Striking the right balance

The housing Green Paper makes no attempt to assess how much new housing we are likely to need. Nor does it address the question of the amount of subsidy necessary in order to achieve the objective of a decent home for all. Both of these fundamental issues are seen as lying outside its remit. Thus the Green Paper states 'Our policies for meeting future housing requirements are set out in planning guidance and will be covered in our Urban White Paper'. The necessary resources are a matter for the spending review - which itself only addresses shorter term priorities and commitments, leaving wide open the question of longer term resource requirements. What the Green Paper is about is simply the delivery mechanisms by which social and affordable housing may be achieved.

In terms of these delivery mechanisms the Green Paper simply suggests more of the same. Traditional social housing is to be provided through capital subsidies mainly to RSLs, from central and increasingly from local government. Landowners and developers are expected to make a growing input into affordable housing provision through section 106 agreements. The only new feature is a challenge fund to assist creative means of increasing the availability of affordable housing to key workers in areas of particular stress. The spending review has put some flesh on the story by determining increased spending allocations. These have been seen as generous, in part because expectations were so low. But there has been no attempt made to ask whether what is being provided is enough - as opposed to better than we feared.

How Much Housing Do We Need?
As part of our research for Shelter's Investment Project we estimated both the overall numbers of additional homes that will be required over the next decade to meet the needs of additional households and the proportion of this total which would require government assistance. The underlying assumption of this assessment is that current access standards should be maintained (Holmans et al, Technical Volume, Shelter, 2000). To achieve the government's objective of a decent home for all can hardly require less.

These figures, based on 1996 based household projections, suggest that about 145,000 additional market homes per year will be required in England, together with some 80,000 - 85,000 affordable homes. The relatively high proportion of affordable homes - over one third - in part reflects the continuing transfer of housing from social to private housing, as well as the growing emphasis on demolition as part of large scale voluntary transfers and regeneration. On the other hand these figures do not take account of the higher 1998 population projections or of the need to reduce the backlog of unmet need, especially in London and the south. Taken all these factors together, 100,000 affordable homes each year is probably a reasonable estimate of expected need.

At the present time the market housing figures are falling short of requirements - but not too badly - because although current new building is only around 125,000 pa there are in additional net conversions of perhaps 10,000. A major problem however is the proportion being built in the midlands and the north. About two thirds of the demand is concentrated in the south, but only around 50 per cent is actually being built there. Overall however the big shortfall is with respect to social housing, where fewer than 30,000 additional homes are being provided. At the present time this shortfall is being made up by private renting with housing benefit, but this does not produce extra homes - it simply increases the number of additional market homes required.

How much funding is required?
In the mid 1990s overall capital expenditure, both public and private, on affordable homes was about £2.5 billion each year. Of this about £1 billion was contributed by social housing grant. To build 100,000 additional affordable homes each year would require about £6.5 billion. This implies an increase of some £4 billion over mid-1990s figures.

Somewhat over 50 per cent of this total can be expected to be found from private funds backed by the rental streams generated from the additional housing and by equity from shared ownership homes. A generous estimate of the funding from section 106 is still probably less than £0.4 billion per annum - which would imply a contribution of around £30,000 for each dwelling on a programme of some 15,000 per annum - well above realistic estimates of current contributions. This leaves some £1.4 billion to be found from additional public expenditure.

In the first three years of the Labour government the amount of Social Housing Grant available fell considerably, reflecting Conservative government projected spending cuts. Under the new spending plans Social Housing Grant only gets back to mid-1990s levels in 2001/2. Thereafter as a result of the Year 2000 Spending Review the projected expenditure almost doubles over the next two years to £1.8 billion per annum - £800m above mid-1990 levels. Not all of this increase will be spent on new housing, as at least £300m is to go to arms-length companies which will almost certainly spend most of their funding on improvement. Equally not all Private Finance Initiative money will go on new housing. On the other hand an extra £250m per annum is to be made available for low cost home ownership under the starter home initiative - some of which will generate additional dwellings. At the same time the Social Housing Grant rate is to increase to offset the effect of rent regulation on rental income - so that a given level of grant generates a smaller number of homes. The same is true of the necessary reallocation of grant to the southern, more expensive, part of the country - where the need is greater but the costs are significantly higher.

Taken all these elements together suggests that the projected expenditure levels fall short of requirements by at least £600m and probably nearer £1bn. Thus, although the Year 2000 spending review makes a major contribution to meeting the need for additional affordable housing, increasing projected capital expenditure to over £1.8bn in 2003/4, this increase is probably little more than 50 per cent of what would be necessary to meet projected requirements for additional homes.

What Can be Done?
Can this shortfall be met by other means? One possibility is to expand the numbers of affordable homes produced from s106 agreements. Under present procedures this will be extremely difficult, because of the large numbers of windfall and small sites, especially in the south of England. The emphasis on brownfield development and on mixed tenure within each site also reduces the potential. Further the evidence suggests that the amount of funding achieved is not usually enough to obviate the need for additional subsidy. So if more, and more effective, s106 funding is to be achieved it is likely to involve relaxing other constraints, notably on the amount of greenfield development. It is more market housing in the right place which will help produce more affordable housing - but this is extremely difficult politically, especially given the government's urban renaissance agenda.

The other way forward is to put greater emphasis on types of affordable housing which require lower proportions of subsidy, such as low cost home ownership initiatives. This is almost certainly highly desirable as by no means all those who require assistance need the levels of subsidy provided by traditional social housing. But the problem here is how to ensure that the initiative actually results in additional homes rather than simply putting pressure on prices which, of itself, further increases the proportions of households requiring additional government assistance. Without a greater commitment to additional development the government's objective of a decent home for all cannot be achieved.