Beyond boom and bust: The supply case for social housing

England's housing system has a fundamental weakness: we rely overwhelmingly on private buyers to create the demand for new homes. When buyers retreat, building slows, however great the underlying need for housing.

Social housing offers a way out. But realising its potential requires more than putting additional grant into the existing system. It means rebuilding social housing as a stable, counter-cyclical source of demand, and using devolution to organise delivery at the scale needed to transform how Britain builds. 

The government has begun that shift through its Social and Affordable Housing Programme and ambitious plans to devolve housing and infrastructure powers. But as geopolitical turmoil bears down on the economy and the housing market stagnates, do these reforms go far enough to change how Britain builds homes?

Counter-cyclical social housing supply

Between 1946 and 1980, England built an average of 126,000 social homes each year. Social housebuilding was scaled up in the aftermath of the war and sustained through three recessions, four changes of government and nine prime ministers. Councils and development corporations could borrow cheaply to build and repay the costs over decades. They delivered homes on slum clearance sites, in new towns, through urban extensions and on surplus public land, enabling land to be assembled quickly, at low cost and separately from private development. Crucially, they did not need to sell private homes to make their schemes viable. This development approach was insulated from market cycles, allowing supply to continue even during downturns in private housebuilding. In other words, social housing supply at this time was counter-cyclical. It could keep delivering even when the market for housing stalled.

The result was a stable and predictable pipeline of work that helped to build capacity across the construction sector. By smoothing demand over time, social housebuilding supported the skills, firms and supply chains needed not just for housing, but for broader post-war infrastructure too. To take one example, M J Gleeson repurposed the infrastructure and civil engineering capability it had built up during the war to build major social housing developments like the Leverton Gardens estate in Sheffield alongside power stations, sewage works and sea defences.

The switch to a pro-cyclical model

In recent decades, the development model for social housing has flipped to become pro-cyclical. Social landlords today compete with private developers for land, pushing up build costs, while the share of those costs funded by public subsidy has shrunk. 

Changes to policy and funding support for building new social homes intensified following the financial crash of 2008 and the start of the age of austerity. The share of build costs covered by public grant fell from 50 per cent in 2008 to a low of just 12 per cent in 2020. Grant funding was switched away from social rent, where rents are linked to local incomes, into a new ‘affordable rent’ tenure, where rents can be set at up to 80 per cent of market prices. Shared ownership had been delivered in small numbers since 1980, but now made up a growing share of supply under an expanding definition of ‘affordable housing’. These tenures required less grant than traditional social homes, but they also excluded the lowest-income households on social housing waiting lists.

The supply of the most affordable homes for social rent then became dependent on recycling profits from private development to fill the gap left by declining grant rates. This has happened through two mechanisms. 

Firstly, section 106 agreements: as a condition of gaining planning permission, private developers agree to deliver a share of homes on market schemes as ‘affordable housing’. Housing associations and councils then compete to offer developers the best price for these homes. Over the last 10 years, the share of new supply delivered through section 106 has averaged 46 per cent. 

Secondly, the ‘cross-subsidy’ model: where housing associations and councils are delivering housing through their own schemes, they now often deliver a significant share as market homes, using the surpluses generated from sales to top up public grant. By 2017, housing associations were funding almost three-quarters of new social rent homes through this cross-subsidy model.

These mechanisms kept ‘affordable housing’ supply alive, but they did so by tying the fate of social housebuilding to the very market it once helped to stabilise. When the market booms, section 106 agreements generate more ‘affordable housing’ and market sales generate more cross-subsidy for social homes. When it stalls, both weaken at once. Instead of compensating for falling private supply, social housing now falls with it. 

Modernising the construction sector

The loss of counter-cyclical social housing supply in England not only suppresses the numbers of new social homes built; it also means social housing no longer plays its former role of smoothing out the inevitable booms and busts of the housing market. As a result, we are now missing out on strategic opportunities to modernise a fragile construction sector. This poses risks not just for housing delivery across all tenures, but to a wide range of urgent national infrastructure priorities, from energy, water and transport projects to data centres and logistics hubs. Today, more people are leaving the construction sector than joining it, and productivity has remained stubbornly flat for decades.

Industry bodies have repeatedly emphasised the importance of visible, dependable, long-term pipelines of work to underpin investment in the construction workforce, supply chains and capital-intensive innovations – above all, a growing role for modern methods of construction. Japan, Germany and others have used public funding and policy support for large-scale housing delivery in precisely this way. In the process, these countries have transformed their construction sectors to provide safer, healthier working conditions; more stable, higher-skilled jobs; lower carbon emissions and reduced waste; better quality control and energy efficiency; and faster, more efficient delivery. International evidence suggests reviving the counter-cyclical social housing supply model can unleash these same benefits in the UK, supporting supply of all tenures. When market supply recovers, private schemes also benefit from a stronger, more productive construction sector.

Reimagining the counter-cyclical model for the 21st century

As geopolitical turmoil looks set to leave interest rates higher for longer, demand for market sale homes will be constrained by high prices and ‘sticky’ mortgage rates, which will bear down on supply. Yet millions of households already have the incomes needed to pay genuinely affordable rents linked to local incomes. By over-focussing housing supply policy in England on a speculative housebuilding model that is inherently dependent on volatile market demand, we are leaving significant notional demand untapped. This is why those studying the systemic drivers of England’s low housing supply have described the demand for social rent homes as ‘virtually unlimited’ and have encouraged policies to diversify the tenures and types of homes built as a core aim of land and planning reforms. 

By funding and enabling delivery of more homes people can afford, the government can unlock latent housing demand to underpin a transformational and sustained increase in housing supply – one that can keep delivering across the booms and busts of the housing market.

The new government has made social housing a priority and taken important steps to revive the counter-cyclical model of social housebuilding. The new Social and Affordable Homes Programme (SAHP) reorients ‘affordable housing’ supply back towards income-linked homes shielded from market forces, with a target for at least 60 per cent of delivery at social rents. SAHP is intended to last from 2026 to 2036, giving councils, housing associations, investors and construction firms a clearer sense of long-term direction and ambition compared to recent grant programmes. 

But long-term SAHP funding does not, on its own, provide the stable and predictable pipeline of work needed to underpin investment in the construction workforce, supply chains and modern methods of construction. Firms and investors need confidence not only that funding will be available, but that there will be a sustained flow of deliverable projects in the places where they operate. This requires coordination across functional economic areas. 

Mayors and combined authorities are in prime position to organise demand across whole housing markets. They operate at the right level to assemble pipelines at the scale needed to support investment, while reflecting the geography in which housing providers and contractors actually operate. 

Crucially, mayors and combined authorities bring together the different levers required to turn funding into deliverable schemes – strategic planning, land assembly, transport, skills and access to public financial institutions – and can coordinate councils, housing associations and private developers around a shared pipeline. In this way, regional leaders can give firms confidence that demand will persist beyond any individual scheme or developer. If one project stalls, another will be brought forward. If one partner drops out of a project, another can be brought in. 

The government’s Rewiring the State paper sets out an ambitious vision for progressing devolution of funding and powers across every aspect housing and infrastructure delivery. The budget will tell us more about how far and how quickly it intends to go.