What if there were a way of building a million new affordable homes within five years while at the same time cutting government spending radically?

This paper shows that there is. It involves:

  1. Measures to reduce the cost of land: changes to capital gains tax and planning rules that help ensure more of the value created by planning decisions benefits taxpayers and tenants.
  2. Measures to reduce the cost of capital for new homes: bonds with returns linked to the retail price index, and designed to allow housing benefit to be paid directly to bond holders, combined with new financial structures; these measures may push down the cost of capital to the point where it is economic to replace government capital grants (to build houses) with revenue grants (to support interest payments), but even if they don’t, they will make capital grants go a lot further.
  3. Measures to increase landlords’ operating margin: a tier of housing between existing social housing and the private sector, with somewhat higher rents and lower operating costs than at present.

Depending on assumptions, these measures would lead to savings ranging from one-third of those proposed by the government to over £1 billion a year more than those proposed.

This paper is not a definitive analysis. It is illustrative and identifies a number of potential problems and uncertainties. We strongly believe, however, that the scale of the potential prize – serious inroads into Britain’s housing problems within existing public sector financial constraints – justifies examining the issue in more detail. Accordingly we are inviting others to join us in a more comprehensive project.