Ian McDermott: Housing associations cannot respond to London’s social homes emergency without more government money

Ian McDermott: Housing associations cannot respond to London’s social homes emergency without more government money

When people talk about the housing crisis I want to ask: which one? A safe, comfortable affordable home is the foundation of good health and wellbeing and a springboard to people’s success in life. In my view, investing in the expansion of good quality social housing would be the single best way of alleviating poverty and improving social mobility. But the challenges of doing that here in the capital have never been greater.

The current model for providing good quality affordable homes is broken. There are multiple crises in the national housing eco-system, and the problems are particularly acute in the capital. Housing associations and our partners see the impact of the growing emergency every day.

Not-for-profit providers like Peabody rely on rental income to make sure homes are safe and comfortable. But between 2016 and 2020 our heavily-regulated rents were cut by one per cent a year despite sharply rising costs and investment needs. Covid meant planned work was put on hold and resulting backlogs have worsened the problem. The cost of repairs and maintenance has risen by 17 per cent in the past year and we have a lot of catching up to do.

In 2021/22, the social housing sector spent almost £7 billion on improving homes, with G15 landlords – the largest housing associations operating in London – investing almost £1 billion in the capital. Safety and decency are top priorities, but spiralling costs and limited capacity in the supply chain post-Brexit are adding to the challenge of carrying out responsive repairs and home improvement programmes at pace.

The lack of social homes means that people are often stuck in living conditions that are unsuitable and bad for their health. National Housing Federation analysis suggests that one in six children in England and more than half a million in London are living in overcrowded conditions, which have a devastating impact on people’s wellbeing.

There is a critical shortage of family-sized homes people can afford. This means every day brings an impossible rehousing challenge for providers. If a three-bed becomes available, how do you prioritise who gets it? Would you choose a family of six living in a one-bedroom flat, a mother with three children fleeing domestic abuse, or a family with damp and mould-related health conditions that is desperate to move?

There are more people living in temporary housing in London than the rest of England combined and one in 23 children are homeless. That means at least one child in every classroom in the capital does not have a secure place to live. This is a desperate and severe homelessness crisis and it is costing London boroughs £50 million a month to pay for inadequate temporary accommodation. Collectively, those councils say they must also save £100 million from their business plans this year to balance the books.

The use of temporary accommodation has increased by 66 per cent since 2010 and people can be stuck in it for years at huge cost to local government, unable to get to the top of the ever-growing social housing waiting lists. Research by Shelter and Trust for London has revealed that 75 per cent of households in this situation live in shockingly poor conditions. This includes one in five people living with a safety hazard such as faulty wiring or fire risks, two-thirds with little or no access to basic cooking or laundry facilities, and more than one in three parents saying their children do not have their own bed.

Despite this level of need, government figures show that the number of social rented homes goes down every single year just because of Right to Buy sales. The Department for Levelling Up, Housing and Communities has returned almost £2 billion that could have funded new homes or building safety work to the Treasury. The Savills research team has calculated that there is a funding shortfall of £4.4 billion every year for social homes in London.

Social rent provides discounted homes for people in housing need to rent, typically at around 50 per cent lower than market rents. Peabody’s average rent in London and the Home Counties is £127 a week, which adds up to more than £621 million a year less than the equivalent at market rates would be. Doing this means we accept it takes us around 60 years to cover the cost of building and maintaining a new social home.

The economics of social rent make it difficult to meet demand in the capital. However, this is the tenure we need to provide for those most in need, and the housing association delivery model is a powerful one: charitable organisations leverage a combination of private capital, grant and cross-subsidy from sales – where we face an uncertain market – to maximise affordable delivery in the context of scarce public resources.

The Peabody group as a whole built 1,874 affordable homes in London and the Home Counties last year. Of those, 604 were for social rent – more than any other landlord. During the year we invested over half a billion in development using just £69 million of grant at a ratio of 6:1.

Moving forward, public investment, or government grant, accounts for up to 40 percent of the cost of building each social rented home. The money to pay for the rest is met by housing associations’ own resources, including borrowing, where we face increased interest rates.

Cumulatively, the social housing sector now has over £100 billion of borrowing to part-fund new social homes. And as costs rise, so does the massive level of need. The limits of the present funding model are clear, particularly so in times of macro-economic stress, such as now. The social homes the country needs cannot be delivered by relying on housing associations’ balance sheets. More public investment to complement our own is essential if we are to tackle London’s housing crisis.

Providing it would make social and economic sense. The provision of social homes fit for the 21st Century and beyond can help drive prosperity, create jobs and value in local supply chains, and generate genuinely inclusive and good growth. It is, in many, ways critical infrastructure for the country. Housing associations are ready to play their part and have set out through the National Housing Federation what a sustainable long-term plan for housing could look like.

In the current climate, with heavily constrained public finances, the outlook for properly funding the necessary step-change looks bleak. But given the desperate level of need, particularly in London, the question is whether the government can afford not to address this worsening housing emergency.

Ian McDermott is chief executive of Peabody and Vice-Chair of the G15 group of housing associations. Photograph: New Peabody homes on the Thamesmead estate. If you value On London and its writers, become a supporter or a paid subscriber to Dave Hill’s Substack for just £5 a month or £50 a year.

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