Raise funding for social housing or fail to meet building targets, government is warned

Increased funding for social housing is needed to meet ambitious government building targets, according to experts.

Representatives of England's housing associations estimate they need funding for affordable homes to be nearly doubled to £4.6bn a year alongside other funding and policy measures.

Ahead of this week's budget, the Treasury has teased a £500m boost to the current affordable homes programme, which is currently under target and out of funds.

This will bring average spending on the programme, which ends in 2026, to around £2.5bn a year across its five-year total run.

Responding to the announcement, the National Housing Federation said it welcomed the "vital" short-term top-up.

But the sector will have to wait until the spring for clarity on future funding arrangements.

In a letter obtained by Sky News, representatives of the Chartered Institute for Housing, the National Housing Federation, and homelessness charities Crisis and Shelter warn Rachel Reeves that without "significant new investment" in social housing the government's long-term housing plans will fail.

They have each made their own funding recommendations to the chancellor and agree that "ambitious" public investment is essential because the private sector can't meet the building target alone.

"While the government's 1.5 million homes target is warmly supported, our organisations have emphasised that this can only be achieved via a major increase in output by both the private and social housing sectors," the letter states.

It cites a recent report by Savills suggesting the government will fall short of its target by almost a third without boosting the social sector and supporting first-time buyers.

The National Housing Federation estimates that housing associations have the capacity to contribute 200,000 social homes towards the government's overall building target but estimates this will require a funding package of £6.6bn a year from the next spending review.

That's £4.6bn to build social housing plus an additional £2bn a year required to cover increasingly expensive building upgrades and maintenance costs, which have sucked money out of current budgets.

This would be a major increase on current spending and doesn't include other potential costs for the government like the recently announced Brownfield Land Fund.

But in historic terms, it's a small fraction of what has been invested previously.

Growing pressure on housing system

In 1976, housebuilding accounted for almost all government housing spending, at £22.7bn in inflation-adjusted prices.

This was around the last time England built homes at anything like the scale now being proposed, but back then nearly half of housebuilding was funded by government directly.

Since then, building has been left increasingly to the private sector and the balance in building vs benefits spending has reversed. In 2022, spending on building was down to £3.9bn a year, overshadowed by a £28.6bn benefits bill to support people through various types of housing subsidies.

Shifting spending away from building towards benefits can work when there is enough housing supply, as these subsidies can be more flexible to people's changing housing circumstances.

But soaring spending on benefits in recent years is symptomatic of growing pressure on the housing system.

Despite attempts to control expenditure through cuts and benefit freezes under the previous government, a lack of available affordable housing has meant spending has repeatedly surpassed official forecasts.

Shrinking social housing sector

A record 117,000 homeless households are now in temporary accommodation, while the social housing waiting list has grown to 1.6 million in England, driven by rising housing costs while social housing stock has been diminished by a decrease in new building combined with right to buy sell-offs.

The proportion of social houses has reached a new low, nearly halving in the past 50 years from 28% of housing stock in 1973 to 16% by 2023.

Gavin Smart, chief executive of the Chartered Institute of Housing, told Sky News: "We completely support the government's goal of building 1.5 million homes.

"But that goal will be missed without supporting investment by the government.

"Boosting the supply of social rented housing is critical to tackle homelessness, enabling local authorities to move people more rapidly out of expensive temporary accommodation and reduce these costs that are currently crippling public finances. We need a sustainable housing system that supports a vibrant economy."

In response to the letter, the Ministry for Housing Communities and Local Government said it remains committed to fixing the housing crisis and to targets, including "the biggest increase in social and affordable housebuilding in a generation".

A spokesperson said: "We will set out details of future government investment in social and affordable housing at the next spending review, so social housing providers can plan for the future and help us to achieve this."

It remains to be seen how much this future investment may be, with the generational increase suggested starting from a low base.

Bristol embodies the housing crisis

Bristol is at the forefront of England's housing crisis. At 49% of income, average rents are higher compared to earnings than anywhere else in the country, up from 41% in 2015. House prices have risen to nine times average earnings over the same period.

