Reversing the decline of social housing

To tackle the housing crisis, we need to reform and replace the policies that underpin it

Homes For Us

The term affordable housing” to most people is about as trustworthy as the cake never left the Tupperware box”. Affordable houses have been springing up across England at a rate to match public apologies. But when a new development rolls into any town, most people who see the shiny billboard know the affordable homes promised will be anything but.

Introduction to social housing

There are a variety of tenures, including social rent, affordable rent, intermediate rent, affordable homeownership, and shared ownership. Of these, affordable rent, shared ownership and social rent houses are the most commonly built, comprising 45.5%, 32.8% and 11.4% respectively of completions in 2020 – 21. Unfortunately, while the government dubs all three as affordable”, only one category can really be viewed as such.

Shared ownership, for example, is far out of the reach of most average or low-income households. Acquiring the average UK property (valued at £276,755, as of February 2022) through shared ownership requires a minimum income of £38,400; considerably above the 2021 median household income of £31,400.

Affordable rent sounds more promising but isn’t. It is charged at no more than 80% of local market rents. Sadly, this pricing structure provides no guarantees of affordability. In many areas, especially high-value areas, 80% of local market rent is still out of the reach of low-income households, given high private rental rates. The median rent for a two-bedroom property in London, for example, is £1,450 per month, equating to a potential affordable rent rate of £1,160 per month.

Social rent stands alone in being truly recognisable as affordable. Rates are calculated through a complex formula that factors in market conditions and local earnings. The result is rents commonly between 50% and 60% of market rent, tailored to the financial circumstances of low-income households. As noted by the Levelling Up White Paper, this is genuinely affordable housing. Therefore, we join organisations like the Chartered Institute for Housing and Shelter in calling for more social housing, i.e. housing at social rent rates, rather than more affordable housing.

These calls have been made for decades, with government after government promising to solve the housing crisis when we have only seen it deepen. To move from recognition that social housing is needed, to a place where social housing becomes a widespread reality, we need to look at its history and the policies that underpin the crisis, and how they can be reformed and replaced.

The origin of social housing to the 1970s

Social housing arose in the Victorian era. Philanthropists saw housing provision for the poor as critical. The supply was limited with only 1% of the population renting from social landlords in 1918. Following the terrors of the first world war and wary of social unrest, the government saw good quality housing as an important public provision to reward the nation for its service. So, it introduced the 1919 Addison Act, which allowed councils to build social homes. 20 years later, 10% of the population were living in social homes.

Likewise, in the aftermath of the second world war, the necessity of providing homes for bombed cities and returning soldiers and tackling poor housing conditions initiated a boom in housebuilding . The market and state worked side-by-side, providing homes for ownership and social homes. The drive in social housebuilding was beyond party politics and resistant even to challenging economic conditions, like high inflation in the 1950s and high interest rates in the 1960s. In total, 4.4 million new social homes were built between 1946 and 1980. Consequently, in the 1970s, the supply of social homes was not the issue it is today. The post-war era was a golden age for housing. Low-income households had a secure, affordable and high-quality alternative to homeownership.

Homeownership was, however, the majority tenure and the house price boom and bust cycles were beginning. The 70s saw the first housing bubble in the UK, where house prices doubled in the decade’s first three years. Concurrently, the UK experienced economic and social challenges, from energy crises to financial downturns. Within this changing socio-economic landscape, Margaret Thatcher rose to power.

Thatcher to the present day

A cornerstone of her premiership was right to buy (RtB): a policy that allowed social housing tenants to buy the homes they were renting at large discounts. This was a powerful electoral asset to attain the votes of working-class communities. A year after Thatcher was elected, RtB was enshrined into legislation. The policy was supported by Thatcher’s liberalisation of the financial sector, which helped make mortgages more accessible to lower-income households.

Its introduction immediately decimated England’s social housing stock. Between 1980 and 1984, nearly half a million social rent homes were sold. To date, over 2 million social homes have been sold, with only 4% of these replaced.

