Over the past 30 years, England’s housing market has gone through some major changes and the balance of housing tenures has shifted dramatically. But one thing remains the same: for decades we have not built enough homes to satisfy demand.
Millions of people are locked out of home ownership and the lack of supply has increased the cost of renting and the cost of the government’s welfare bill.
In 2014, almost twice the proportion of working households received housing benefit than in 2008-09. To address this, we urgently need to build more homes across a range of tenures.
But with state funding in short supply and austerity the ‘new normal’, we must find ways to trigger investment, including finding alternative sources of funding that will help boost supply.
Crucially, we need to turn outwards to find a solution. There are many lessons we can learn from overseas, which could improve access to vital equity finance.
In 2014, Places for People partnered with De Montfort University to investigate how other countries are improving their housing supply. Our research has shown that tax breaks widely available abroad could hold the key to increasing affordable housing in England.
Importantly, the tax concessions are only realised if additional good quality housing at sub-market rents is delivered to those with incomes below locally prescribed limits. These measures therefore incentivise an increase in good-quality housing, which is accessible and affordable to low-income households.
France, which is the only place in the world where the supply of social housing is increasing, has used these tax incentives to good effect. Consequently, more than 30,000 affordable housing units were built every year between 1994 and 2004, and 60,000 homes were built using this scheme in 2010.
To put that in perspective, 60,000 homes would put the government above its target of 200,000 new homes per year. However, the real beauty of this approach is that it could deliver a significant increase in new housing starts without a major increase in public expenditure.
In the US, there is a market for tax credits, which are a tradable commodity. Applied here, they could help to trigger investment for new housing. Investors assume the development and operating risk when they invest in low-income housing tax credit projects.
But they can only claim the credits if buildings are maintained in compliance with programme requirements, which are monitored primarily by state housing agencies.
However, as a country we need to do more than just build more affordable homes. Institutional investors will have a major role to play in boosting supply in this country in future years, but the UK has one of the most immature private rented sectors for institutional investment.
A 2012 survey on UK property showed that institutions invested just 1% of their portfolio in residential – this contrasts hugely with Europe and the US where residential makes up more than a fifth of the portfolio of institutions.
The increasing role of institutions has been evidenced by the new £600m fund to build large-scale rented accommodation launched by Legal & General in January. This fund took the total amount of institutional money committed to the private rented sector in 2016 to more than £1bn.
By sharing knowledge and exploring new ways of working, there’s the potential to develop innovative financing and development models that will reshape our housing market, ensuring it works better for everyone, regardless of their tenure needs or financial circumstances.
The alternative is that all organisations involved continue to do what they have done previously and England gets no nearer to its house building targets.
• David Cowans is chief executive of Places for People
