A Tangled Web? Housing policies from a new government in November 2015 in the UK

Introduction

The document analyzes the housing policies introduced by the UK Conservative Government post-May 2015 elections. It explores the competing priorities shaping these policies amidst a housing crisis, aiming to increase home supply, improve affordability, and support homeownership. The focus is on four key policies: Right to Buy (extension), Starter Homes, welfare reform, and affordable rent reduction. These are assessed for their alignment and potential impacts on housing supply and development.

Competing Priorities in Housing Policy

The UK faces decades of housing undersupply, termed a crisis by many. The 2015 elections emphasized housing as a critical issue, prompting the government to target one million homes by 2020. However, this goal must reconcile divergent stakeholder interests, such as maintaining property values, promoting homeownership, and reducing public spending. These competing demands have led to a “tangled web” of policies that attempt to balance fiscal prudence with public demand for improved housing outcomes.

The Tangled Web of Housing Policies

Housing policy complexity arises from its dual role as a basic need and a financial asset. Since the 1970s, housing has been viewed increasingly as an investment. This shift, compounded by fiscal constraints such as achieving a budget surplus, adds to policy challenges. The four key policies discussed are:

1. Right to Buy (Extension):
   • Extends the right for tenants to buy housing association properties at discounts, funded by selling high-value council homes.
   • Risks include shifting the housing supply geographically and reducing the availability of affordable rental properties, potentially exacerbating regional inequalities.
2. Starter Homes:
   • Offers homes at a 20% discount to first-time buyers under 40, funded by exempting developers from certain planning obligations.
   • While aimed at increasing ownership and supply, it may not sufficiently add to overall housing stock or replace affordable rental housing, especially in high-demand areas.
3. Welfare Reform:
   • Cuts to the benefit bill, including the introduction of Universal Credit, impact tenants and housing providers.
   • Reductions in tenant income may hinder housing associations’ development ambitions and financial stability, potentially leading to arrears and reduced investment in new projects.
4. Affordable Rent Reduction:
   • Mandates a 1% annual rent reduction for housing associations, reversing a previous agreement for rent-linked revenue growth.
   • This undermines borrowing capacity and site viability, reducing affordable housing development and increasing sectoral uncertainty.

Implications of Housing Policies Interaction

The interplay of these policies creates uncertainties and potential adverse outcomes:

• Supply Challenges:
  • Questions remain about whether Starter Homes can compensate for the reduction in sub-market rental housing and meet overall housing needs.
  • Developers face uncertainties about site viability, tenure mix, and land value changes that could stall or reduce new projects.
• Development Risks:
  • Policies may stall existing projects as tenure requirements shift and agreements need renegotiation.
  • Private developers may limit Starter Home production due to potential market saturation and absorption rate concerns, affecting the development pace.
• Local Government Impact:
  • Authorities may struggle to adjust policies swiftly while maintaining housing targets.
  • The absence of clear methodologies for assessing Starter Home needs complicates planning, creating potential bottlenecks in land allocation and project approval.
• Sectoral Shifts:
  • A pronounced move from sub-market rental to sub-market ownership may result, leaving significant gaps in the affordable housing supply and increasing pressure on lower-income households.

Conclusion

The new policies reflect competing goals, including affordability, ownership promotion, and fiscal prudence. However, their combined impact remains uncertain due to policy overlap, unintended consequences, and market reactions. Developers, housing associations, and local governments face significant challenges as the sector transitions toward a greater emphasis on ownership over rental options. Clearer guidelines and adjustments, alongside measures to address these emerging uncertainties, may mitigate risks and ensure balanced housing development that serves diverse needs effectively. The policies also underline the importance of balancing short-term affordability goals with long-term housing supply stability to avoid exacerbating existing disparities.

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