Families living in social housing rely on subsidies to make ends meet, but with higher rents and reduced benefits affordable homes are becoming anything but

How should we finance social and affordable housing in the UK? This question has been at the heart of housing policy for the past 50 years or more.

In the immediate post-war era when there was an obvious need for a large-scale housebuilding programme, the government provided a “bricks and mortar” subsidy to cover a large part of the capital cost, so that council housing could be let at affordable rents. This underpinned a rapid expansion of council housing, which by the late seventies had come to account for around one third of all housing in Britain. In the early seventies the Conservatives under Edward Heath proposed a shift in favour of personal subsidies, accompanied by an increase in rent levels. Although this did not survive the fall of the Heath government in 1974, the policy returned in the eighties under Thatcher. The level of government support for council housebuilding was progressively reduced. At the same time, housing associations - which were increasingly taking the lead in new social housebuilding - were encouraged to raise their rents, and in the famous words of Sir George Young, former Tory housing minister, “let housing benefit take the strain”.

Advocates of personal, rather than “bricks and mortar”, subsidy argue that it is a more efficient use of public resources, because those who can afford to pay a higher rent do so. While social housing was occupied by a broad cross-section of the population with a majority of tenants in employment, this argument had some force. But, as we all know, the other major housing policy introduced by the Thatcher government, the right-to-buy, prompted a large number of better-off tenants to exit the sector. So by the early nineties, the social housing sector, much reduced in size, was no longer housing a cross-section of the population, but disproportionately catering for the poor and unemployed. For them, a combination of high rents and dependency on housing benefit often created a poverty trap in which they had no incentive to work because their home would be unaffordable on the income which could be earned from modest or low-paid work.

I remember being shocked when opening a housing association development in the nineties, to be told that not a single one of the lettings had gone to a tenant in work. The high rent levels had created a situation where benefits dependency was endemic.

That is why the last Labour government increased the level of social housing grant to support new housebuilding, and pursued a policy of rent harmonisation to bear down on high housing association rents and to ensure a closer link between social rents and wages.

Now we have a Conservative-led government, again pursuing a high rent policy for social housing. New housing association lettings are to be at up to 80% of market rents, and a good proportion of the re-lets are also expected to be similar rent levels. This time, however, ministers are less confident that housing benefit will take the strain, because the Department for Work and Pensions is seeking to cut housing benefit.

So tenants will find themselves squeezed between the pressure of higher rent levels on one side and reduced benefit entitlement on the other. In some instances, tenants thinking of “downsizing” to smaller accommodation will find themselves facing a rent increase, because new one- and two-bedroom homes will have, perversely, higher rents than existing three-bed council housing.

To add insult to injury, it is already clear that this new high rent policy will not generate an increased supply of “affordable” lettings (as the government chose with no sense of irony to call them). At the best - and this estimate is optimistic - the policy might support a further 170,000 homes in this parliament, significantly less that the output of social and affordable homes under the last years of the Labour government in the teeth of the recession. Even this depends on housing associations extending their borrowing to a point which will become unsustainable. Most serious commentators see no prospect of significant new development on this basis beyond 2014.

If current policy is incoherent and unsustainable, what is the alternative? The answer is that both “bricks and mortar” and personal subsidies have a role to play, and their respective roles need to be properly understood and balanced. Currently they are not. The pendulum will therefore need to swing back in favour of “bricks and mortar” subsidy if we are to have a future programme of affordable and social housing.

Nick Raynsford MP is a former Labour construction minister