What does the government mean by its belated response on social housing finance?
After 10 months, the Ministry of Housing, Communities and Local Government has finally responded the report on social housing finance. What hints can we glean from the statement? Inside Housing columnist Jules Birch explains
Jules Birch is an award-winning blogger who writes exclusive articles for Inside Housing
An intriguing response from the Ministry of Housing, Communities and Local Government (MHCLG) to a select committee report on Friday might just provide a glimpse into the government’s thinking ahead of the vital Spending Review due in June.
Back in May 2024, the then Levelling Up, Housing and Communities Committee sounded the alarm about the finances and sustainability of the social housing sector and called for a whole series of sector-friendly changes.
The response comes 10 months later (long after what is meant to be a 60-day deadline), but the world has changed in the meantime, with a Labour government elected and a renamed department and committee.
So, in one sense it is a free hit for MHCLG to echo most of the committee’s warnings and pin the blame for what’s gone wrong on the Conservative administration.
It does not just agree that “the social housing sector faces increased financial pressures, exacerbated by years of under-funding and real terms rent cuts”, it also puts some numbers to the flashing blue lights.
READ MORE
Spending by 162 councils via Housing Revenue Accounts has exceeded turnover in four of the past five years, it says, while housing associations’ aggregate interest cover has fallen from 174% in 2018 to just 88% now.
With those financial pressures intensifying, both sets of social landlords will be delighted to hear: “Since taking office in July 2024, this government has been clear about our commitment to deliver the biggest increase in social and affordable housebuilding in a generation and ensure that our existing homes are safe, decent and warm. We recognise that social housing providers need support to rebuild their financial capacity if they are to play their full role in supporting this commitment.”
“That pledge of the ‘biggest increase in a generation’ is repeated no fewer than five times in the response, but it fails to commit to any specific target”
So far, so good, and the response highlights action taken by the government so far on everything from Right to Buy to the Local Authority Housing Fund and from the Affordable Homes Programme (AHP) to land value capture.
Despite having a Conservative majority until last year, what is now the Housing, Communities and Local Government Committee has consistently backed the case for 90,000 social rent homes a year – and that was the first recommendation in this report.
MHCLG responds: “The government is committed to delivering the biggest increase in social and affordable housebuilding in a generation, and we agree with the report’s conclusion about the need for more social rent homes in particular.”
That pledge of the “biggest increase in a generation” is repeated no fewer than five times in the response, but it fails to commit to any specific target, let alone 90,000, while highlighting the extra money put into the AHP since the election.
Despite the lack of a target, it highlights changes to the National Planning Policy Framework and push to maximise social rent via the AHP and “our commitment that new investment to succeed the 2021-26 Affordable Homes Programme will have a particular focus on social rent”.
The response is less convincing when it comes the committee’s recommendations on help with other costs including decarbonisation and building safety, though it does point to the acknowledgment that social landlords’ access to upfront funding can be a barrier to progress on remediation.
More intriguing is a hint on rents. The government has already heeded the committee’s call for a rent settlement of five years linked to inflation with its consultation on Consumer Price Index plus 1% for five years from 2026.
However, the response goes out of its way to highlight that the consultation called for “views on other options that could give greater certainty, including a longer settlement of up to 10 years and rent measures that would provide confidence in the event of an inflationary spike”.
A 10-year settlement is of course the call from many within the sector, so it’s interesting that the response chooses to mention it unprompted by anything in the report. Although before they get their hopes too high, there is no reference to rent convergence.
The government also deflects the committee’s call for the self-financing settlement for council housing to be revisited and its declaration that “it may be possible to cancel some of the additional £8bn debt attributed to local authorities in 2012”.
The response points to action on Right to Buy receipts and rents and says the government will continue to work with councils to identify barriers to boosting housing delivery.
“A 10-year settlement is of course the call from many within the sector, so it’s interesting that the response chooses to mention it unprompted by anything in the report”
Local authorities thinking that the debt is one of the biggest barriers, may see some grounds for optimism in the government’s acceptance that “the 2012 settlement was a complex undertaking completed after several years of detailed work involving local authorities, sector experts and officials. It was designed to be affordable over 30 years, but the government understands that councils are facing strain in their Housing Revenue Accounts”.
In many ways, what the committee was consistently recommending under the Conservatives has become official policy under Labour.
But when this report was published, there was notable enthusiasm for the role of for-profit providers, with the committee arguing that they could provide affordable rent and other affordable tenures to free up grant funding for social rent.
At the time I saw this as both an opportunity (a welcome change of emphasis after the downgrading of social rent under the Conservatives) and a danger (in the wrong hands it could be a call for the most profitable forms of affordable housing to be privatised).
The government’s neutral response suggests that it does not see giving for-profit providers an increased role as a priority.
For obvious reasons ahead of the Spending Review, the response is weakest when it comes to the specifics on government funding.
The committee called again and again for a commitment to 90,000 social rent homes and recommended that the government must start by providing a clear direction for the social housing sector – it should publish a target for how many social rent homes it intends to secure and explain the reasoning behind it. The confusion and delay around targets must end now.
There is no target, but there is perhaps a hint from MHCLG: “We are clear that we cannot deliver 1.5 million homes this parliament – nor deliver the types of homes the country needs – without a significant increase in social and affordable housing. This underpins our commitment to deliver [here it is again] the biggest increase in social and affordable housebuilding in a generation.”
That is at least the right way round, since the government has sometimes given the impression that more affordable homes will be a consequence of delivering 1.5 million additional new homes rather than a pre-condition for it.
Everything else, though, will have to wait for the Spending Review. With the fiscal ground shifting beneath the chancellor’s feet, the world may well have changed again since this response was written.
Will the government be able to follow through on these nods and winks?
Jules Birch, columnist, Inside Housing
Sign up to our Best of In-Depth newsletter
We have recently relaunched our weekly Long Read newsletter as Best of In-Depth. The idea is to bring you a shorter selection of the very best analysis and comment we are publishing each week.
Already have an account? Click here to manage your newsletters.