Using social housing as a vehicle for attaining homeownership had immaterial impacts too. Social housing became a steppingstone’ to homeownership and social rent was repositioned as inferior to the aspirational tenure of homeownership. As prices continued to rise, increasing the wealth of those fortunate enough to be homeowners, the attractiveness of homeownership was cemented.

Thatcher also encouraged the creation and transfer of social stock to housing associations, seeking to reduce public sector borrowing for council housebuilding. Yet, as new organisations, housing associations did not hold the development experience nor capacity of councils. New supply of social housing therefore began to falter, further impacted by the slashing of capital grants for social housing. On average, approximately 44,000 social homes were built annually in the 1980s, compared to the average of 126,000 annually in the 34 years prior.

With supply reduced and stock being lost through RtB, there was immediately a net loss in social housing after Thatcher’s premiership started. Social housing stock declined by 529,878 between 1980 and 1989.

Figure 1: Net social housing loss/​gain from 1980 to 2020

Though the assault on social housing lessened in the 1990s, the net loss of the 80s was still sustained in the early years of the decade. The 1992 Conservative government sought to improve the supply of social homes and tackle homelessness. Section 106 Obligations (S106) were introduced, requiring developers to provide social homes alongside market housing in residential developments. As housing takes time to build, it takes years before these changes are registered in the data, but a small net gain in social housing can be observed in 1994, 1995 and 1996.

Tony Blair’s premiership did not offer solace to those wanting more social housing. He did reform RtB, reducing the discounts available and altering the eligibility criteria. However, supply was not ramped up and delivery of social homes reached a low of 21,500 in 2004/​05. There was a net loss of 270,000 social homes through RtB during Blair’s premiership and a further 124,000 social homes were demolished, spurred by New Labour’s flagship regeneration and renewal programmes.

With the financial crisis hitting Gordon Brown’s government, social housing’s role alleviating the pains of the economic downturn was noted and a central government grant was provided to convert market homes into social rent dwellings. Unfortunately, as most converted dwellings were formerly produced by the market, the private sector was the main beneficiary of this grant, rather than Local Authorities or Housing Associations who would have reinvested it into further supply. Aided by Blair’s changes to RtB, between 2008 and 2011, there were four unusual years of net gains in social housing: a gain of 73,000 homes in total.

This revival was short-lived. David Cameron’s government removed the capital grant for social housing and introduced the aforementioned affordable rent’ tenure. In an era of economic downturn, tough finances and limited grants, the appeal of larger incomes from affordable rent dwellings lead to a sharp uptake in this tenure through S106 obligations and direct delivery. New affordable rent dwellings were built and both housing associations and local authorities converted existing social rent dwellings to the new tenure. Furthermore, local authorities saw their borrowing cap limited by restrictions on their housing revenue accounts, the traditional means of funding council housebuilding. This weakened the possibilities of local authority supply. Planning rules were tweaked, opening the definition of affordable housing’ into the current ambiguity, allowing developers to fulfil their S106 obligations with tenures other than social rent. These changes, alongside changes undoing Blair’s RtB reforms, led to further years of net social housing loss.

Figure 2: Supply of affordable housing since 1991

A marked change occurred during Theresa May’s premiership when the shock of Grenfell was felt across the country. Given the poor conditions that worsened the tragedy, there was suddenly a moral agenda to provide and protect social housing. Funding for social rent was reintroduced but only in certain areas with the greatest need. The borrowing cap in local authority housing revenue accounts was removed, and planning rules were changed, securing improved delivery through S106.

Yet, these changes have had minimal impact on social rent delivery: only 8% of homes delivered through government grants were social rent in 2020/​21. A net loss remains (in 2020, 13,000 social homes were still lost) but the degree of the loss has been lessened, partly due to low rates of RtB. This loss could worsen if Boris Johnson enacts his plans to expand RtB to housing association properties.

The rise of wealth inequality

Since 1980, a year after Thatcher’s ascension to prime minister, house prices have risen by a staggering 1,145%. Those fortunate enough to be homeowners saw their household wealth balloon. Presently, the household wealth of the 90th household percentile is 3917 times greater than that of the 10th percentile and six times greater than that of the 50th (median) percentile. 75% of the 90th percentile’s wealth is contained within property.

