COMMENT Tomorrow, Chancellor Rachel Reeves will stand at the dispatch box to deliver the Spending Review, setting out day-to-day expenditure and new investment for every government department for the next three-to-four years.
The review, which offers a clear indication of the government’s priorities, will be pivotal for the affordable/social housing sector, which is facing significant funding pressures that threaten to jeopardise the government’s target of building 1.5m new homes this parliament and delivering the biggest increase in social and affordable housebuilding in a generation.
With every government department bidding for much needed funding, and recent government commitments to major new investment in areas like health and defence, it is still unclear whether the review will deliver the boost in funding that the housing sector needs.
Housing delivery
New funding to accelerate housebuilding is needed as a priority. We are well into the parliament now, and while recent provisional figures from Homes England suggested positive increases in starts and completions in 2024/25, the total figures are still well below where they need to be, and the government’s target is already looking somewhat distant.
In particular, 2024/25 has seen a disappointingly low number of housing starts in London. This is the kind of issue the sector would like to see the Spending Review tackle – likely in the form of spending commitments to accelerate new home building, particularly in London where the housing crisis and increasing build costs are most acute.
The Affordable Homes Programme 2021-2026 is a key pillar and source of funding for the affordable housing sector. It has already been topped up several times in the past year to the tune of millions of pounds. Industry and sector optimists might interpret this as a sign that further funding is coming, or that a new even bigger programme for future years will be announced. If so, this could help address critical issues of certainty and viability in development projects and may get new, or stalled, development programmes going again.
While the chancellor must balance competing demands for funding with her relatively tight fiscal rules, the housing sector no doubt would point to the wider economic and social benefits that come from investment in housing delivery. The review will be critical to the direction of the sector for the next four years, and getting housing right has numerous positive knock-on effects. There is, for instance, a strong link between housebuilding and economic growth and success, and it can also improve unemployment rates. Good housing also has positive social impacts on physical and mental health, which in theory could reduce demands on the NHS, another significant area of public expenditure.
Key challenges
A specific challenge the sector is facing, which the review may seek to address, is fire safety and associated costs. Following the Building Safety Act 2022, housing associations are quite rightly spending far more money on fire safety compliance, particularly on higher-risk buildings and existing stock. However, this has a significant impact on the viability of new schemes and the cost of delivery, as well as on annual maintenance/repair budgets, all of which the review could help alleviate.
Remediating the UK’s existing housing stock is another major headwind. Housing associations must rightly spend money improving stock, particularly to tackle damp and mould, and to prepare for full implementation of Awaab’s Law. Affordable housing providers will be hoping the Spending Review announces measures to help the sector overcomes these challenges.
Housing associations are also under pressure to make stock more energy efficient – but budgets are already tight. Were money to be made available to support this work, it could also have a considerable impact on overall UK climate policy outcomes.
Industry hopes
The influential G15 – a group of the biggest housing associations in London – has been outspoken about its expectations for the review. It has put forward a number of ideas and suggestions in the run-up; perhaps central to these is the call for a 10-year rent settlement (with CPI increases and the reintroduction of rent convergence) which it thinks is vitally important for the sector. It is also calling for housing to be considered “core infrastructure” which links with funding and the chancellor’s fiscal rules. It is expert direction and insight such as this which requires very careful consideration by the Treasury team and could, if translated into spending commitments, have significant impact.
Finally, the affordable housing sector is calling for higher grant levels and bigger funding programmes, both of which could potentially fall within the scope of tomorrow’s announcements.
From commitments to action
In February this year, the government committed to a new mortgage guarantee scheme for first-time buyers. The sector would no doubt welcome clarification tomorrow on how this will work and be funded. Similarly, the government has also committed to tackle homelessness in the UK, which is inextricably linked with the provision of social and affordable housing, as well as spending on prevention and early intervention, as the sector is quick to point out.
Overall, the housing sector will be watching closely for signs that well-intentioned government commitments continue translating into meaningful action; new spending announcements will be of central importance.
Kristian Scholfield is managing associate in the housing and regeneration team at TLT
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