Stephen Knight AM writes…Invest now in affordable housing for jobs and growth

Vince Cable is right to argue that the government should give the economy a fiscal stimulus with increased borrowing to fund infrastructure investment, especially affordable home building. Cable’s argument is sound: the finance is cheap, the multiplier in this kind of investment is relatively large and there is an urgent need to give our flat-lining economy a kick-start.

Investment in affordable housing would provide particular economic benefits in London and the south east, where the shortage of affordable homes is undeniably the single biggest break on the region’s economy.

The UK’s construction industry has massive spare capacity, having shrunk significantly in the past year, whilst in London there are 380,301 households – over 800,000 people – on affordable housing waiting lists. In the last full year there were 13,000 families in the capital accepted as homeless and around 259,000 households living in overcrowded accommodation.

There has been a failure over the last 35 years to build anything like enough affordable homes and the capital’s housing market is now close to the point of total failure, with first-time home ownership out of the reach of even very high earners and soaring rents taking an ever bigger share of living costs.

As private rents become unaffordable for those on modest incomes, so the housing benefit bill has rocketed in response. As well as the financial costs, the housing crisis is also exacting a high social cost on Londoners. Children who live in overcrowded accommodation often fail to reach their full potential, especially at school – it is hard to study in a cramped flat where there is no quiet space. Physical and mental health can also be affected by some of the housing conditions faced by many of London’s residents.

On the London Assembly, Liberal Democrats recently set out a bold, costed proposal showing how the Mayor could borrow an additional £1.7 billion at historically low long-term public sector interest rates, financed from a small share of the massive annual surpluses generated by Transport for London.

This would have enabled an extra 55,000 affordable homes to be built over the next three years – a doubling of the current London programme. At the same time this would generate an additional 37,000 permanent construction jobs representing around a 15% boost to total construction jobs in the capital.

Sadly, whilst Labour and Green groups rallied behind our proposal, Mayor Boris Johnson rejected it without giving any substantial reasons for doing so. Instead the Mayor’s budget for new affordable homes is to halve next year from around £500 million to £250 million.

Our economy needs urgent and imaginative action to drive jobs and growth and we have an urgent need for affordable homes. In these circumstances, capital investment funded by public borrowing is not only economically sound but also socially the right thing to do.

* Cllr Stephen Knight is a member of the London Assembly and a councillor in Richmond.

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13 Comments

  • Liberal Neil 14th Mar '13 - 9:42am

    Good stuff Stephen.

  • Matthew Huntbach 14th Mar '13 - 2:40pm

    There is no point in building more houses if people who don’t need them are able to pay more for them than people who do need them, so buy them as they are built and rent them out to those who need them and have thereby been squeezed out of the possibility of buying, with housing benefit providing a floor which ensures the landlords will never lose out on their investment – at the cost to the rest of us, paying tax to fund them even when we cannot afford the housing they own, and we are working are guts out to earn what we earn, while they make money while sitting idle.

  • Steve Comer 14th Mar '13 - 5:13pm

    You need to look at different models of affordability, like self-build schemes and community housing trusts. CLTs especially will ‘lock in’ the affordability for future generations. But in high house price areas the pressing need is for social housing for rent.

  • Stephen,

    it does seem odd that the Mayor’s budget for new affordable homes is to halve next year from around £500 million to £250 million, when ‘Boris from Islington’ has been urged by Nick Clegg to use the Treasury guarantees for projects that would benefit Londoners.

    There are two areas that I think may be worthy of further exploration by the London Assembly.

    Firstly, facilitating the issue of government backed bonds for the construction of new homes by housing associations as described in the CentreForum paper A house building plan that’s as safe as… .

    Secondly, are the issues raised around encouraging investment in the housing paper adopted at our conference last autumn Decent Homes for All .

    2.1 Encouraging Investment
    2.1.1 There is a strong invest-to-save rationale for government investing in a large-scale programme of social housing immediately. The average weekly cost of housing benefit is around £80/week for social housing tenants (around 2/3 of
    total housing benefit recipients) and around £120/week for housing benefit recipients living in the private rented sector. Investment in new social housing may incur a cash cost in the short term, but it will deliver long-term savings on
    the housing benefit bill.

    2.1.2 Successive governments have focussed on the short-term cash (and by implication,public sector borrowing) requirements associated with social housing investment. Investment in housing, however, should be seen as a cost-saving m easure, which strengthens the Government’s financial position. With tangible savings, the business case for investment is solid,and investors in the UK will recognise this. The scale of housing construction, which Liberal
    Democrats believe is required, demands substantial government investment.

