Housing crisis needs a flexible approach to policy and funding

27 November 2017

Grant funding should be targeted, and social rented housing considered investment, to deliver long-term savings for the public purse, Savills says in a new report.

  • 96,400 new households each year cannot afford to buy or rent a home in the open market and so need housing support
  • 300,000 new homes are needed annually across England to meet housing demand, of which a third at below market rent or sale prices (‘sub-market’)
  • Over the past three years, 55,000 fewer affordable homes have been built per year than are needed – >90% of this shortfall is in London and the South
  • Housing policy should evolve to address varying housing need across the country – in some areas renewal of poor-quality affordable housing is more important than new supply
  • To house all those in need of ‘sub-market’ housing in social rented homes would require £7 billion in grant funding every year
  • This would cut the housing benefit bill by £430 million annually and give a hypothetical saving of £23.9 billion based on current 30 year gilt rates at 1.8%

Nearly 100,000 new households* a year are unable to afford to rent or buy in their local housing market, increasing the pressure on the already undersupplied ‘sub-market’ housing sector, according to new analysis from real estate adviser Savills.

Across England some 300,000 homes a year are needed to have any impact on the crisis of housing affordability, of which a third are needed at below market pricing levels, the firm says in a new report, Investing to solve the housing crisis.

Crucially, the crisis in ‘sub-market’ housing need does not take the same form in all locations, Savills says, but housing policy does not take full account of these variations.  Tenure flexibility at a local level is needed to reflect the profile of households in need of sub-market housing andto ensure grant funding is used most effectively.

“A one size fits all housing policy fails to address the variety of issues faced in different regions,” says Chris Buckle, director, Savills research.  “In markets where affordability is the most pressing issue, greater supply across a range of tenures is needed to meet the varied needs of local households unable to access the market.  In other areas, housing quality is more of an issue, including a need to renew poor-quality private rented housing.”

The need for more sub-market homes is not in doubt, Savills says.  Over the past three years, 55,000 fewer affordable homes per year have been built than are needed, but the shortfall is largely concentrated in London (60%) and the South (33%), while current levels of affordable housebuilding in the Midlands and North are close to meeting need.

Regional split of need for homes at below market pricing:


No of new households in need of sub-market housing per year

Median annual incomes of sub-market households (excl Housing Benefit)















Source: Savills research (using EHS, CACI, Rightmove, Land Registry)

The number of new households excluded from market housing continues to rise sharply in London and the South, which together account for almost 80% of additional need each year. Also, the incomes of these excluded households, and therefore the type of sub-market housing they can afford, vary enormously across the country.  In London, a fifth have income over £35,000 and a further fifth under £10,000.  In the North of England, 80 per cent have incomes under £10,000 and none earn over £30,000.

Using grant funding to best effect – the case for building social rented homes:

In her party conference speech the Prime Minister announced an extra £2 billion of funding over four years, some of which would be available for social rent.  But to house all those in need of sub-market housing in social rented homes would require £7 billion in grant funding every year, Savills says. 

Without this funding, and if these households were able to form into the market rented sector, Savills calculates that the housing benefit bill would increase by £850 million per year.  But if it were possible to build social rented homes for all 100,000 households each year, that housing benefit bill increase could theoretically be reduced by £430 million a year, with rents more aligned to incomes at a local level.

In less affordable markets, social rent is usually priced at a substantial discount to market rent, so that is where the greatest annual saving in housing benefits can be made compared to housing people in market rented homes.  But the upfront investment would be much higher.

For example (see link below), building enough social rented homes each year to accommodate the 42,500 London households unable to access market housing, would require £3.4 billion in grant funding.  However, the benefits bill would be reduced to just £200 million, compared to the £510 million it would cost to provide an equivalent number of additional market rented homes - a hypothetical saving of £310 million a year. Based on current long term interest rates, this saving is equivalent to £17.2 billion, over five times the original grant, plus there would be a lasting gain in the form of new housing assets.

In lower value markets of the Midlands and North, where market rents are closer to social rents, the savings are lower, but still at least equal to the value of grant required, to build the almost 20,000 rent homes to meet new annual need. 

Flexibility of grant funding in these lower priced markets, with less of a focus on simply setting out to build the maximum possible number of new homes, would allow a range of housing issues to be addressed, in particular the quality of existing accommodation, as well as supply.

“Grant funding for housing could be considered an investment where it can deliver long term savings on the housing benefit bill and understanding the range of needs in different locations is a vital prerequisite,” says Robert Grundy, Savills head of housing. 

“Capital funding for affordable housing has traditionally taken the form of grant funding.  Given pressures to release public land, making it available at nil initial land value would be an alternative way to boost delivery. Importantly, a case can be made for affordable housing being part of a best value case when evaluating policy, but this must be set against the pressures to boost financial receipts.” 

Different approaches to housing the 100,000 households in need of sub-market housing – worked scenarios

 * In 2015 Savills reported that 70,000 households could be in need of sub-market housing each year.  Taking into account DCLG’s revised figures for housing need, and the fact that house price growth has outpaced wage growth across much of the country, the firm has revised its estimate up to 96,400.


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