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Recovering from the pandemic: the big questions we must answer now
Bolton at Home has teamed up with Inside Housing to publish its research about the role of social landlords as the UK recovers from the pandemic. Ian Ankers and Brendan Nevin round off their work by looking at the changes they’ve concluded the sector faces – and the wider reforms it needs to drive as a result
The 10 years which followed the great financial crash of 2008/09 can be seen retrospectively as a transition period where politicians and policymakers vainly attempted to rescue the failing paradigm which had emerged from the late-1970s.
This decade operated with a policy framework which tried to recreate the small state of the 1990s, with government setting a target to achieve a public expenditure framework of 36% of GDP. This level of public spending corresponded with that in the United States and diverged considerably from our European neighbours where the figure was often in excess of 45%.
The years of austerity which ensued never achieved the target reductions largely because the economy appeared to have a permanently damaged engine. Productivity and GDP growth did not recover the pre-crash trend, leading to a reduction in projected future tax revenues, producing additional strains on the financing of public services and an eventual increase in the proportion of GDP funding the public sector.
It was against this background of economic failure that usually accompanies a paradigm shift that Brexit and the pandemic landed almost simultaneously, unleashing a wave of economic and social restructuring which will take years to work through. A rapid period of change for all sectors of society is going to be the likely result of our current situation and social housing will need to adapt services and interventions in the aftermath of the public health emergency while planning for recovery and a more resilient future.
There is, however, a really important point to make at this juncture.
During the past decade, a series of structural changes in the economy, demography, climate change and urban and regional inequality were already building up a powerful set of pressures which were likely to challenge the housing policy framework before we were subjected to the shocks which have befallen us since March 2020. The main long-term drivers of change remain largely unaltered by the pandemic, although the socially unequal distribution of suffering generated by the disaster is likely to supercharge debates about reform and the drive for a more resilient society. These drivers of change and their significance for housing policy are summarised below.
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Housing policy: the drivers of change
The general election of 1979 produced a radical shift in housing subsidy, with a move away from bricks and mortar subsidy to one based upon personal support through housing benefit.
Revenue from a corresponding shift to a higher rent regime then created the headroom to borrow privately following the Housing Act 1988 which introduced stock transfer. The move to off-balance-sheet capital finance was accelerated by the new Labour government which supported the annual uplift of rents by inflation plus 1% and similar regimes for rail fares and student loans as a way of achieving a growth in public goods without raising taxes.
This approach to charging for services appeared to be perfectly reasonable in an era which was supported by a relatively generous welfare system and an economy producing 2-3% growth in real incomes each year. That era came to end in 2008.
The Resolution Foundation in its Living Standards Outlook 2020 has taken into account falling real wages since the financial crash and projected forward falls as a result of the current economic shock. This review concluded that real average earnings won’t return to their 2007 level until 2026. Typical incomes of the poorest 10% are no higher than in the early years of the century. To place this issue in perspective, in 2018/19, 71% of social housing tenants responding to the English Housing Survey had no difficulty in paying their rent, although 28% did. Clearly if the most in need are to continue to access sustainable tenancies, the current funding regime for social housing which is dependent upon annual real increases in rent is going to be increasingly difficult to justify given the failure of the economic system to produce real income growth to compensate.
The challenges to sustaining the status quo for housing policy do not only emanate from financial constraints faced by the consumer. The reduction in future tax revenues because of low economic growth has coincided with accelerating demands for public expenditure generated by demographic change and the ageing society. This means that the structure of public spending has been changing as progressively more resources are shifted between service headings to fund pensions, health and social care. For example, in 1999-2000 the health budget took 20.2% of all public service spending. By 2018/19 this had risen to 25.9%. This process of reallocating cash to health is likely to speed up as a result of the impact of COVID-19 and unless taxes rise or long-term economic growth increases significantly the downward pressure on unprotected services and working-age welfare is likely to continue.
The implications of our ageing society on the housing system go far beyond an audit of public spending pressures. The scale of projected change in the structure of society is largely overlooked in debates about housing provision and strategic planning.