    2.1.3 While substantially increasing public sector investment in the present climate may look very difficult, two measures look able to deliver abig impact without damaging control of public borrowing:

    • Adopting public borrowing accounting rules commonly used in Europe so that Local Authority borrowing against the Housing Revenue Account does not add to government borrowing figures – potentially releasing some £50b
    n investment in affordable housing over time.
    • The Bank of England extending the scope of the Quantitative Easing programme to include purchase of social housing-issued bonds.

    2.1.4 However government and Local Authority borrowing is not the only solution: the amount of private sector investment in housing development depends on a series of interdependent factors, including future expected h
    ouse prices and rental levels (in part driven by expected housing benefit payments), the availability of land, the planning system,government grants/guarantees and the extent to which existing social housing stock is ‘encumbered’ with existing borrowing.

    2.1.5 The more government supports social housing construction, the more private finance it will be possible to draw into co-investment. Securi ng private finance is critical to the delivery of the programme Liberal Democrats aspire to, and we are supportive of approaches throughwhich the long-term investment needs of pension funds and insurers can be met through housing.

    2.1.6 We will also increase the finance available to housing associations by giving them the power to offer long-term, low interest rate mortgages on the properties they sell.This would help first time buyers purchase a property and guar
    antee a steady stream of income for housing associations and local authorities to expand theirstock.

    2.1.7 Investment in the residential private rented sector (PRS) in the UK is extremely low when compared with investment in the commercial rented sector, or other European economies. The Coalition’s decision to cut Stamp Duty Land Tax (SDLT) on bulk purchases will make it less costly for investors in the private rented sector to buy large portfolios on one plot and allow for lower management costs. Economies of scale in the PRS are estimated to kick in only at a portfolio sizeof at least 2500 properties and the lack of suitable properties are barriers to investment,
    however we believe more can be done to encourage development of the PRS, in particular:
    •Giving Local Authorities and communities more freedom to have policies on build-to-let in their development plans,
    in the same way as rural exception affordable housing schemes, to reduce the cost of land for this use and to increase the financial viability of private rented development. We will consider whether further changes to the National
    Planning Policy Framework are necessary in order to facilitate this.
    •Releasing public land suitable for build-to-let investment, which has specific requirements, such as large plots with good transport links.
    •Working with our partners in Europe to identify and overcome any barriers that exist to UK developers operating elsewhere in the EU and any barriers to European developers investing in house building in the UK.

  • Richard Dean 14th Mar '13 - 6:58pm

    Talk about a North-South and West-East divide!
    Is London the only place in the UK worth caring about? The only place where people should live?
    Wouldn’t it be a better solution to move jobs out of London? People will follow and the problem will be solved!

  • Helen Dudden 14th Mar '13 - 8:05pm

    We still have the problems in Bath Richard, very expensive area to live. We are needing more homes, as the list starts to move to the 13,000 waiting.

    Of course, house building and investment will help, jobs will create economy, but in Bath you do need a better than average salary to buy, so those on a lesser salary do not stand a chance.

    Like London, a very expensive area for property. Private renting is in demand and not going to be the best option with the housing benefit cap.

  • Liberal Neil 14th Mar '13 - 11:36pm

    Richard Dean – No, London is not the only place worth caring about. But as Stephen is a London Assembly Member it is reasonable that he should concentrate on the city.

  • Richard Dean 15th Mar '13 - 12:56am

    Liberal Neil – As Stephen is a London Assembly Member, he should certainly consider the policy option I mentioned.

  • Helen Dudden 18th Mar '13 - 3:43pm

    Bath does have issues, not just because I live here, and understand the problems that are being created. Not only for Lib Dems, but for all.

    Of course, I have sympathy for those in London who struggle, but them I have sympathy for those in countries within the EU, who find life difficult too. Places like Spain have housing issues.

    I thought the the coalition would make a difference to society, it has with the bedroom tax, the disagreements over building, not in my area, is the common cry here. The things that have been changed, not for the better.

    I believe in human rights both in law and justice, and also, in life itself.

  • Steve Griffiths 18th Mar '13 - 4:52pm

    Mike Tuffrey

    “Stephen is absolutely right to be raising this. Housing is the biggest single social issue facing Londoners, ”

    Fair enough, but housing is the biggest single social issue in Oxford and Oxfordshire, and I suspect many other areas too. in the 1990s I was a Lib Dem housing housing spokeman on a district council and for some of the time committee chair and vice-chair. The then Tory government was not building enough houses and would not release council balances to build them with. I wrote to the then MP for the constituency (Tory) about the increasing housing waiting list and got a polite reply that said nothing. Hope was temporarily raised with the New Labour government that followed, but very little changed and the new government were almost as tight with the available balances. Now we have the Coalition Government, including Lib Dems, and the housing shortage is worse. This has been a failure of successive goverments to house the people.

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