Figure 3: House prices against social housing net loss/​gain

The primary driver was the deregulation and liberalisation of England’s credit markets. Banking rules changed during Thatcher’s tenure, and greatly widening the accessibility of credit (e.g. mortgages). With access to credit, more households could become homeowners, creating a larger demand for homeownership, so increasing property prices, which in turn increased the amount of credit needed for homeownership. This feedback cycle benefited homeowners and those financing mortgages. As housing became the perfect ever-rising investment, its key ingredient land also saw ballooning price rises. Since 1993, there has been a staggering five-fold increase in the price of land, making development more costly, especially low-revenue social housing development. Homeowners and landowners have, with no effort, seen their wealth grow.

The increase in prices also created a rise in landlordism: 25% of Conservative MPs are landlords including prime minister Boris Johnson. Schemes like buy-to-let helped advance the wealth of existing asset owners: 95% of buy-to-let landlords borrow against their own assets. Equally, the influx of cheap property from RtB sales also presented a portfolio of new private rental properties. Inside Housing estimate that over 40% of RtB properties are now rented privately.

Any democratisation of homeownership from RtB was swiftly offset in recent years as homeownership decreased alongside the decreases in affordable housing, while private rented accommodation increased. Nearly 20% of households are now in private rented accommodation. A generation rent’ has emerged, who are unable to attain homeownership or elusive social housing and are stuck in poorly maintained and expensive rental properties. 25.7% of households in the private rented sector are in receipt of housing benefit and tenants face considerable insecurity, thanks to the deregulation of the rental sector since Thatcher’s premiership.

Figure 4: Tenure proportions vs rents

Since 1988, rents have increased in real terms by over 300%, buoyed by the unattainability of other tenures for generation rent. This hidden cost of living crisis has been present for decades, as those renting privately have seen their incomes pushed to the limit. Now, with inflation soaring by 9% and rents continuing to rise (a 14-year high of an 11% increase in rents was recorded in Q1 of 2022), the squeeze is two-pronged. Households face a real choice between a roof over their heads or food on the table. Yet too often commenters only question inflation in goods, not housing.

The government’s focus has been on the sustainment of wealth, rather than providing social housing. Public expenditure has moved from supply-side spending, namely helping build social homes, to demand-side spending. In 1975, 82% of government spending on housing was supply-side subsidies while in 2015, these subsidies comprised only 4.3% of spending. The other 96.7% of spending was demand-side, targeted at either stimulating the demand of homeownership by propping up the housing market through HtB, or footing the large 2020/​21 benefits bill of £28 billion, helping low-income households pay their rents in both the social and private sector. With a majority of voters owning their homes, there is a vested interest to support the market and maintain house price growth. Perhaps it is no wonder that the Conservative party received healthy donations of £60m from property tycoons in the last ten years.

The future of social housing

This challenge of reversing the decline of social housing is undoubtedly a difficult, yet critical, task. Grant allocation and rules need to be altered to better support social housing providers in their delivery of social rent. Greater investment is needed as housing associations and councils grapple with costly decarbonisation and building safety programmes, alongside housing delivery. Currently, 85% of housing associations are prioritising investment into existing stock. Social homes need to become central to S106 delivery as well as any levy that S106 is replaced by. Part of this is challenging the buzzword of affordable housing’ and misconceptions on the affordability of affordable rent and shared ownership. RtB needs removal or heavy reform; purchased homes could have legal conditions preventing their conversion into private rental stock or guaranteeing their existence as affordable homeownership products in perpetuity. Land rules need to be changed, namely through reform to the 1961 Land Compensation Act that would remove hope’ value from the calculation of land prices, reducing their financial burden for social housing developments.

Protecting stock is as important as increasing supply. The history of social housing is one of inflows and outflows; reversing this decline whilst improving the quality of social homes is a challenge. The mission is against vested interest that puts profit above people. Homes must not longer be assets to profit from, but a foundation for people to build the lives they want for themselves and their families.

The New Economics Foundation is launching Homes for Us, a campaign for more social housing. Get involved and help us reverse this dangerous decline of social housing and create a fairer, affordable housing system.

Image: iStock

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