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Stepping Up To Level Up: Financing the Reinvention of Affordable Housing

Legal & General

6 min read Partner content

Affordable housing is not simply one part of the levelling-up solution. Many experts believe it is the fundamental building block that can drive economic growth, support working families, and help the nation meet its net zero ambitions.

But finding the resources to deliver affordable housing is an ongoing challenge.

Exploring new and innovative ways to finance affordable housing delivery was the focus of an important webinar, hosted by Legal & General that took place on the day that the UK experienced record-high temperatures.

Anne Ashworth, former Editor of Bricks & Mortar at the Times, introduced the event by reminding participants that the soaring temperatures were a timely reminder of the need for good quality, sustainable homes.

“Britain must have energy efficient homes that are cool in summer, snug in winter, and built in a way that helps us meet our net zero targets,” she explains. “How can local government, metro mayors, universities, businesses, and investors work together to deliver such housing?”

Exploring this critical question was a high-level panel that drew together leading politicians, private sector investors, and delivery partners.

One issue that the panel quickly agreed on, was the sheer size of the challenge that the nation faces when it comes to scaling up delivery. There are currently 1.4 million households on the waiting list for social housing, families that require a great place to live at a price they can afford.

Legal & General’s Director of Levelling Up, John Godfrey, is clear that the needs of those 1.4 million households must never be lost in this debate.

“Levelling up is largely described as being about places,” he explains. “But it is also about people. And those 1.4M households are people I imagine do not feel as if they're being levelled up right now. It is a matter of plain humanity.”

But meeting the affordable housing challenge comes with a hefty price-tag attached.

Simon Century, Managing Director for Housing at Legal & General, gave some stark figures to illustrate the size of the task and the resources required.

“40,000 to 50,000 new affordable homes have been delivered consistently across the UK over the last 20 or 30 years,” he tells us. “But the consensus view is that we need three times that amount. There is about £34 billion of funding required each year just to fill that additional 100,000 gap. It's a huge amount of money.”

Clive Betts MP, who chairs the Select Committee on Levelling Up, Housing and Communities, is convinced that part of that funding solution must be driven by central government.

“There is now a recognition across the political spectrum that we need to build more social housing,” he argues. “We need a clear commitment from government to finance social housing through the grant system. The biggest cuts to any part of the public sector made in 2011 under austerity were made to the Social Housing Grant. We need to have a look at restoring that.”

Simon Century agrees. “You cannot deliver subsidised housing without more subsidy,” he says bluntly.

However, for Century, the solution goes beyond government simply loosening the purse strings. He also identifies a key role for government in providing the long-term stability that allows investors to step forward as part of the affordable housing solution. He cites the current lack of certainty on a future rent settlement as one area where uncertainty makes it difficult to unlock private sector investment.

“Not having long-term certainty makes it incredibly hard to invest at scale,” he explains. “Giving investors stability makes a huge difference.”

Although everyone was clear on the size of the challenge ahead, there was also optimism about new forms of investment that have the potential to step up delivery. There are already indications that, where private money and public sector leadership are successfully combining, the impact can be transformational.

Gareth Bradford, who leads on housing for the West Midlands Combined Authority (WMCA), has seen that impact in his local area. He believes that the public sector alone cannot meet the affordable housing challenge. Instead, he points to the need for new partnerships that recognise the unique contribution that different sectors can make.

“It has to be a public-private solution,” he insists. “If you can get the public sector to be really clear on its vision and strategy for an area, then that can unlock the private capital that we know is there.”

We are already seeing early successes from this approach in places like the West Midlands and Greater Manchester. The type of devolved structures Bradford describes are creating fresh opportunities to develop new ways of operating at a local level.

Whilst recognising the progress that has been made, John Godfrey warns that there is still some distance to travel if the UK is to address the productivity gap that is a critical part of the levelling up agenda. He bemoans the continuing tendency of government to micromanage delivery partners closer to the ground, describing the way that government currently allocates money as like “handing sweeties out of jars for children.”

However, with solid local level relationships and strong political leadership the panel believes a new opportunity is now emerging to transform the way that affordable housing is delivered in communities. Central to that will be finding ways to direct some of the UK’s £6 Trillion of pension assets into housing that delivers social, economic, and environmental goals.

“This is long-term pension capital,” Simon Century explains. “We're looking for long-term, relatively stable, inflation-linked returns through time. It's the most natural coming together I can possibly imagine.”

John Godfrey argues that not only can this help those in housing need, but it can also satisfy the changing demands of pension holders who increasingly want to see investments that deliver broader social benefits.

“It would be great if everybody who was in receipt of a pension thought ‘not only am I funding my old age, but I'm giving my children a better chance to live somewhere decent when they need a home,’” he tells us.  

That is the vision that the panel united around. More investment, more homes, and more economic growth. Through a combination of government funding, private capital, and local leadership, that vision might finally be within reach.

Visit our Rebuilding Britain hub as we explore the opportunities and challenges of Britain's recovery.

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