From policy to reality: Delivering Labour’s affordable housing targets

Housing is high on Labour’s agenda. The party has set an ambitious target of 1.5 million new homes over the term of this government. Within this, Labour has pledged the biggest boost to affordable, social, and council housing for a generation. So, how will these affordable homes be delivered? Firstly, there is the Affordable Homes Programme, a carryover from the previous administration with an allocation of £11.5bn, which aims to deliver tens of thousands of new affordable homes by 2026. This will be supplemented by an additional £500m to build another 5,000 homes, as announced in the October budget. 

However, the sector faces several challenges. One of the major issues is funding constraints. Government grants fall short of covering the costs for new affordable housing developments. In addition, there are rising costs associated with fire safety, decarbonisation, and compliance with the Decent Homes Standard. This, together with a planning system that restricts the pace and location of new homes, is contributing to a significant shortfall in supply. The proportion of housing designated for social or affordable rent has declined from approximately 20% in 2000 to 16% in 2023. Furthermore, the depletion of council housing stock through the Right to Buy scheme has resulted in the sale of approximately 160,000 homes in the past decade, according to DLUHC data. This has contributed to an acute supply and demand imbalance and lengthy waiting lists for social rented homes. As of March 2023, there were 1.3 million households on local authority waiting lists, the highest since 2014. 

The affordable housing sector faces more financial pressure with the requirement for all social rented homes to achieve an Energy Performance Certificate (EPC) rating of C or above by 2030. The cost of upgrading homes can be substantial. On average, the cost of upgrading a home from D to C is £6,200, increasing to £13,500 for E-G rated homes. 

Positively, however, homes in the affordable sector are generally more energy efficient than in other tenures, with 70% of homes already rated C or above. This compares with 40% of private rented homes. But, this still leaves approximately 1.4 million affordable homes needing upgrades. Approximately 135,000 of these homes may be unable to reach a C rating and could become unlettable by 2030. For the remaining 1.3 million homes, the estimated cost would be c.£9.5bn.

The new EPC regulation is an essential part in becoming net zero by 2050, and upgrading the social housing stock could save over 2 million tonnes of CO2 per year. However, the sector is already under financial pressure.  

This raises questions about the sources of funding for these upgrades, and how, simultaneously, new social rented home delivery will accelerate. The reforms to the National Planning Policy Framework (NPPF) may provide a stimulus. A new five-year social housing rent settlement of CPI+1% was announced in the October budget, aiming to give the sector more long-term clarity on funding. However, local authorities and housing associations may still struggle to meet their demands due to budget constraints and competing priorities.

Private sector investment will be crucial in bridging the funding gap to meet social housing need. However, private investment for energy efficiency upgrades may be challenging as savings from improved energy efficiency usually lie with the tenant. Still, private capital can support the development of new social rented homes, freeing up resources for housing associations and local authorities to focus on energy efficiency improvements. Investment in the affordable housing sector remains strong, with a total of £1.7bn invested by Better Society Capital and associated investors. Additionally, 94% of all affordable housing completions in 2022-23 were new builds, which are generally more energy efficient.

Collaboration between local and national governments and the private sector is essential. An increasing number of mixed tenure developments are being seen across London, offering a significant proportion of affordable housing. With Angela Rayner advocating that building more social homes is a crucial part of Labour’s plan to build 1.5 million new homes over the next five years, affordable housing should be seen as a way to unlock wider residential development. Developments delivering a high percentage of social rent are supported by the proposed NPPF reforms.

The funding boost to the Affordable Homes Programme, the rent settlement, and the reduction to Right to Buy discounts announced by the Labour Party are positive steps. However, addressing the affordable housing sector will be a complex endeavour that will require partnerships between housing associations and private capital to meet social housing needs, the Decent Homes Standard, and fire safety and energy efficiency regulations.