In this week's blog, we move back to the topic of UK housing supply, but this time, coming at the situation from a problem-solution perspective, taking an honest look at some of the problems the country faces with delivering housing supply, the types of supply we require, and some speculation on what may happen in the years to come, and how our sector may play a role in any legislative shift.

Interestingly, the next decade's most pressing challenges in housing provision are areas that have received relatively little attention from the private sector in the past fifty years: social housing provision and the redefinition of affordable housing in the private sector. Let's start with social housing, a topic that Inside Housing recently covered in an article outlining the fact that 30 banks and Impact funders have asked the Treasury for a change in the rules around fiduciary duty to allow these institutional grade investors, primarily pension funds, to invest directly into our social housing supply.

So let us ask ourselves some questions: could this fire the starting gun on a decade of reform that ultimately leads to the complete privatisation of the UK social housing supply, starting with the sizeable money market players, moving down into institutional capital, and eventually arriving at the door of the private lending markets? Could future counterparties in private sector lending be the local authorities struggling to draw down on government grants and raise capital via business rates? The common misconception about social housing is that it was predominantly sold off under the Right to Buy scheme, but if you look at the data published by Shelter, the peak of the sell-off happened in 2003; the reality is we can see an upward trend in demolition and a downward trend in net supply, there just isn't enough being built to meet demand, could the private sector SME development market be incentivised to fill that gap? These are questions that create their own set of concerns; an over-reliance on mass privatisation hasn't necessarily worked out well economically for the UK, but maybe for housing, its slightly different in the sense that it's already a sector predominantly privatised, and it can't be debased in pursuit of profits in the way other public industries could theoretically be.

The next issue that needs to be addressed and may be driven by legislation that would directly affect the SME development market is incentivising affordable private-sector housing delivery, which may be a recalculation on affordability. It's easy to point out faults without suggesting solutions, so to offer a balanced view, looking at the available data from 2022/2023, we can see that in England, over 63,000 affordable homes were delivered, which was a 7% increase year on year, but fast forwarding to today, we have an average house price in the South East of England of £373,000 so even with a 20% discount, you are still working off a multiple of x8.5 the average individual income, making almost unaffordable. The issue is incomes haven't kept up with house price inflation, so the metric of what constitutes an affordable home will probably need to be reassessed. The London School of Economics published an article reemphasising that a fall in actual house prices akin to what we have seen recently does not make housing more affordable, as affordability is driven by, you guessed it, supply. They reference that since 1970, house prices have increased in real terms by 441%, and construction fell by 46% in the same period.

This conundrum is a considerable challenge, infinitely complex, with more conflicts of interest than a game of Risk. Still, a part of the solution is how local private sector developers can be financially incentivised to build more affordable houses without impacting their yields and margins over time. It must be attractive enough for private capital but not so appealing that everyone loses sight of what we are trying to achieve while simultaneously placating local concerns. The brave new world of development financing will have to assume all the nuanced hallmarks and disciplines of impact investing to solve all our national issues whilst having feet in both the public and private sectors, and that's where multi-faceted fintech platforms in our space will thrive.

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