While building more homes for the private market is welcomed by the local sector, they stress that there needs to be buyers for them.

Estate agent Sean McCarthy, land and new homes director at C J Hole, told Sky News: "The change in interest rates has impacted a lot of the buying power of purchasers, especially first-time buyers, and has definitely taken some buyers out of the market.

"That's probably been one of our biggest challenges on the new homes market, certainly in the last 12 months.

"More housing is great, but we also need more housing at an affordable level so people can get on the ladder. And any assistance with regards to a government-backed incentive that would enable people to get out of renting and into homeownership would be very welcomed by us."

Meanwhile, the social housing waiting list in Bristol has increased by nearly 13,000 households since 2015.

Sky News met nurse and travel agent Esther Umambo, a single parent to four-year-old daughter Annabelle.

They have been waiting for social housing for four years, since Annabelle was born, but Esther says she holds out little hope of securing a tenancy while the number of people in need continues to grow.

"There's loads and loads of people in front of us. I think a lot of people are in the same situation. Single parents, but also couples," she said.

Bristol has one of the largest social housing waiting lists in the country for its population size, with now more than 20,000 households waiting for accommodation.

"Rent has increased massively over the past five years. It's very difficult to afford, I came into Bristol about 15 years ago and the rent is just going up and up."

Rent for her one-bedroom flat is £1,200, and she gets by for now by juggling two jobs and relying on Universal Credit. But she and her daughter share a bedroom, and there will come a point soon where this is no longer viable.

"We manage at the moment. I consider myself lucky to be honest, just by being able to work two jobs. Some people are not able to work. But as she grows up, she needs her own room as well," she explained.

It leaves her feeling frustrated at the situation. She said: "They need to build housing that is affordable for people like me. I'm just a normal person, but the rent can't keep going up and up and up. I mean, who's going to be able to afford to live in Bristol in the next 10 years?"

Ed Kehoe has been homeless for five years in Bristol, moving from "pillar to post" while he has grappled with mental health and addiction struggles. For now, he has been placed in temporary accommodation while he awaits more permanent housing, but it's not easy.

"The system is not working. We've got a massive, massive homeless problem in this city. And people are not allocated to the correct property and the correct services," he said.

"It's really difficult. It's harsh out there, you know, people are ending up on the streets because of it. The system needs to change."

Targets are 'too crude'

Bristol is an example of an urban area with an acute housing crisis where proposed housing targets have, counterintuitively, been downgraded.

They've been revised from 3,400 additional homes a year down to a proposed 3,000. This is still a larger number than has been achieved in recent years however, which was around 1,800 additional homes a year from 2021 to 2023.

The government has reinstated mandatory building targets for local authorities, with a new formula devised to calculate how many homes each area should be aiming towards. This has shifted focus away from urban areas and puts more building pressure on the north of England.

Targets have been put forward for consultation with local authorities in proposed reforms to the National Planning Policy Framework. These targets are not an entirely new concept but had been scrapped by Michael Gove under the previous Conservative government.

Other areas have had large uplifts in their building targets. In Westmorland and Furness in the North West, for example, where targets have been increased by 530% from current targets and 341% of current building rates with an ask to add 1,430 new homes per year. However, data suggests that this already among the most affordable areas in England, with rents at 21% compared to average incomes.

The maps below show how new targets relate to housing affordability and social housing waiting lists in England.

The areas with the highest housing costs and greatest demand for social housing waiting lists on the left, are not the areas with the biggest uplift in building targets, shown on the right.

"There are issues around the targets. I think they're too crude," said Glen Bramley, Professor of Urban Studies at Heriot-Watt University.

"They are too high for London, given actual experience and acceptable standards for density and greenspace, and also too high in some of the economically weaker parts of the north of England where there isn't going to be enough buyers who can buy market housing at a viable level for private developers to be that interested," he explained.

This can lead to issues with poor planning and haphazard development where small numbers of homes are completed "miles away" from services or adequate infrastructure.

"Some of the targets for the most prosperous areas where demand is greatest, where the labour market is very tight, and where there are real affordability problems could be more ambitious," he added, including areas across the south which are already well served by transport and other infrastructure.

