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The £20 billion question – how to pay for the homes England needs
20 September 2018
Housebuilding targets come and go. They are frequently increased but seldom met.At the last budget, somewhat out of the blue, the Chancellor set a housebuilding target for England of 300,000 new homes a year, with a view to delivering this by the mid-2020s. Bold and welcomed leadership, but following the announcement the first question that sprang to mind is could the rhetoric be turned into reality?
At the heart of any national housebuilding plan must lie a funding strategy which builds on what we as a nation spend and deliver on housing across the public and private sector, in order to forecast what would need to be spent to meet any targets – in this case 300,000 homes. In the absence of this detail from government, we thought we would do the job ourselves.
We commissioned the economic consultancy, Volterra Partners to crunch the numbers and set out what the nation needs to spend to deliver the homes we need. Now, I can tell you what sounds like a simple proposition is actually rather difficult to deliver, particularly once you start getting into the complexity of who spends what and how things are accounted for. It is best therefore to think of the report as a good ‘sighting shot’ – the analysis is rigorous and backed by Volterra’s long track record of understanding these issues, but it has deliberately not gone in to so much detail that it become incomprehensible.
The findings are stark:
It will cost around £68 billion from both government and private sector investment to hit the government’s homebuilding target. This means finding another £20bn – or a 40% increase – on top of the £48bn spent in 2016 – 17.
The challenge is most acute in London, where the shortage of new homes is pushing house prices up to 13 times more than average earnings. To hit London’s housebuilding target of 65,000 homes a year, £8.6bn more is needed, a 65% increase on that spent in 2016 – 17.
The combined public and private capital spending on housing delivery represents 2.3% of UKGDP (2016 – 17), but this will need to rise to 3.3% of UKGDP, a one percentage point increase, if the target is to be met.
The impact in the capital
The problem for London is that unless we find a credible way to bridge this funding gap the attractiveness of the capital as place to live and work diminishes. In 2016, about 35,000 people in their 30s left London compared with less than half that number in 2009.
At the launch of the report we heard from Starbucks that around 60% of their staff in London struggle with living costs, which is why they introduced their Home Sweet Loan scheme, to help provide interest-free loans to cover rental deposits. It’s a responsible step, but it must be the case that government, rather than relying on business to look after society’s housing needs, should do more to find a direct solution to the fundamental problem: we are not building enough new homes across all price points to meet demand, particularly those that are affordable to most Londoners.
We’re calling on the government to face up to some hard choices about how to unlock a further £20bn worth of investment if it’s ever going to turn its rhetoric of building 300,000 homes year into reality.
And for London, our businesses simply can’t afford the continued drain of talented people away from the capital. We need more money from government, more land made available to develop on, and for homes to be built in new, smarter ways to speed things up.