Matthew Warburton, Policy Advisor at the Association of Retained Council Housing (ARCH), highlights new research, which makes a strong case for building thousands of new council homes.
The Government’s decision to extend the furlough scheme until the end of the March has helped to dilute and delay the expected surge in unemployment caused by the coronavirus pandemic. But prospects for 2021 look bleak, and with more lay-offs and short-time working the inevitable consequence is thousands more tenants facing a difficulty in paying their rent.
For council and housing association tenants, universal credit provides a safety net of a sort, although the five-week delay in payment of UC makes it almost unavoidable that tenants build up arrears before benefits kick in. Private tenants, however, cannot expect the benefits system to provide more than the Local Housing Allowance, which is set to match only the lowest third of rents in any area.
Tenants hit by the economic effects of the pandemic will not all be in the cheapest third of the market, nor will they find it easy to move to cheaper property given the reluctance of many private landlords to accept tenants on benefits. That is why research commissioned by ARCH and others suggests that council waiting lists are likely to double next year, alongside a big increase in the number of households becoming homeless from the private rented sector.
Councils already have 93,000 homeless households in temporary accommodation for which they are seeking permanent housing and are under strong pressure to permanently reduce rough sleeping numbers by finding longer-term solutions for those housed temporarily during the last lockdown. How can they be expected to cope with these additional new demands? Some might say that the obvious answer is to build more new council homes.
Strong case for new council homes
New research, mentioned above, commissioned from respected macroeconomic forecasters Pragmatix Advisory, makes a strong case for building 100,000 new council homes, both to meet the housing needs just described and to deliver the best kind of post-pandemic stimulus the Government could design. It forecasts that 1.3 million worker-years of construction activity will have been lost to COVID by 2024 unless there is further government intervention. This equates to at least half a million new homes.
Pragmatix were asked to assess the economic impact of building 100,000 new council homes as part of a post-pandemic economic stimulus. They conclude that expenditure on new homes is a highly effective way to boost the domestic economy with little money lost to importing foreign goods and services and benefits spread among a large number of small and micro-businesses right across the country. They estimate that building these homes would cost around £11bn, but by supporting 89,000 construction jobs and £5.7bn worth of sales in the supply chain, it would deliver an overall economic boost worth £14.5bn.
Just as importantly, the Government’s contribution to making this happen would be repaid with interest. Councils could not finance the homes on their own — the expected rent revenue would not be enough to support the initial borrowing. But once the overall impact on the public finances is factored in, it is clear that it makes sense for the Government to provide an initial contribution sufficient to get the homes built. The payback would include savings in unemployment benefits and tax revenues from the extra jobs created, plus the benefits savings from moving households from higher-rent private tenancies into council homes at social rents. Over 25 years, the research estimates an overall surplus of £7.8bn, equivalent to a real return to government of 3.8% a year.
This is just the kind of proposal that Chancellor Rishi Sunak needs to include in his long-awaited Spending Review.