The Spending Review and Housing

We got the announcement of £39 billion over 10 years for the Affordable Homes Programme in the Spending Review that was leaked to the press the day before.

What will be critical is to what extent this directly funds social housing (not affordable housing – shared ownership or 80% of market rent), given that private house builders tend to build around 200,000 new homes per year at peak but private completions tend to fall around 20-30% every 10(ish) years (and starts fall 60-70%) during downturns. Therefore, the key to consistent house building over time and increased overall house building is to ensure that there is house building provision that is not solely dependent on private demand. Affordable housing is market-led and doesn't reduce the volatility in house building during private sector downturns.

Looking at the significant shift in house building since the peak of the late 1960s and early 1970s, when approximately 400,000 new homes were being built per year in GB (200,000 private and 200,000 social homes per year), the big change is the sharp decline in social housing (see chart) in the late 1970s and early 1980s. Housing associations and local authorities haven't built social housing in large volumes for a long time, so it would take a long time to build up the knowledge, experience and resource needed for more new social homes, if the new Affordable Homes Programme does focus on social housing. It makes sense to allocate funding for 10 years to provide the certainty to plan and invest.

Two notes of caution, however..

1) A problem governments increasingly have is that spending more money has diminishing returns. The additional £500 million for the Affordable Homes Programme in 2025/26 in the Autumn Budget meant total grant funding of £12.0 billion between 2021 and 2026 and the Affordable Homes Programme was initially expected to provide 180,000 homes (including at least 130,000 outside London and 35,000 in the capital) but Homes England and the GLA subsequently reduced delivery expectations and MHCLG revised the total target down to between 110,000 and 130,000 homes. So, even with more funding, delivery is still a lot lower than the original target. Essentially, double the money doesn’t mean double the number of new homes.

2) According to the Spending Review document, MHCLG capital expenditure in 2029/30 will only be 13% higher than in 2024/25 in nominal terms (see chart in the comments), and cost inflation will erode that. This means that to get the Chancellor’s "biggest social and affordable housing investment for 50 years" there will have to be cost-cutting elsewhere, a reliance on the Chancellor’s "catalysing private investment to further boost house building" and also sharp increases in housing investment in the years after 2030.