14 July 2023

Why would we spend £15bn turning private homes into council houses?

By Tom Spencer

Labour have finally woken up to the existence of the housing crisis. What’s particularly impressive is they are not simply saying build more homes, but that they want to focus building in the green belt, where development is arguably most essential. To what extent that commitment survives contact with the electorate is another matter, of course, and we are a year or so away from the next election – but the willingness to confront our greatest act of economic self-harm is welcome nonetheless.

The lack of detail in Labour’s plans, however, means it’s open season for policy wonks to pitch in with their own ideas. Take the recent report from the Fabian Society’s Commission on Poverty and Regional Inequality. It makes several recommendations of varying merit, but it is their housing policy that is arguably most interesting.

They rightly identify that social housing construction has dwindled without private supply growing enough to compensate. So far, so true: social housing construction did fall from the early 1970s onwards and private construction never reached the level need to keep up – hence, our acute housing shortage, particularly in London and the south-east.

Unfortunately, the Fabians’ solutions to this problem range from the ineffective to the plainly ludicrous.

Most striking is their idea of buying up privately rented properties from landlords who were already planning on selling. This, they say, could be achieved by giving the state the right of first refusal to purchase houses in multiple occupancy (HMOs) and ex-council houses sold under Right to Buy.

The first mistake here is that it misdiagnoses the nature of the problem. We have a housing crisis, not a social housing crisis. Yes, we ought to increase the supply of social housing, but as a means to boost overall supply, rather than an end in itself. Buying up private property to turn it into social housing is simply rearranging deckchairs on the Titanic – and doing so at great expense.

It’s worth delving into the numbers here. According to the Fabian paper, it will cost £15bn over 10 years to purchase 500,000 privately rented homes. That works out at a rather measly £30,000 per home, which is puzzling when the average home is now worth more like £300,000, and is only likely to get more expensive in the next decade. (Maybe they missed a zero and it will actually cost £150bn to shift all these homes into social housing…)

In fact, the £30,000 number is actually a crude estimate based upon another estimate provided by the Smith Institute, who found that their own affordable housing scheme would cost £23,000 to retrofit each home. There are some key differences here though: the Smith scheme would be focused on buying up cheap properties in areas of low demand – by definition not the places experiencing the most acute housing crises. So, the Fabians’ scheme isn’t really buying up homes, but retrofitting existing homes which would be bought using loans. The true overall cost of that exercise is unclear, to put it kindly.

But even if the state did have the kind of money to fritter away on this kind of scheme, it would be far better spent in other ways. First, the Government could put more money into funding understaffed, cost-constrained planning departments. The fact so many are underpowered means applications take longer to process and the costs of development are bumped up even more than they would already be.

Another idea would be to offer financial incentives for local planning authorities to actually have up to date and lawful local plans; as of March 2022 less than half of them did.

Finally, you could just use £15bn to, y’know, build more social housing. Again, though, councils run into many of the same bottlenecks and planning constraints as private sectors, so it’s really not as simple as someone in Whitehall pushing a button marked ‘more homes’.

Most CapX readers will know well that there is no solution to our housing crisis that doesn’t involve pretty serious planning reform. A bigger supply of homes is not just about a long-term stabilisation in prices, but also giving more options to renters and, in so doing, more bargaining power with their would-be landlords.

Not too that more private housing begets more social housing via the Section 106 contributions that developers pay as a condition of planning permission. Likewise councils would benefit from the Community Infrastructure Levies, not to mention any new ratepayers that move into their area.

All of these suggestions make a lot more sense than bringing existing housing stock into council ownership – the idea might tickle some on the left of the Labour Party, but Keir Starmer would do well to steer well clear of this one.

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Tom Spencer is Research Director at PricedOut, an organisation campaigning for affordable house prices.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.