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The case for investment in social housing

 

Jess Tomlison, Managing Director Housing, presents the case for two new forms of public-private partnerships that could help deliver 200,000 new social homes.

Jessica Tomlinson
Managing Director & Head of Housing
Published on: 29 January 2025
5 min read

Over the last forty years, the UK has not delivered enough social housing. This has left millions on waiting lists, an increasing housing benefits bill, and the capacity of housing associations to deliver new social homes squeezed by inflation and increasing costs. However, there are potential solutions to the social housing crisis, including two new forms of public-private partnerships that have the potential to deliver 200,000 new social homes over the next decade at little additional cost to the taxpayer. 

 

The crisis in social housing 

The decline in the provision of social homes over recent decades has been well documented. Across Great Britain, over 1.5 million households are stuck on social housing waiting lists. 159,000 children will go to bed tonight in temporary accommodation and at least 354,000 people are homeless in England – an increase of over 14% in a year, and the highest it has ever been.1  

Below inflation social rent settlements alongside rising interest rates and costs – especially from the need to invest in improving the condition of current housing stock - have limited the ability of housing associations to invest in new social housing. Since 2015, housing associations have seen a 15% fall in real terms rental income,2 whilst facing significant, competing demands on capital to invest in decarbonisation, building safety and damp and mould remediation in existing homes.

The starkness of the decarbonisation challenge is demonstrated by the fact that housing associations will need to find an additional £36 billion to bring social housing stock to EPC C by 2050 – and that’s on top of the £70 billion they are already planning to invest.3

We currently support over 340 housing associations, and have, therefore, seen how these trends have had a material impact on their financial health. Interest rate cover (a measure of the ability of housing associations to service their borrowing) across the sector has dropped sharply over the last five years.

Many are on long term debt arrangements, meaning they will likely face increased repayments when they refinance – echoing the experience of the mortgage holders coming to the end of fixed rate deals agreed when interest rates were much lower.   

In short, there is limited capacity in the sector to deliver more social housing. 

"At least 354,000 people are homeless in England – an increase of over 14% in a year and the highest it's ever been."

Time for a social housing policy rethink 

Over the last forty years we have seen a reduction of around 1.4 million homes available for social rent.4 Successive governments have instead managed the need for subsidised housing through social security – using housing benefits to subsidise those on lower incomes to live in the private rented sector.  

This shift from investment in new housing to subsidies for households followed a major programme of public investment in new council housing in the post-war period, and was in part driven by a desire to create more flexibility and labour mobility in the economy at a time when waiting lists for social housing were low. However, the housing needs of the country have changed significantly since the 1970s.

Increasing rents mean that supporting households to stay in the private rented sector now costs the government around one fifth more than doing so via social housing.5 The net result is a growing housing benefits bill, projected to reach £42.6 billion by 2035 – an increase of nearly 50% on 2020.6  

In fact, the government is spending more now (inflation adjusted) on low income housing than we did in 1970, when we were building 100,000 social homes a year.7 It’s clear we need to rethink our policy approach to create a new era of investment in social housing.  

 

Finding the money to build more homes 

While there is consensus over the case for increased investment in social housing, views differ as to where that investment should be found. As discussed, there is limited capacity in the housing association sector to deliver more investment in new social housing, while the current position of the public finances is well documented. Some form of increased government subsidy for social housing will need to be part of the equation, but the crowding in of finance from the private sector will also be required.  

To do so will depend on innovative public-private partnerships. One such partnership could be a new ‘Social Housing Contract’, that would help facilitate a transition in government financial support from the benefits system into new housing supply by providing an additional payment over time, additional to rental payments, made directly to housing providers by the government.

We would suggest this should be tied to additional homes for social being made available, meaning that the Social Housing Contract would increase the revenue paid to housing associations as well as the up-front private capital that can be raised to finance the development of new social housing.  

This may sound like a significant taxpayer expense. However, the savings the government could make for moving households in receipt of housing benefits would be significant, in particular if the newly built housing is targeted at areas with the highest existing levels of public support through housing benefits.  

The outcome would be to direct more funding to delivering more social homes via housing associations, rather than subsidising rents paid to private landlords. We think this mechanism could deliver 95,000 additional homes for social rent over a decade at the level of grant funding available via the current Affordable Homes Programme - with limited additional cost to the taxpayer.

 

The hidden cost of the housing crisis

The number of people experiencing homelessness in the UK is at an all-time high, with a staggering 240,000 households living in unsuitable temporary accommodation. We explore the social housing shortfall.

Read David's article Read David's article about social housing (opens in same tab)

Land value – a secret super power 

Our second suggestion is focused on the creation of new land delivery vehicles at a regional level. Essentially, land delivery vehicles are specially formed organisations that can bring together both publicly owned and private land with capital providers and the skills of developers and Registered Providers.

Exact structures vary – but generally involve the ability of the land delivery vehicle to borrow against the value of land and use it as equity to finance development, which in this case could be used to deliver social homes. It is a partnership arrangement we have seen deliver significant numbers of social homes in places such as Vienna and Copenhagen.8

The key to this mechanism is land value and the potential to raise the level of ambition to expand the collaborations between the public and private sectors that are beginning to emerge, but on a very local and limited scale.

While land can present a challenge to building more social homes, as the biggest landowner in the country, the public sector is sitting on an untapped well of value. Just 1% of the land and buildings owned by local government could provide around £2 billion in patient equity for investment in social housing projects. That could be enough to deliver 100,000 social homes.  

 

The bigger picture 

The development of these proposals has been informed by close discussion with leaders of the housing sector and local communities, as part of the Social Housing Initiative – convened by our Chief Executive Charlie Nunn. What has come through loud and clear from these discussions is that increasing funding to the sector is only part of the solution and no single measure will deliver the scale of social housebuilding required.  

Looking ahead to the government’s planned long-term strategy, we believe this will need to recognise the vital role homes for social rent have in building communities, as well as bringing forward a package of measures that increases grant subsidy, gives rent certainty to social housing providers, reforms the planning system and invests in the skills needed within the housebuilding sector to accelerate delivery.

The government’s early moves to provide an injection of short-term funding to the sector and consulting on setting a five-year social rent settlement are to be welcomed. However, given the scale of the social housing crisis, there is much further to go.  

Together with our charity partner Crisis, we are calling for one million more homes at social rent over the next decade – the number we think will be required to meet housing need and end homelessness in the UK. Reaching this goal will require radical policy making and housebuilding on a scale not seen since the 1970s, as well as new and innovative forms of public-private partnerships.

The approaches set out here are an initial contribution to the debate on how a new era of social housing investment might be financed. Delivering this number of social homes will require policymakers, housing providers, financial institutions and communities to come together behind a common goal. Together we can ensure everyone has access to the homes they need to secure their future.

Housing 

Jessica Tomlinson
About the author Jessica Tomlinson

Managing Director at Lloyds Bank Corporate & Institution

Jessica Tomlinson is Managing Director at Lloyds Bank Corporate & Institution. Previously, she was Managing Director, Head of Public Sector, UK Corporate Banking.

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