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Social housing: A case of 'more from less'?

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Mark Easton | 12:28 UK time, Friday, 22 October 2010

There have been some pretty gloomy predictions about the impact of the government's cuts to welfare and housing budgets for Britain's poorest communities.

Families forced from their homes, forced out of our cities, forced into debt, forced onto the streets.

Certainly we are about to see radical reform of the benefits system and social housing, but should we believe that the consequences are unremittingly negative?

Housing estate


The coalition's argument is that it is possible to get "more from less" public cash, and that is the trick demanded by apparently contradictory ambitions in social housing. This week's spending review has slashed the amount government spends on grants to construct such homes but simultaneously promises to increase the number built: the capital budget reduced by 75% and an additional 150,000 properties in the next four years.

The explanation for the apparent paradox is really the driving force behind the coalition's entire plan for Britain - that if the public sector withdraws, other sectors will move in to fill the vacuum and, freed from heavy-handed state controls, can actually do a better job.

"We've been planning for this moment for three years," David Montague from L&Q housing tells me. "It is a time of liberation".

Mr Montague is one of a new breed of social entrepreneur, chief executive of a housing association committed to helping provide homes for the poorest families.

But instead of just holding his hands out and pleading for public cash to build new social housing, he is devising ways of attracting private investment.

While the government's plans to charge some new tenants much higher rents have led to claims that vulnerable families will be forced out of social housing, people like David
Montague argue the opposite.

He estimates that in London, for instance, a third of those on the waiting list could afford to pay rents much closer to market rates. The freedom to charge some tenants more, creates an income stream against which he can borrow to build more homes for the poorest families.

There is great excitement at the potential of this approach, big number calculations being conducted on the back of whatever passes for a fag packet these days.

One social housing analyst has sent me his workings:

"£1pw on rent = £234 million pa (if social homes = 4.5m). Capitalised at 6% this would be worth almost £4bn. So £2pw = £8bn, £3pw = £12bn and so on. This assumes that all providers can borrow without limit at 6%."

Of course councils cannot "borrow without limit" (a source of some irritation) but housing associations and developers are not so constrained and the potential is huge.

When David Montague at L&Q recently sought £330m in private capital for a mixed-income development, he had offers of more than a billion. "Social housing in the UK is flavour of the month with global investors right now," he tells me. "With demand high and a guaranteed income, they are falling over each other to put money in."

He showed me round a gleaming development in Greenwich which exemplifies the new model for social housing. Some of the homes are for the poorest families who will be charged low rents. Others are reserved for people who can afford "intermediate" rents, up to 80% of private sector levels. The owners may also offer tenants the chance to buy some or all of their home with shared mortgage deals. Those paying more, subsidise the rents of those in most need.

It is a similar argument from some local authorities. At a meeting in Westminster to launch Sunderland's economic "masterplan" this week, I heard Labour leaders explain how they were quite happy for the housing association which now manages all the city's former council houses to offer tenants a deal to buy a share of their home without the need for a deposit or a traditional mortgage. There was a palpable buzz as they discussed how they might look for other innovative ways to raise capital and keep costs down.

I was particularly struck by an idea that good quality social housing could be built in the same way McDonalds constructs its restaurants - in a factory. "You don't build cars outside in the street, so why do we think that is the best way to build houses?" one builder asked. He claimed that a family home could be produced for roughly £40,000 including all materials and labour.

"Won't you just get ghastly pre-fabs?" I asked. Apparently not. In fact, council leaders only concern was that, should such an idea come to pass, the factory should be in Sunderland.

Conservative councillors in Westminster are also rejecting warnings that welfare caps, the end of secure tenancies for new tenants and cuts to housing benefit will "create ghettos of deprivation and affluence" in central London.

Tory housing lead Philippa Roe tells me "that is not how it will work at all". She argues that, while a relatively few large welfare-dependent families renting privately may have to move to cheaper neighbourhoods, this is no different from the situation middle-income families are in. They cannot afford central London prices, so they commute in.

"Why should they have to do that while others who don't contribute to the local economy can live in the heart of the capital?"

But won't the new rules, allowing councils to evict new tenants if their income rises, turn public housing estates into pools of poverty? No, she tells me. The new flexibility in social housing will allow her to offer the property at a higher rent and use that income to provide homes for the poorest in the borough.

What strikes me is that, despite big cuts to council and housing budgets, there is enthusiasm where one might expect there to be gloom.

Last week I attended an international summit on social housing in The Hague. Representatives from over 20 countries from around the world attended and almost all were facing a similar squeeze to public funding.

At the end of two days discussing the huge challenges they were confronting, I asked delegates whether they felt optimistic or pessimistic. To my surprise, and perhaps to theirs, a significant majority were upbeat.

The reason, I think, is that they had realised that the sector has the capability and creativity to devise new ways of solving old problems.

Or as the coalition might put it: "getting more from less".


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