16 September 2021

Homes for Heroes: how to build 250,000 homes for frontline workers

By Elizabeth Dunkley

Less than two weeks after signing the Armistice in 1918, David Lloyd George gave a speech promising a country ‘fit for the heroes who have won the war’. He identified housing as key to fulfilling this promise and just months after winning re-election the house-building began in earnest. By the mid-30s, some 3 million houses had been built across the UK: Homes for Heroes.

We too have heroes to whom we owe an immeasurable debt of gratitude – primarily, frontline workers within the NHS, but also the care workers, public transport workers, and private sector delivery drivers, supermarket staff and so many others who kept our society going. And we too have seen a similar desire to pull together and show our thanks to those on the front line. This unprecedented health crisis has laid bare divisions, particularly between those who could work safely from home, and frontline workers obliged to work face-to-face, in both public and private sectors.

Our ongoing housing crisis is worse for key workers, who tend to earn less than the national average. They also have little choice about where they live and work. These factors combine to make it hard for them to rent or own a decent home near where they have to travel to work. 

The housing crisis is nothing new, indeed the Centre for Policy Studies has produced numerous reports highlighting the extent of the issue. A big part of the problem is that large housebuilders have created a model that does not build enough homes, while letting them dominate the land market. That model allows them to swiftly cut their output and overheads to protect against economic downturns.  It means they bring land through the system and build homes only when they can sell at sufficient profit – the ‘build to sell’ model. 

In any given recession the fall in house building is fast and steep as sales rates fall. Any recovery, by contrast, is slow and shallow, as land is only brought forward over time as the housebuilders slowly increase their sales and build out rates while ensuring this does not impact local new build prices. The large housebuilders’ financial model of cash and equity is linked to this boom-bust and drip-drip of supply approach while SMEs are often reliant on loans. SMEs and others are being squeezed out of the system over time, making the land market even more distorted.

It is not fair to blame the large housebuilders for a model that protects them. But it shows how the domination of the land market by the large housebuilders holds back supply, and just a few more theoretical permissions here and there will not work – we need to change who gets these permissions, and what these permissions are for. 

As with other industries, the pandemic has seriously dislocated the housing market. But this dislocation should be viewed as and opportunity to create a new and improved house building model. This can be achieved by increasing the diversity of supply and scaling up alternative forms of housing which have a proven track record of success. 

We need to recapture the spirit seen after the First World War with a ‘Homes for Heroes’ programme for our time. In our new report, Homes for Heroes, we propose a new category of housing designed to deliver low-cost pathways to ownership for key workers, which also boosts supply by diversifying away from the build to sell model. 

This can be backed by a new financing model that is less volatile, based on long term institutional funding, such as pensions, less dependent on short to medium-term returns. The investment industry is actively seeking such long-term projects which are able to deliver a real rate of return for investors and ‘Homes for Heroes’ provides an ideal opportunity.

Central to the Homes for Heroes programme would be an expansion of shared ownership. Shared ownership allows a buyer to purchase their home in partnership with an investor. They pay a mortgage on the share they own, and a cheap rent to the investor (usually 2.75% of the capital value the investor owns). As the purchaser only needs a mortgage for their share, deposits are lower compared to purchasing outright. 

In our report, we calculate that monthly housing costs on a £300,000 home would be just over £1,000, several hundred pounds cheaper than private rents or outright purchase, and cheaper than under current government schemes. Over time, the shared owners would have the right to buy an increased share in their property up to and including 100%.

This arrangement is mutually beneficial. It allows the shared owner to become an owner-occupier with the long-term security and stability of home ownership at an affordable price. Meanwhile, the investor has a long-term asset.

Another key opportunity is ‘build to rent’ – housing built specifically for rent instead of for sale. These developments offer a choice of housing types and sizes for different tenant needs. They provide professional property management and, most importantly, allow for the creation of long-term stable tenancies with capped rents. Whilst uncommon in the UK, this model has been hugely successful elsewhere: in the Netherlands almost half of all institutional property investment is in residential. Self and custom build, already popular in comparable countries, could also be part of the mix. The investor could prepare the land and pass it on to individual self and custom builders.

To drive this, Government should require councils to set aside land for ‘Homes for Heroes’ in new local plans, aiming to deliver up to 250,000 homes over five years. To help build investor confidence in these new models we suggest that the Government should unlock an existing £5 billion in unused affordable housing guarantees at the forthcoming Autumn Spending Review. As this is money that has already been pledged and set aside, and in any case is only guarantees not grant, these new houses can be delivered at no additional cost to the Government. 

If these proposals are adopted now the first of these homes could be delivered before the next general election, with tens of thousands more on the way. This can work alongside the First Homes product to help expand ownership. 

Homes for Heroes can be a win for all. For the Government they can show they are fulfilling their manifesto promise to boost the housing supply and build more affordable housing at no additional cost to the Treasury. For investors, it offers a socially responsible investment opportunity that will provide stable, long-term returns. But most importantly it can serve as a thank you to our key workers for who have worked so hard throughout the pandemic, by affording them safe, secure and long-term housing, with a pathway to ownership.

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Elizabeth Dunkley is a researcher at the Centre for Policy Studies.