Fiscal myopia

When the SHOUT campaign was launched exactly a year ago one of its central arguments was that investment in social rented housing could save the taxpayer money. We knew in our hearts that this must be true but did not have the empirical evidence to support our argument. Well now we do.

A few months ago SHOUT, together with the National Federation of ALMOS, commissioned Capital Economics, one of the most reputable, independent research firms in the business, to test our thesis. Today we are proud to publish that research. “Building New Social Rent Homes” shows that investment in 100,000 social rented homes a year makes sense. In their words:

“From our analysis, we have a stark and clear finding: the government would achieve better value for taxpayers’ money, as well as improve the living standards of many low- income households, if it were to part fund the delivery of 100,000 new social rent homes each year rather than continue with its existing policy.”

By failing to think about the long-term impact of the soaring housing benefit bill, the government is guilty of “fiscal myopia: saving pennies in the short term only to waste pounds in the future.”

The Housing Benefit bill is almost £25 billion a year – that’s more than a fifth of the amount we spend on the NHS – and almost 40 percent of it goes to private landlords. If present trends continue, the bill will increase to £197 billion by 2056 and private tenants will account for 63 percent of the total. We can’t go on like this.

Capital Economics looked at a range of household types around the country and found that in almost every case it would make more sense for the government to invest in genuinely affordable housing today, by increasing the level of grant it pays to councils and housing associations, as a one-off payment, rather than face decades of paying out high levels of housing benefit to claimants stuck with high rents. Lower rents mean people can work without recourse to benefits. It would make work pay.

In only 10 percent of areas did the model not work and in these places it would require only a small additional investment, in the form of cheap or free public land, to make it work.

Of course, there will be a short-term cost but by investing upfront in high quality homes this is more than made up for by savings in the long-term. The exchequer would be in net profit by 2034 and by 2056, under our proposals, public sector net debt would be 80.8 per cent of gross domestic product compared to 86.0 per cent if current policies continue. That’s a saving of almost £1 trillion, and the structural deficit would be 1.2 per cent of national output rather than 1.7 per cent, an annual saving of £91 billion.

But there are additional public benefits attached to investment in genuinely affordable housing. Every additional pound of investment in construction creates an extra £2.84 of economic output in supply chains and through the higher spending of employees, and an extra 56 pence of new tax revenues for the Exchequer. And beyond this, there are massive benefits in terms of public health and wellbeing.

People would have more surplus cash to spend on goods and services rather than wasting it on high rents. It would ease pressure in the rented sessctor by providing homes for this who have no right to be living in the PRS. Coupled with an enhanced rate of private sector housebuilding it would also help to ease pressure on house prices over the long terms. Wages would catch up, the priced out generation would be less priced out. Society would be more at ease with itself.

I am proud to be associated with this report. For a campaign that is built on voluntary effort and has no staff and few resources it has made a real impact in a short space of time. Now it needs everyone in our sector to spread the key message far and wide. Build to Save.

(First published at Inside Housing on 17th June 2015)

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