Despite the Government's ambitious pledge to build 1.5 million homes this Parliament, new development remains stalled. Just 145,000 homes were completed across England last year — less than half the number required to meet the Government's target. In seven in 10 London boroughs, construction was not started on a single home in the first quarter of this year. For councils facing rising homelessness and mounting temporary accommodation costs, this shortage of new homes is adding costly pressures to already strained budgets.
The sources of the Government's housebuilding challenges - from high interest rates to rapidly rising construction costs - are largely structural and inherited. The Government has moved decisively to tackle them, using its first year to show its intent to back ‘builders over blockers' and ease the constraints on development: from major planning reforms to bring back local targets and enable building on the ‘grey belt', to giving strategic authorities more autonomy through the English Devolution Bill's spatial development strategies, and a record £39bn Social and Affordable Homes Programme. It has also set out an emergency package of support to get London building again.
However, given the growing backlog of stalled projects and persistent financial pressures facing housing associations, councils and developers alike, the Government will need to deploy every tool in the toolkit to accelerate housebuilding. One of them - the soon to be established National Housing Bank (NHB) - has received comparatively little attention, but offers a route to achieving that.
The Housing Bank has been given a task the Government has not previously attempted at scale: using public money to attract private investment into affordable housing. The reward for getting it right is significant. It could deliver over 500,000 new homes according to the Ministry of Housing, Communities and Local Government.
Real autonomy for the Housing Bank will require a major culture shift, but anything less will likely mean local authorities seeking financial support will be locked in onerous and time-consuming negotiations to access finance.
Yet what the precise role of the Housing Bank is and how it should be structured are important questions that have not yet been answered - but have consequences for local authorities.
First, the Government will need to decide to what extent it is willing to devolve functions of the Housing Bank. When it was announced, the Government promised to ‘engage Mayoral Strategic Authorities to agree an approach that works best for the needs of each place', but some strategic authorities will want more ownership and oversight than others. The Government has been willing to empower London with £322 million for a City Hall Developer Investment Fund and made clear that similar arrangements will be made for the Greater Manchester Housing Investment Fund. But for other strategic authorities that have technical expertise structuring and financing complex regeneration programmes, the Government has so far been quiet on what spending powers it's open to devolving.
Second, the Treasury will need to decide if it is ready to give the Housing Bank flexibility over how it spends its funds. Historically, it has struggled to cede control over housing investment, applying rigid spending controls to the Ministry of Housing, Communities and Local Government and housing delivery bodies. As a result, the Government's programmes have routinely underspent. It has signalled that this time will be different. Real autonomy for the Housing Bank will require a major culture shift, but anything less will likely mean local authorities seeking financial support will be locked in onerous and time-consuming negotiations to access finance.
Third, while the Housing Bank has been endowed with £16 billion, that'll be allocated across different forms of finance. The Government will need to determine how it can best target these low-cost loans, guarantees and equity investments to unlock investment and support different markets. The challenge is that the needs and incentives won't be the same across developers, housing associations and local authorities.
The real prize is creating a product that can attract ‘patient capital' from pension schemes. Affordable housing usually doesn't offer the reliability of returns pension schemes need to meet their regulatory and fiduciary requirements, as it is difficult to guarantee that tenants will pay their rent in full each month, but the Chancellor's Mansion House Accord places expectations of pension schemes to invest more in the UK economy by 2030, equivalent to up to £50 billion. Though the Local Government Pension Scheme isn't a signatory of the Accord, it too will be expected to invest more. Should the Housing Bank provide a ‘backstop' through a financial guarantee it could unlock substantial pension investment in affordable housebuilding.
For housing associations, the challenges are different. They don't have access to such ready streams of capital. On the contrary, the financial pressures of retrofitting their ageing stock to meet standards in energy efficiency and building safety, coupled with higher borrowing costs, have undermined their resilience and hamstrung their ability to build. If the Government wants the sector to do more, then low-interest loans may be more helpful to bring down the cost of building.
Finally, there is a question about whether the Housing Bank should be more experimental. The Government has pledged to get three New Towns off the ground this Parliament. Yet doing so will require substantial investment in transport infrastructure and utilities. If the Housing Bank could help fund infrastructure, it could accelerate housebuilding. By the same token, could the Housing Bank go further and explore investing in utilities on stalled sites to get them moving or enable developers to place modular units on them in the short term? That could provide temporary accommodation and protect local authorities from the exorbitant costs of low-quality hotels.
The Housing Bank is due to be launched next April and these questions will need to be worked through. Whether it becomes a central plank of renewal or a missed opportunity will depend on the choices the Government makes and how local authorities position themselves to capitalise on the investment available.
Jack Shaw is Director of Groundwork Research and Fellow at the University of Manchester. Marley Miller is Associate Director at Global Counsel.
