The Future Homes Commission calls for a revolution in the supply of affordable housing, but is relying on local authority pension funds to pay for it. That’s a problem.

A new report from the Royal Institute of British Architects on Britain’s housing crisis is good at diagnosing some of the problems but less good at offering viable solutions.

The RIBA set up a ‘Future Homes Commission’ which has just published its report.  It starts well.  ‘Britain needs a revolution in the scale, quality and funding of home building…’ it says, ‘if we are to have any hope of meeting the housing needs of our growing and changing population’.  It goes on to set an ambitious target to build over 300,000 homes per year in ‘sustainable communities of mixed-tenure homes’, but then adds that this can be achieved ‘without additional government funding’.

Given who commissioned the report, it is not surprising that it focuses strongly on housing design and this is the aspect that it deals with best.  It says that new houses are often poorly designed, take little account of customer preferences and are out of date in terms of modern needs.  As a guide to what’s wrong with recently built homes, my only quibble would be that it pays far too little attention to energy efficiency, and the low standards being met that are sure to store up future problems.

It is intriguing that many of the schemes the commission likes were built by social landlords.  However, its prescriptions to the private sector, that it ‘should talk to the public’ and provide better information about its products, seem unlikely to achieve the game-change it calls for.  The commission also wants tougher and wider-ranging building regulations, but surely the industry would oppose these and they run counter to the most recent government promises to cut red tape.

The report is on weaker ground when it makes prescriptions about increasing housing supply.  It has one good idea – making better use of local authority pension funds – but it is not a new one and the obstacles are substantial.  While the report is right to say that partnerships between councils and pension funds might pave the way, it doesn’t acknowledge that councils have very little power to sway pension fund decisions, or that the rates of return required are likely to mean property being let at full market rents.

Although the report identifies that ‘fixing a broken housing market’ requires addressing a housing benefit bill of £20bn, it has much less to say about how that might be achieved. Dismissing the need for more public subsidy, after housing investment was cut by 63% in the last spending review, is very dangerous unless you can offer another way of delivering new housing at affordable rents.

The commission says that local authorities are ‘perfectly positioned’ to lead investment in housing.  It wants them to use their own land, but councils understandably will want a share of the benefits in terms of housing at low rents.  It wants them to use spare money in their housing accounts to build the infrastructure to support private development.  Yet this money is ring-fenced for affordable housing.  Then it wants councils to make greater use of their planning powers to secure mixed-tenure schemes, but also complains that it is their excessive use of these powers (under ‘section 106’ agreements) that is blocking private developments.

The mixed messages are understandable given the scale of the challenge if we really are to build 300,000 homes per year.  New house building for sale is moribund because not enough new buyers can get mortgages.  Housing associations will build 80,000 new homes by 2015, but tenants in London will have to pay on average over £300 extra per month in rents.

The Public Accounts Committee warns that the programme may exhaust associations’ borrowing capacity. Councils could invest more but are subject to government borrowing caps.

The most buoyant part of the market, with growing supply and even faster growing demand, is private renting.  But almost all its growth comes from renting out existing stock, not new building.  Where are the investors to build new rented properties? Few and far between, because although the returns are potentially attractive they don’t want to take on the development risks or the landlord duties.

The Future Homes Commission is right to say that pension funds might provide a beachhead for tackling this issue, but it is wrong to give the impression that a quick and simple solution is at hand.

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