The Office for National Statistics has recently produced the estimates of household growth for the period 2018-2043. This shows that the growth in those age cohorts below 55 years of age by 2043 produce an additional 151,000 households. For those over 55 years of age the growth is 3,597,000 households, this being 96% of projected growth. The only way the current profile of new build housing can be sustained is if we assume that past behaviours are replicated in future and that an ever-increasing number of households over-consume housing space despite the colossal shifts in age distribution we will see.
In many areas of the UK the key household-forming cohorts under 35 years of age have already peaked and will not recover their 2018 base within the planning period and as a result there is at a national level a growth of just 156,000 projected for households with dependent children, 6,240 households per annum on average.
This pattern of household and population change can only be altered at a national level by an increase in fertility rates, an increase in deaths or an expansion of international migration. However, as a result of the COVID-19 crisis, the Economic Statistics Centre of Excellence has provisionally estimated that 1.3 million international migrants may already have already left the UK.
The social sector and the private rented sector accommodated 70.1% of newly emerging household growth in 2019/20 according to the English Housing Survey. It is inevitable, therefore, that changes in demography and immigration policy will impact much faster on these sectors. It will be appropriate to work across the rental market to determine national and local strategies to manage the changing structure of demand which appears to be inevitable. To further complicate the picture relating to changing demand, the zero carbon agenda will produce different challenges as it will become apparent that some dwellings cannot be improved beyond an Energy Performance Certificate Band C and will need to be removed from the system in some cases. There is therefore a renewal challenge as we attempt to adjust to both changing demand and increasing standards in response to public health and environmental emergencies. Regeneration and renewal will therefore need to move centre stage, with an aim to produce a 21st century framework with an appropriate grant-funded public subsidy system. The step change needed here is enormous. In 2018/19, the Ministry of Housing, Communities and Local Government identified just 4,351 demolitions in the social sector, this reflecting a long decline in replacement over the 21st century. At the current rate of demolition, every social housing unit has a theoretical life of 1,000 years and government explicitly does not provide grant to replace obsolete dwellings.
Recovering from the pandemic: the questions we must answer
There are some big choices to be made and questions to answer for social housing agencies as we assess how to deploy resources over the next few months and years:
- How viable is the Anchor institution model to facilitate a new partnership approach which can accelerate and target skills, employment and training programmes. Can multi-agency procurement strategies help rebuild the local SME sector?
- Regeneration: what are the opportunity costs and trade-offs between growth and social regeneration? What can we realistically deliver on our own and with others?
- Communities and place – there is an obvious fracturing of the housing sector around this issue; what role can larger regional and national housing agencies play in a devolved and localised agenda?
- Governance and local government: what type of partnerships will be needed to deliver real change? How do we repair local capacity which has become so exposed during the crisis?
- Do we have a clarity about the use and targeting of profit for purpose in the aftermath of a disaster? How should we prioritise?
Planning for a different future
The social housing sector has never been needed more in the UK. Depressed incomes, homelessness, insecurity in the private rented sector, and the need for neighbourhood and community renewal have seldom seemed so important.
The sector will need to make a compelling case that government needs to reverse the decline in the volume of stock which has reduced to 16.3% nationally in 2019 from 17.3% in 2010.
The fall would be steeper if we focused on the rented stock and discounted the national political drive to increase homeownership through shared ownership. But to achieve additional resources for growth in this decade and beyond will require a real clarity about future function and form of the sector and how it is indispensable in shaping the new paradigm.
The social housing sector has a unique ability to resource and service a fundamental review of housing policy which would include shaping the reform of housing finance and welfare to ensure rents are universally affordable. As local anchor institutions, social landlords have more assets by value in most areas than almost any other locally-based private sector or charitable body.
It also can draw on a wealth of experience from staff, local politicians, tenants, and board members, a body of expertise which understands the complexity of the issues we now face. To make the impact early and to set the pace of the reform debate collectively, we will need to focus on the burning strategic issues relating to changing demand and demography, climate change, public health and economic resilience, and the restructuring of supply in the context of a new 21st century neighbourhood renewal strategy.
Standards-based reform in these key policy areas will need to take place within an overarching review of housing subsidy and affordability, place-based governance which can manage change effectively and new partnerships which are fit for purpose given the radically different problems and opportunities which present in a new era of economic and social renewal.
Brendan Nevin, director, North Housing Consulting; Ian Ankers, executive director of business development, Bolton at Home
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