Builders can only build if buyers can buy

The addition of 1.5 million homes, equivalent to 300,000 a year, would be unrivalled in historic terms.

Even when housebuilding peaked at over 350,000 in 1968, high rates of demolition meant that net additions were below 200,000. 

"The new government's approach on planning is very positive thus far," said Steve Turner, executive director of the Home Builders Federation (HBF), which represents private housebuilders in England.

"There's a clear commitment to deliver more homes and, as we've seen on the planning side, to take difficult policy decisions that the industry wholeheartedly welcomes."

Roadblocks to success

These measures include the reintroduction of housing targets for local authorities and tackling the thorny issue of building on England's greenbelt by proposing development on poor quality or previously developed land, newly defined as the 'grey belt'.

But while most of the policy announcements so far have been focussed on unblocking the planning constraints which have been blamed for England's sluggish housebuilding in recent years, there are a number of other potential roadblocks to success.

"While the planning reforms are very helpful, they don't address the demand side of the equation," a senior executive of one of England's largest private housing developers told Sky News.

For commercial sensitivity reasons, he has requested to remain anonymous.

"We know the biggest driver of demand for new housing is affordability. With mortgage rates where they are, the cost of mortgages for new home buyers and first-time buyers is high and therefore that is limiting demand for new homes," he added.

"Recent trading statements from the biggest housebuilders show a drop in the number of active building sites as a result. The number of housing completions is actually set to drop over the next couple of years. So, in terms of delivering a significant increase in output, they're starting from a low base."

Plan for mortgage guarantee scheme

The government has proposed a mortgage guarantee scheme but there are no current plans for buyer support schemes like Help to Buy, which have been controversial in the past for their potential contributions to raising house prices.

And issues of affordability are unlikely to be resolved even with increased building supply.

Sky News analysis of changes in house price affordability compared to rates of housebuilding illustrates that areas in England that increased housing stock the most since 2015 have also become proportionally more expensive compared to earnings over the same period.

Sevenoaks in Kent added 11 homes per 1,000 population from 2015 to 2023, but still saw the biggest increase in house prices relative to earnings, increasing from 5.9 to 10.9 as a multiple of average earnings.

This is in part because of pent-up demand, and also because new build properties are more expensive than houses on the second-hand market.

Further challenges ahead

There are a number of other challenges ahead when it comes to ramping up planning processes and building supply, according to Steve Turner from the HBF.

He explained: "We estimate that the nutrients issue where there's currently a moratorium on housebuilding in 74 local authority areas is currently blocking around 160,000 homes.

"The government has said it will bring a solution on that, and we need to see that come forward.

"There's also a clear issue at the minute in terms of local authority planning department capacity."

The government has said it will recruit an additional 300 planners for local authorities, which while a "welcome recognition of the issue", only amounts to roughly one additional planner per local authority, and could represent a big drag on the capacity to accelerate planning approvals.

Workforce capacity in the construction industry is also a looming issue.

"We're going to need tens of thousands of new people to be able to build those homes. The newly created Skills England needs to work closely with industry so that grant funding for that is used in a way that means we're bringing enough of the right kind of people through into training," added Mr Turner.

"I think we also need to look at how you provide access to foreign labour."

And developers are also waiting for stability in housing associations' finances in order to be able to start building projects, where there are requirements for housing associations to take on a proportion of the homes as affordable housing.

"Housing associations are not in the market at the moment for taking on additional stock as they've got huge financial pressures on them to upgrade their existing stock, but also in terms of building safety issues," said Mr Turner.

"That's creating an issue, both in terms of affordable housing provision, but also holding up the developments of private housing as well. Government needs to find a way to ensure that housing associations are adequately funded such that they can continue to take on additional affordable housing."

With additional reporting and production by Michelle Inez Simon, visual investigations producer.

The Data and Forensics team is a multi-skilled unit dedicated to providing transparent journalism from Sky News. We gather, analyse and visualise data to tell data-driven stories. We combine traditional reporting skills with advanced analysis of satellite images, social media and other open source information. Through multimedia storytelling, we aim to better explain the world while also showing how our journalism is done.