broad sector. The remaining category of shared or low-cost ownership is likely to be way out of reach for those lowest-income households.

In 2019, the Social Housing Commission calculated that more than 3 million social homes needed to be built within 20 years to meet needs—that is more than 150,000 a year. The Bramley paper for the National Housing Federation and Crisis made its own analysis. It reached a very similar figure of 145,000 per year. Is this mission impossible? The challenge, should we accept it, is to triple the level of affordable and social housing built annually, compared to that achieved in the past decade, and to ensure that, of the almost universally accepted total housebuilding target of 300,000 per year, 50% should comprise affordable and social homes, compared to the 25% in recent years.

Should we accept this challenge? Yes, of course we should. Let us unlock our inner Ethan Hunts and Ilsa Fausts and accept this challenge. If we do not, we condemn hundreds of thousands of individuals and families to a life of financial hardship, anxiety and distress. Most importantly, the provision of affordable housing contributes to the well-being, happiness and mental health of individuals and families who are otherwise living insecurely in overcrowded and substandard conditions, while paying a disproportionate share of their income for the privilege.

In addition, there is clear evidence of a wider economic benefit from improved productivity, better workforce participation, greater rates of innovation and, critically, improved provision of public services, in which so many lower earners work—which takes us back to where we came in. These economic benefits—GDP and tax revenue enhancement, and cost savings on temporary accommodation from reduced reliance on short-term agency workers, for instance—in the medium to long term at least mitigate the cost of increased investment in affordable and social housing. In the shorter term, though, there is inevitably an up-front financial cost, as well as the challenge of executing such an expanded building programme cost-effectively and as fast as possible.

I was thinking, “There is no silver bullet”. That reminded me of a consulting firm, a micro-McKinsey that I worked with in the past, rather wonderfully named by its founder the Silver Bullet Machine Manufacturing Company, with the emphasis on the word “machine”. The point that the founder was making in a drily humorous way was that looking for a random large single silver bullet to solve a problem is vanishingly unlikely to be successful, whereas establishing a system or process that identifies and utilises a number of smaller silver bullets is far more likely to be productive.

Central government, local government, housing associations and the private sector each need to play their part and, if necessary, need to be empowered to do so. It should be a true mixed economy. Each party may act alone in some cases or in partnership in others. Each has challenges. Local authorities rightfully aspire to the central role that they have had historically, but the restrictions on their ability to reinvest the proceeds from right to buy over the years have significantly reduced their financial firepower. The increase from 40% to 50% retention recently announced by the Government is welcome, but why not 100%?

The reduction in building activity over the past 45 years, exacerbated by the vicious cuts in local government funding by Conservative or Conservative-led Governments since 2010, has left many local authority housing departments atrophied. It will take time for them to be rebuilt, even under a more enlightened central government regime, particularly as planning departments also need strengthening in many cases.

Housing associations are limited in their capacity to build new homes by their inability to raise equity funding, limits on their gearing levels and the capital investment required to maintain their existing stock. They can still contribute directly and significantly to the 150,000 new affordable homes a year that are needed, but also, vitally, as partners, particularly to private funders and providers and as managers of homes owned and/or developed by others.

The private sector encompasses landowners, commercial developers, the construction industry and specialist, mostly private affordable housing funds and investors. I will touch on landowners in a moment but will otherwise speak briefly about the specialist funds. If there is not to be a Trussian renouncement of all discipline in public borrowing, which your Lordships will know would not happen under my right honourable friend the shadow Chancellor, private equity capital is needed to play its part in achieving the challenging targets for new homes—not just the capital but the development skills as well.

PFI and private equity’s role in the utility industries, notably the water industry, understandably cause concern at the prospect of private capital playing a larger part in the affordable housing sector. We should learn from this history. In the water industry, there has been a toxic combination of a disgracefully weak regulator and unfettered, aggressive maximisation of financial returns by some private equity houses. On the one hand, the Government and Parliament must ensure that the regulator for social housing is strong and robust. On the other, the specialist funds need to behave in a responsible way. I believe this is not a forlorn hope in the light of these funds’ culture and central position in the ESG and sustainable investing movement. We should also ensure that net zero is embedded in all they do.

Finally, central government must drive and co-ordinate all of this, and provide the funding for the grants to local authorities, housing authorities and private funders alike, which are needed to deliver the homes at affordable and social rents. It has to be recognised that much of these subsidies will be for the southern half of England, given that this is where the gap between market and affordable rents is greatest. This needs to be reconciled with levelling-up ambitions.

Should landowners provide more of that subsidy through the imposition of more ambitious Section 106 conditions without choking off the supply of land? That would require cross-party agreement about a long-term policy to remove the incentive for landowners to hang on and hope that a future Government will introduce a more advantageous regime.

A friend with long experience in both the housing association and private sectors said to me this week, “Remember the two Harolds”. Not the two Ronnies, but the fact that only under Harold Macmillan and Harold Wilson in recent history have there been material state-driven expansions of affordable housing. My right honourable friend the Leader of the Opposition may not be called Harold, although though he is a strong admirer of the Labour Harold’s career. I am confident, though, that he and my right honourable friend Angela Rayner would become honorary Harolds if a Labour Government were elected. I am sorry that we will not have the opportunity to hear today from many latter-day Macmillans from the Back Benches opposite, but I hope the Minister’s reply will make up for that.

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[Viscount Chandos (Lab)]

My Lords, I thank all the speakers who have made such extraordinary contributions today; I can show that appreciation best by speaking extremely shortly. I have to say I am in awe of the noble Baroness, Lady Smith. I will leave her place name out this time because I believe she is scoring we English on our Welsh pronunciation, and I do not want to confirm my position at the bottom of the list. My street credibility with my Welsh friends will be enormously enhanced by the privilege of having the noble Baroness speak in this debate. One of them, who shares her hair colour but lives in Seattle, asked how a girl from the valleys can manage to go and work somewhere where it rains even more.

There has been an extraordinary diversity of knowledge and views expressed, but there is a common theme, which is the scale of the problem and the crisis. My noble friend Lady Warwick of Undercliffe put it best when she posed a question to the Minister: whatever your briefing, can you give the House the confidence that the Government really appreciate the scale of the crisis and what needs to be done? With due respect to the Minister, and acknowledging the box that she must work in, the jury is out, at least as to whether that sense of urgency has really been recognised and communicated today. With that, I commend the Motion to the House.

Motion agreed.