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New report asks: how can we pay for the housing we need?


Published: 1 November 2011 | Author: Bernard Clarke

With the government expected to publish its housing strategy later this autumn, the Institute for Public Policy Research (IPPR) has published a timely paper on the challenges facing the housing sector and what can be done to increase the supply of homes. Called Build now or pay later? Funding New housing supply, the paper sets out to answer the key question: “If we are to increase housing supply, how are we to pay for it?”

The paper shows how the number of new homes built in the UK has dwindled in the past 20 years, even though demand for housing has continued to rise. It predicts there will be “four million additional households in England by 2025 as a result of population growth (for example, through immigration), demographic change (such as an ageing population) and social change (for example, an increasing divorce rate)”.

The IPPR believes these changes will contribute to a shortfall of 750,000 houses in England by 2025, with the worst mismatches between supply and demand in the greater south east, and particular pressure on social housing.

The report goes on to say that increasing the supply of housing is necessary to provide “secure, decent, affordable homes for the whole population” and that the only way to ensure we do not end up with the predicted shortfall would be to build 250,000 new homes – of the right sort and in the right place – every year for the next 15 years.

We agree with both the report’s analysis that there is an acute shortage of housing and with the assertion that the key challenge is to increase the supply of new homes.

The report looks at how the country could pay for what would amount to almost four million new homes over 15 years, and looks at some of the suggestions put forward to accomplish this. These include:

  • increasing government investment in new homes;
  • allowing local authorities to borrow off-balance sheet so that it does not add to the public sector borrowing requirement or count towards the national deficit;
  •  reforming housing associations;
  • continuing private sector cross-subsidy of affordable homes;
  • releasing land owned by central government;
  • promoting community-led models; and
  • reforming tax.

The report also suggests a reform long favoured by lenders, namely that “stamp duty could move from a slab system that bunches transactions to a marginal rate slice structure, similar to income tax.” The IPPR believes this would be fairer and generate greater tax revenues that could be channelled into new house-building.

The IPPR believes that three ideas for financing new housing, in particular, are worth exploring, considering the current political and economic environment:

  • promoting institutional investment in building new homes;
  • expanding the role of local authorities; and
  • re-capitalising government spending on housing.

We agree with the IPPR that there is “no one silver bullet” to finance the building of enough new homes to guarantee that housing aspirations are fulfilled. Each of the measures referred to in the IPPR report has the potential to make a contribution. Ultimately, however, we need policy initiatives that enable lenders to contribute to the funding of housing, whether in owner-occupation or the private and social rented sectors.

The issue is a crucial one for lenders, and will be explored further in our mortgage lending and affordable housing conference, held in conjunction with the Homes and Communities Agency, on 29 November in Leeds.