Alex Morton is Head of Policy at the Centre for Policy Studies, and is a former Number Ten Policy Unit Member.
During the height of the pandemic, the country came together on Thursday evenings – led by the Prime Minister – to clap for our carers. But the debt we owe isn’t just to NHS staff on the front line of the pandemic.
It’s to care workers, public transport workers, delivery drivers, supermarket staff – all those forced to stay working even as Covid raged.
This group who put themselves at the most risk are also the most exposed to another ongoing crisis – the housing crisis. Such key workers tend to earn less than others. They also have little choice about where they live and work. These factors combine to often make it hard for them to rent or own a decent home.
To curtail the ongoing housing crisis, the Government is working up a substantial package of reforms based on last year’s Planning White Paper.
Helping key workers was already one of its priorities, even before the pandemic: the Conservative manifesto set out plans for councils to prioritise vital local workers for discounted housing. Yet in the wake of the social care and tax rise saga, there is little scope to spend more on housing, or anything else.
But what if we could solve a multitude of these problems at once?
As I’ve argued in recent work on housing policy for the Centre for Policy Studies, we are never going to fix the housing crisis if our only solution is making more land available for the large house builders. Not only does this often result in Identikit (and often poor-quality) housing, which increases local opposition to further development, but it means what does get built gets built more slowly.
As our report ‘The Housing Guarantee’ showed, the large house builders’ control more than a million strategic land plots. The speed they build out those plots is governed by the speed they can sell homes.
The best way to ease this bottleneck is to diversify the kind of housing that is being built, and the market for new homes – to appeal to more than just the moderately affluent first-time buyers who are the industry’s bread and butter. Greater market diversity becomes even more important if other aspects of the planning reforms are shelved, as has been recently reported.
Our new report, Homes for Heroes, tackles all three of these key issues:
1) Helping to build more homes by diversifying housing supply
2) Supporting key workers into good homes and home ownership
3) Avoiding upfront spending when money is tight
Helping to build more homes by diversifying housing supply
The report argues for expansion of existing and proven ways to deliver homes outside the typical large house builder build-to-sell model. Core to this is more shared ownership. Shared ownership allows a buyer to purchase their home in partnership with an investor. They pay a mortgage on the share they own, and a cheap rent to the investor (usually 2.75 per cent of the capital value the investor owns).
As the purchaser only needs a mortgage for their share, they need a smaller deposit. Rent to buy or other low cost pathways to ownership (helping a tenant build a deposit to put down on a home) are also an opportunity here.
Another key opportunity is build to rent, which offers professional property management and, most importantly, allow for the creation of long-term stable tenancies. While uncommon in the UK, this model is very successful elsewhere: in the Netherlands almost half of all institutional property investment is in residential. More self- and custom-build, already popular in comparable countries, could also be part of the mix.
Supporting key workers into good homes and home ownership
Our report calculates that monthly housing costs on a £300,000 Home for Heroes property would be just over £1,000, several hundred pounds cheaper than private rent or outright purchase.
Supporting key workers into good homes and home ownership. We argue that at least 75 per cent of homes on any Homes for Heroes site should encompass a low-cost pathway to ownership, with the remainder built to rent with longer tenancies.
We propose that these homes should be offered first to local key workers – in both the public and private sectors. This would be a fitting way to reward the heroes who kept the economy moving during the darkest days of Covid. This is not about preventing other people from getting on to the housing ladder. It is about diversifying and expanding the market, to accelerate build out.
Avoiding upfront spending when money is tight
The best part of this proposal, at least from the Government’s point of view, is this requires no extra grant.
Currently there is a real lack of opportunities for long-term institutional funding, such as pensions. The investment industry is actively seeking long-term projects with stable returns for investors, especially given gilts’ low returns and the uncertainty facing sectors such as commercial property. As the Prime Minister has frequently said, there is a vast pool of private sector investment that can be used to tackle the nation’s problems, and building Homes for Heroes is the perfect example of such a win-win.
For this to happen, we propose two main policy reforms:
1) Letting developers of this housing – which is by definition affordable and socially useful – draw on the £5 billion of government housing guarantees currently sitting unused
2) Ensuring land is allocated towards this new type of housing
Short term, we suggest that the Government should unlock an existing £5 billion in unused existing housing guarantees at the forthcoming Autumn Spending Review. As this is money that has already been pledged and set aside, this asks for no new money from hard-pressed taxpayers – indeed, it likely means spending no money at all, since these are guarantees rather than grants.
The successful precedent here is build to rent, where similar (cost free) guarantees signalled to investors that the Government supported the creation of such housing. To see how vanishingly unlikely it is that such guarantees will be called upon, this would involve rates of non-payment of rent reaching over 25 per cent. Even at the height of the Covid-19 crisis, residential rental payments were running at 96 per cent – even with a ban on evictions.
In the longer term, the Government should draw on the success of student housing. This has boomed in recent years after it was made a separate class of land from general residential that large house builders couldn’t buy. We suggest that Government should require councils to set aside land for ‘Homes for Heroes’ in new local plans, aiming to deliver 50,000 homes each year – or 250,000 homes over five years.
This means that land would flow outside of the typical ‘build to sell’ house builder route, increasing build-out rates by creating a new route to market alongside existing housing types. This should be part of a wider push to get land to a range of builders.
If these proposals are adopted now, the first of these homes could be delivered before the next general election, with tens of thousands more on the way. This can work alongside the First Homes product to help expand ownership.
Homes for Heroes can be a win for all. They can increase housing supply. They can save the government further spending. They can offer a good return to pension funds. But most of all, they can show key workers in both the public and private sectors who kept the country moving that their risk and sacrifice has not been so quickly forgotten.