Will Reeves’ spending review make UK housing more affordable?
Rachel Reeves has made housebuilding a central feature of the government’s spending policy.
The planning system has been reformed, money has been funnelled into skills and developing brownfield housing, and new towns have been announced.
But this afternoon’s spending review has firmly set out the government’s commitments for the sector, and affordable regional housing is at the forefront.
The spending review has three key pillars: spending to help not-for-profit affordable housebuilders, spending to help private housebuilders, and a higher long-term rent settlement aiming to help both.
Each pillar is focused on helping to repair the shaky lower rungs of the housing ladder, which have slid increasingly out of reach over the last decade. But is it enough?
Affordable housing funds double
Labour has promised to commit £39bn to the Affordable Homes Programme between 2026 and 2036. This is double the allocation of 2021-2026.
While the money has been described as a “good start”, questions still remain on whether it’s enough – the Centre for Cities has estimated the UK needs £16.6bn per year to get back to the housebuilding levels of the 1960s.
“The biggest spending commitment in decades towards delivering new Affordable Homes has to be welcomed at a time when the public purse is clearly more than a little stretched,” JLL Head of Living Research, Nick Whitten, said.
“[The investment] is exactly the kind of long-term clarity the sector needs – but turning ambition into reality will now depend on partnerships and collaboration between government and the sector,” Robyn Lee, Managing Director at HSPG, said.
In the last three years, the AHP has accounted for around 40 per cent of all of the social and affordable homes built in England, with the reminder built by private developers as a condition of planning permission.
While the programme can be used to fund those conditional affordable houses by provate developers, it’s harder to access.
The 2021-2026 programme aimed to deliver up to 180,000 affordable homes, which was revised down to 110,000-130,000 affordable homes in July 2024.
Despite the disappointing result of the last programme, experts are more optimistic about the coming decade.
“If there had been a similar grant program to last time, with no other changes, it may or may not have unblocked delivery. But this is such a step change,” CEO of Pocket Living, Paul Rickard, said.
Undersupply was largely due to changes to the planning system, plus lower interest rates, higher wages and investment in much-needed skills.
“I think the sector is poised and ready to deliver [and] the policies announced so far are supportive of that… we’re all ready to go,” Rickard said.
Rising social rents and a ‘housing bank’
The government also announced a 10-year social housing rent settlement from 2026 at inflation plus one per cent, alongside a consultation to follow shortly on how to implement social rent convergence.
Rent convergence aims to ensure social housing tenants pay similar rents for similar properties, taking local incomes and property values into account.
Housing associations have been calling for long-term rent settlements above inflation for years, saying that the lack of certainty has prevented developers from investing in affordable projects.
“[The £39bn], alongside the announcement of a long-term rent settlement, should be the catalyst for unlocking and driving forward affordable housing delivery,” Justin Carty, Executive Director, Residential Investment Advisory at CBRE, said.
A Centre for Cities spokesperson similarly said that the body was “pleased” with the settlement.
Savills has previously said that by the end of a 10 year rent settlement in 2036, “general needs rents would still be at a greater discount from private rents than they were before the pandemic”.
“Predictability around future rental income would allow all [social housing providers] to more effectively plan for the future and… to access cheaper finance, giving them more money to spend on existing and new homes,” Savills said.
But Carty warned there are “there are still significant planning and delivery challenges that developers are facing, which need to be overcome to meet housing needs.”
These include skills shortages – despite recent investments – wage inflation and raw materials shortages and inflation.
Alongside the rent settlement, the government will provide £2.5bn of low-interest loans over the next decade for social housing, something which has been dubbed a ‘housing bank’.
Pocket Living’s Rickard said that while the ‘bank’ “absolutely has potential, it’s not “just about how much money is available… it’s [about] giving agency to let [businesses] deploy in innovative ways.”
‘Real success relies on a joined-up approach’
The overall mood in housebuilding is positive, if not unilaterally so.
“What the Affordable Housing sector needed most from the Spending Review was certainty and funding,” Will Maby, partner in Affordable Housing at strategic property consultancy Rapleys, said.
“We got both of those and, whilst the funding wasn’t quite as much as what was called for, it represents a very real increase year on year for 10 years, and a boost to the delivery programme that was sorely needed,” Maby added.
Maby said while the package is “not perfect” – it lacks direct incentivisation for private investment into the sector and fails to join up housing and infrastructure – it is still a “pivotal moment” for the sector.
Jonathan Pearson, director at Residentially, also pointed to the benefits of longer-term stability.
“While we’re still awaiting further clarity around how and when this funding will be allocated, [housebuilders] can at least begin to plan multi-phase schemes, secure land, and mobilise supply chains with confidence and at the pace required to help meet the 1.5 million-homes target,” Pearson said.
“Not-for-profit housing associations are also forced to make every penny count when it comes to the number of new homes they can afford to take on, so longer-term certainty on rent is also going to be important when it comes to their developing their plans.”