Public-private coalition calls for tax credits to build 90,000 social homes a year

Building social rent homes is “essential” and “an investment in the UK’s future prosperity and social stability”, the report said.

There is also a “compelling return” to the Treasury through job creation, lower temporary accommodation use, lower housing benefit costs and better health outcomes for residents.

All these benefits, however, accrue to central government, not social landlords who build and maintain the homes.

“The low rental income generated by social rent housing cannot support the capital investment required for development and ownership, even when considering very long-time horizons,” the paper said.

Therefore, there is no way to build social rent homes at the scale needed without “substantial public subsidy to bridge the viability gap”.

The government is aiming to build 180,000 social rent homes and 120,000 affordable homes over 10 years through a £39bn Social and Affordable Homes Programme.

This investment is “a very strong signal and a leap forward”, the report said, but it is “not enough on its own”.

It revealed that the true scale of subsidy to social landlords required to build 90,000 social rent homes a year in England – a figure endorsed by homelessness charity Crisis and housing association body the National Housing Federation – is around £18.83bn a year.

This £18.83bn figure assumes half of the social rent homes are suburban houses and half are city centre flats. It excludes land costs, which demonstrates that even with free land, a “substantial subsidy” is necessary.

It also excludes “cross-subsidy” from market-rate development and Section 106 affordable housing, which would fall “well short” of the total needed.

As a potential solution to finding the £18.83bn a year required, the paper suggested corporation tax credits, which are used in the US to fund affordable housing.

In the UK they could work like this. Any profitable company – not just those in the housing sector – could pay 10 years of corporation tax to HMRC early and get a discount, enabling the government to raise capital upfront without impacting public borrowing.

These tax receipts would be ring-fenced and given to Homes England, which would distribute them to social landlords to build social homes.

The corporation tax credits, the paper argued, would be “largely self-funding” in the short-to-medium term, due to savings to Treasury and council budgets and increased tax receipts from the construction sector as it builds the social rent homes. 

However, once the money is raised, the timing of investment requires “careful consideration” to avoid driving construction cost inflation.

The report made a series of other recommendations, including that Section 106 agreements should fix affordable housing values at the planning stage to stop social landlords competing for homes.

It also called for further reform of Right to Buy to preserve affordable housing stock, flexible social rents that are linked to household income and measures to recapitalise the housing association sector in addition to the government’s 10-year rent settlement.

Michael Keaveney, director of land and development at build-to-rent developer Grainger, convened the report.

He told Inside Housing: “All of the noise in this industry about fixing the housing crisis is noise. You put the money in place, and all of those things will get sorted.

“Capacity, gearing up [registered providers], finding new delivery models, all that stuff will just flow from, ‘Oh, the money’s there. So now there is a reason to sort this out.’”

Last month, housing minister Matthew Pennycook challenged social landlords over their development capacity, saying: “If I suddenly said to the sector, ‘Here’s the money for 90,000 [social rent homes],’ I don’t think they could build them. They couldn’t build them this year.”

Responding to this point, Mr Keaveney said: “He’s right… This is going to be a long-term programme, and you must only invest this subsidy at scale when the private sector’s not busy, because of crowding out reasons, but also capacity reasons and inflation.”

Nevertheless, by raising the subsidy, “what you’re signalling is there is work to be done here for 20 years, folks. Gear up accordingly.”

Over two decades, he said, “you would probably have built 700,000 social rent homes, and we would have seen the benefit of building that financially”.

“The people that need to run this model properly are Treasury and the Office for Budget Responsibility,” he continued.

“Tell us, what is the true return from every pound we invest in social rent homes?... I think they’ll surprise themselves.”

Mr Keaveney said that Grainger builds homes for the private rented sector, so “we’re not asking for this because we want some of that social housing tax credit”.

Rather, he convened the report because “we’re on the sharp end of a housing crisis, and we see it every single day, and we’re fighting the fight to build more”.

“We can see the problem [registered providers] have got,” he said. “If we’ve got the knowledge to communicate it, why don’t we do it?”

In a foreword to the report, Helen Gordon, chief executive of Grainger, wrote that “policy pronouncements and lobbying efforts” sometimes overlook the “complex economic realities” underpinning social housing delivery.

She continued: “We believe that an effective response requires an all-tenure approach, with social rent housing playing a central part alongside other housing types.”

The report is a “constructive step towards bridging the knowledge gap and fostering the collaborative, evidence-based approach needed to make social rent homes a practical and achievable part of today’s housing landscape”, she added.