The crisis in housing

We asked six leading experts to give their verdict on the events of 2011 in the key areas of public services, local economic development, civil society, poverty, sustainability and housing and suggest the way forward in 2012. In our fourth instalment, Brendan Nevin argues there’s a mismatch between the coalition government’s approach to housing and the social and economic reality on the ground

As the second year of the coalition government comes to a close the shape of its housing policies and the constraints of power are beginning to become evident. The comprehensive spending review in 2010 set out a radical course of action with housing been driven nationally by the Department for Work and Pensions through the reform of housing benefit (the largest housing budget) while the Department for Communities and Local Government reduced capital expenditure on new housing construction and renovation by 74%.

Increasingly, the management and development of new stock became a competence of local government, while housing welfare policy was still driven centrally. The whole of the coalition’s neo-liberal policy reform agenda was predicated on a belief that the largest public expenditure cuts in living memory would stimulate the economy to produce the biggest increase in private sector employment since the war. This rapid increase in private employment and wealth would, it was thought, provide the income for social need to be met through market-based transactions.

Sadly, in the real world, fiscal retrenchment has taken the UK to the brink of a second recession and, as a result, further public expenditure cuts have been programmed in to 2017.

The Institute of Fiscal Studies noted that after the measures announced by the chancellor in the autumn statement, real median net household income in 2015-16 is forecast to be lower than in 2002-3. In these circumstances it is inconceivable that the housing market will recover within this time period, with a resulting increase in the backlog of housing need.

When a recovery does finally occur, new supply is unlikely to respond quickly and therefore prices will rise rapidly again as real incomes recover. There are signs that the penny has dropped with the Treasury team and, amid signs of desperation, revenue is being shifted to capital expenditure to stimulate housing and economic development.

The much-trumpeted national housing strategy for England only contained £400m of resources from the £3bn that was removed from the budget this year. However, there’s a high degree of symbolism attached to a government which wishes to divest itself of responsibility for housing investment and has to produce a document to convince the public it is doing something in the face of crisis.

Of more significance was the publication of the National Infrastructure Plan, which sets out how public and private sector resources will be invested to stimulate growth by strengthening supply side measures. As the economic crisis intensifies we should expect to see more resources invested in this plan as the government sharpens its focus on stimulating growth and retrenches from welfare spending.

Housing policy will increasingly be co-opted into the infrastructure and growth debate as the coalition seeks to square ideology with political reality. Given the prevailing belief in the primacy of market solutions which permeates government, it is difficult to retain faith that policy will be adapted quickly enough to avert further economic decline.

But here are five measures which I believe could provide support to the housing system in 2012:

1. Areas of economic growth and labour market shortage should benefit from an emergency package of finance to facilitate development – if necessary with local authorities developing build for sale and offering mortgages

2. Quantitative easing should be targeted at a national investment bank which can fund infrastructure development and housing

3. Urban renewal schemes which were abandoned should be completed, thereby retaining confidence in areas which otherwise will not benefit from investment in the recovery

4. An investment fund to produce mixed tenure development projects for older people should be expedited – as this will also free up larger properties for families while addressing a key demographic issue

5. A mass system of construction apprentices should be introduced which will lay the ground for a more efficient construction industry in the post-2017 period while helping to address mass youth unemployment.

• Read the other articles in the series: Simon Parker on the shrinking public sector; Julian Dobson on sustainability in austerity and Julia Unwin on poverty in the UK; Toby Blume on the task ahead for civil society and Neil McInroy on alternatives to economic growth