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Truly Affordable Housing Strategy part two, growing uncertainty

The prospects for truly affordable housing are determined only partly by the council’s own activities: external forces and the economic context are just as important. The council is trying to increase the supply of affordable housing at a time of growing uncertainty with many factors moving in an unhelpful direction:

After many years in the doldrums the bi-partisan localisation of council housing finance in 2011 opened the possibility of the Housing Revenue Account having sufficient headroom to support borrowing for new council homes. The removal of the cap on borrowing in 2018 made it a real possibility that councils might build at scale for the first time in many years.

It is encouraging that many councils are now building council houses again, although overall numbers remain small.

Yet council housing, like social housing more generally, is often not viable without grant from central government via the GLA. The GLA’s next 2021 to 2026 programme is already substantially committed with a more restrictive approach from government and the Mayor having to manage the difficult trade-off between wanting to increase the amount of grant per unit of housing and meeting the government’s numerical targets for affordable housing. It will be important for the council to build on the new and successful partnership with the GLA to secure as much resource for Westminster as possible.

The social housing model requires the balance of funding after grant or cross-subsidy to be met by borrowing, with the loans repaid from rents over many years. Rising interest rates mean the council can borrow less, and so build less, with the resources it has and the rents it charges. Interest rates are likely to remain high for some time to come, and stress testing projects against volatility will be even more important.

High interest rates also affect the private housing market with fewer people able to afford their mortgages and pressure on private rents from landlords with mortgages too. A volatile housing market often leads to increased homelessness and additional demand for social housing.

Tax changes, like the change in Stamp Duty Land Tax, add to fluctuations in the market.

The government has also announced that planning policy will change again to reduce restrictions but exactly how remains unclear. One suggestion has been that the rules around planning gain might be made less onerous on developers.

Inflation will generally impact the council’s costs. Construction costs are already rising rapidly and present a risk to the current and future programmes.

The government is undertaking a consultation on social rent increases because the current formula (CPI inflation plus one percent) would produce an unacceptably high rent increase. The most likely outcome will be a five percent increase which may not entirely cover general inflation in the council’s housing revenue account, which in turn could leave the council with reduced funding to support borrowing.

Other inflationary pressures, and especially energy, impact households severely and may reduce tenants’ ability to pay rent, creating an additional challenge for the council’s fairness and antipoverty strategies. The government has not yet committed to increasing benefits in line with inflation in April 2023.

Finally, the increasingly evident climate crisis means that carbon emissions from the council’s homes must be tackled effectively as a key part of its commitment to net zero. This impacts every policy area, including standards in new building and retrofitting existing dwellings often carrying an initial capital cost.

Read the Truly Affordable Housing Strategy

Published: 7 December 2022