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The housing crisis is an economic crisis – but we can solve it
There’s a clear opportunity ahead of the upcoming Spending Review to strengthen economic growth by recognising affordable housing as a key driver of prosperity, writes Nick Atkin, chief executive of Yorkshire Housing
There’s a clear opportunity ahead of the upcoming Spending Review to strengthen economic growth by recognising affordable housing as a key driver of prosperity, writes Nick Atkin, chief executive of Yorkshire Housing #UKhousingFor years, successive governments have told us that they’re committed to economic growth. Yet, despite all the slogans, soundbites and talking, the UK economy remains sluggish.
Of course, global events have played a role, but there’s now a clear opportunity ahead of the upcoming Spending Review to strengthen economic growth by recognising housing, particularly affordable housing, as a key driver of prosperity.
The housing crisis isn’t just a social problem. It’s fundamentally an economic one. When people struggle to find an affordable home, they move away, leaving businesses struggling to recruit workers and harming local productivity. High housing costs leave people with less disposable income, restricting consumer spending and slowing economic growth.
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Poor housing costs the NHS a staggering £1.4bn every year, as overcrowding, fuel poverty and poor-quality homes contribute to a decline in physical and mental well-being. The worsening housing crisis is also piling pressure on other public services, increasing reliance on temporary accommodation and limiting social mobility.
The result? An economy held back by a failure to provide enough good, affordable homes.
I’ve been in housing for more years than I want to admit to. I’ve lost count of the number of times governments have pledged to fix the housing crisis, yet none have.
While recent announcements about extra funding are welcome, housebuilding targets continue to be missed, social housing stock has dwindled, and homeownership remains out of reach for so many hardworking people.
While policymakers talk about infrastructure, housing is too often left out of the conversation. Without a serious discussion about how we fund affordable housing, the cycle of weak economic growth will continue.
Making the case for long-term investment
The Spring Statement confirmed what most of us were already experiencing. Economic growth is slowing, with the Office for Budget Responsibility slashing forecasts for 2025 from 2% to just 1%. This reinforces the need for bold, long-term investment in the things that are proven to drive growth – and none have as much impact as building new homes.
That’s exactly what we’re calling for as part of our submission to the Treasury and the Ministry of Housing, Communities and Local Government ahead of the upcoming Spending Review, which has been backed by housing providers responsible for around 1.7 million UK homes.
One of the biggest barriers to building more homes is the lack of long-term funding certainty. The current approach of treating investment in housing as day-to-day spending leads to short-term thinking and missed opportunities.
This is why we see the number of new starts drop towards the end of each Affordable Homes Programme (AHP) funding cycle. There’s simply no guarantee of what comes next, making it impossible to commit large sums of money in the hope that future funding will materialise. This has led to a continued rollercoaster of housing delivery.
“The current approach of treating investment in housing as day-to-day spending leads to short-term thinking and missed opportunities”
Classifying housing as essential infrastructure in the same way we do other major national projects would enable the sector to plan, develop and provide the affordable homes people need.
This simple shift would unlock more private investment, making more projects financially viable. A recent report highlighted that 48% of investors believe they are underweight in their infrastructure allocation. If we change the way we allocate funding, we can unlock new funding streams and increase interest from investors, boosting overall housing supply.
This shift would also help tackle a major roadblock to long-term investment. By reclassifying housing as infrastructure spending, the government would create a more stable and scalable way to attract funding and build more affordable homes.
We already know this approach works. The strategic partnerships being created with Homes England show how long-term settlements can make a positive difference. But the funding model must change.
In 2022-23 alone, £255m in AHP funds went unused, alongside underspends in building safety (£245m) and the Help to Buy scheme (£1.2bn). That funding could have delivered 5,000 urgently needed homes.
Consolidating myriad separate funding streams into two distinct pots would remove unnecessary bureaucracy. This should be in the form of one pot for new homes and another to improve existing homes.
Policy stability is crucial
Investment in housing isn’t just about providing more funding. It’s about stability and predictability. One of the main challenges we face in attracting investment is policy changes that disrupt rent stability. The 1% rent reduction introduced in 2016 made it impossible to forecast long-term rental income, creating uncertainty and discouraging investment.
If the government wants to attract more private capital into housing, it must commit to a stable and consistent rent and funding framework that gives investors confidence over the next 10 years.
“By creating the right conditions for investment, we can build more affordable homes, strengthen the economy and provide better support for the services communities rely on”
Encouraging more private investment into affordable housing would help deliver more homes as well as ease the pressure on public finances. By creating the right conditions for investment, we can build more affordable homes, strengthen the economy and provide better support for the services communities rely on.
Another challenge is the interaction between developers and local planning departments. A more collaborative and flexible approach is needed to streamline planning and avoid unnecessary friction that slows down delivery.
Housing as infrastructure
The evidence is clear. Housing, infrastructure and economic growth are inseparable. Without all three working together, we won’t unlock the government’s ambition for sustained economic growth.
Research by the Centre for Economics and Business Research consultancy has shown that building just 90,000 social rented homes would add £51.2bn to the economy and support over 350,000 jobs. More housebuilding and retrofitting would also fuel job creation, enhance skills and boost small and medium-sized enterprises, driving tangible benefits that are felt up and down the country.
Investing in housing is a cost-saving measure. According to research, England’s 4.2 million social rented homes contribute at least £77.7bn a year in savings across public services, from the NHS to local councils and the police. But since 1.4 million social homes have been lost since 1979, the UK is missing out on at least £25.25bn of economic value every year.
Meanwhile, councils spent £2.2bn on temporary accommodation in one year alone, a short-term, unsustainable expense that fails to provide long-term housing solutions.
The way forward
The government’s recent £2bn top-up to the AHP is a welcome sticking plaster to unlock some stalled sites. But it doesn’t provide the long-term funding certainty needed to scale up housebuilding and tackle the crisis effectively.
If the government is serious about fixing the housing crisis, it must start treating housing as essential infrastructure. That means reclassifying housing investment as infrastructure spending to unlock long-term funding and private investment, backed up by a stable rent policy and long-term funding to attract investors.
Closer collaboration between local authorities and developers, faster planning and a bold, long-term housing strategy that prioritises affordable homes as an economic necessity are also needed.
Only this can deliver the homes needed to break the cycle of rising homelessness and skyrocketing rents, and stimulate economic growth.
The housing crisis is an economic crisis. Solving it is key to securing the UK’s long-term prosperity. It’s time for action.
Nick Atkin, chief executive, Yorkshire Housing
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