England is facing a social housing crisis if the government pushes ahead with cuts in the spending review, Rachel Reeves has been warned.
It comes as the struggle between the Treasury and Angela Rayner’s Ministry of Housing, Communities and Local Government over its budget continues, just days before Ms Reeves is set to outline the spending plans until the next election on Wednesday.
With no agreement having been reached on housing, the chief executive of one of Britain’s largest housing associations has raised the alarm that of a “cliff edge” over building more homes – which means money is set to run out by 2026.
The warning from Fiona Fletcher-Smith, chief executive of L&Q and until last week chair of the G15 group of London housing associations, comes as the Local Government Association (LGA) has warned that 51 per cent of councils are now running deficits on their housing budgets.
Homeless charities are also warning of an impending crisis with new supply unable to keep up with increasing demand for social housing.
Crisis has pointed out that over the past 10 years there has been a net loss of more than 180,000 social homes in England. Currently, 1.33 million households in England are currently stuck on council waiting lists for a social home.
Ms Fletcher-Smith explained that the problem began with George Osborne’s austerity budgets in 2010 when he slashed 63 per cent of the capital budget to build new homes.
She said he then “welched” on a deal to allow them to make up for the loss by charging CPI inflation plus 1 per cent in rent. which housing associations and councils now want restored for a decade. This will allow them to borrow money to build as it comes through as guaranteed income.
The cumulative effect now means that housing associations no longer have the funds to build projects.
Ms Fletcher-Smith said: “Housing decisions are so long, it’s not just planning permission, you’ve got to get all utilities, everything else lined up to build. It’s a five to seven years to run in to build housing. We could see from our own predictions, we were just going to go off cliff edge, by 2025/2026.”
The sector is also still struggling with the impact of the Grenfell fire tragedy in 2017, with thousands of homes now subject to problems with cladding which is costing them £2.6bn in London alone.
In London alone, £4 million a month is being spent on “keeping people in temporary accommodation” because homes with cladding are too dangerous to return to and clogged courts mean legal cases to fix the problem are taking years.
Ms Fletcher-Smith also noted that the “combination of Brexit, Covid-19 and the war in Ukraine” has hit the sector not least with inflation which saw building materials go up as much as 30 per cent well above the 11 per cent peak of the headline rate.
There are now fears that Ms Reeves and the Treasury will force cuts to the housing budget to balance the books as the chancellor seeks to ringfence health spending, increase defence to 2.5 per cent of GDP and water down proposals on benefit cuts as well as U-turn on ending the winter fuel payments for millions of pensioners.
The deputy prime minister is leading a charge to protect budgets and instead push for a series of wealth taxes on big corporations and millionaires. But this has been resisted by Ms Reeves.
However, the fears over housing are shared by homeless charities who are calling for 90,000 new social housing homes to be built per year.
Matt Downie, chief executive of Crisis, said: “This spending review is an opportunity for significant investment to start to see homelessness levels come down. “Small tweaks aren’t enough to fix the problems we face.”
Mairi MacRae, director of policy and campaigns at Shelter, said: “With homelessness at a record high and councils spending huge chunks of their budgets just to keep families off the streets, now is the time to invest in building social rent homes, not cut back.”
The issue is also vexing Labour backbenchers looking at the party’s slide in the polls.
One Labour MP said cuts in this area would cause upset among backbenchers, especially those with seats in areas with councils that are already on the verge of collapse.
Another pointed out that Labour’s flagship housing pledge “means nothing if the current stock of social housing suffers” as a result of cuts.
The government provides financial support to local authorities for social housing provision, including funding for new builds, repairs, and improvements.
Commenting on the finding that 51 per cent of councils running a deficit with housing, the LGA warned: “These trends are not sustainable. There is a growing risk to the financial sustainability of some councils’ HRAs, and revenue pressures in councils’ HRAs are now being passed directly into their HRA capital programmes.”
In the Autumn Statement, the government announced over £5 billion total housing investment in 2025/26 to boost supply, including a £500m extension to the current Affordable Homes Programme which runs out in 2026.
At the Spring Statement, the government announced a down payment of £2bn for a successor programme.
To make it cheaper for councils to finance new development, the government has extended the preferential borrowing rate available for council house building from the Public Works Loan Board until the end of 2025/26.
