Tuesday, February 24, 2015

The economics of building 500,000 units of social housing.

O dear.

I have just heard Natalie Bennett's interview with Nick Ferrari on the Green Party's housing programme. I feel for Natalie. It is not easy, but I wish someone would brief her before these interviews, and I wish the guys doing the costings would hurry up and bring them out.

Anyway, I have to face the Press this Friday and they're bound to ask me about it.

OK, here goes.

500,000 social housing units to be built over 5 years.

That's 100,000 units a year.

Let's say they cost only £100,000 each because they are on brownfield sites, often on land belonging to Local Authorities, can be converted from empty properties using Empty Property Use Orders, and built of new highly insulated and inexpensive materials such as Structural Insulated Panels.

So the programme will cost £10bn a year for 5 years. £50 bn in all.

If each house lasts 100 years the programme provides 50 million HRYs.

HRY is a concept I created in my book Bills of Health, and it stands for Household Roof Years.
One HRY provides 1 household with living space for 1 year.

So each HRY costs £1,000 in this house-building programme.

Now the current way for us to provide for these families is in Temporary Accommodation (TA).

When I last looked at this problem back in 1996, the cost of putting 1 family in TA was £10,000 a year. In 1996 it was a conservative estimate, and I imagine that the costs have gone up a bit over the last 19 years, but let us stick with the £10,000 figure for the sake of being conservative, to cover house maintenance costs, and also for ease of calculation. I am not allowing for discount rate because it is a dodgy concept.

For each £1billion spent on social housing, the country saves £9 billion over the coming century.

Therefore the full  £50 billion will bring savings of £450 billion overall, over the century.
£4.5bn of savings a year.

We get an 11 year payback, and a total profit of £400bn on an outlay of £50bn.

Not a bad deal for the nation. Let's do it.

So that just leaves us with the little matter of where we find the money.

We could of course borrow it from the banks, the same banks that we bailed out with £375 billion worth of QE, but they would charge us interest, and why should we pay them interest when we have just saved their sorry assets?

It would be far better to pay for it with a £50 billion of QE.

We could get it from a tax on private landlords, although that would diminish in time because private landlords wouldn't be getting as much from TA.

Or we could cancel Trident replacement which would bring in £15 bn over the 5 year term.

Or we could have a partnership with private investment.

In whichever way we find the money, the gains are so good for the country, not just in terms of direct TA savings but in terms of health and social service costs foregone (households in TA are not happy and healthy), that the spending, wherever it comes from can be seen as an investment - which is defined as money used in a way that may earn you more money.

It can be done. If it is physically possible and socially advantageous, the money can be found.


mildred said...

Well thought through and explained - thank you! Would like to add, not only does temp accommodation cause or exacerbate other health and social issues, the lack of affordable social housing - particularly that which is of a suitable size and accessible for those with disabilities - holds up hospital discharges so people stay much longer than they need to in expensive acute hospital beds which has all sorts of knock-on effects within the health system.

Les Smith said...

Not to mention creation of jobs including apprenteships leading to further saving in benfts & increase in tax, NI & not to mention the impact increased (proper) jobs have on crime reduction including and there further savings that would have! As you say let's do it!!

Not surprised Natalie stumbled at the thought of trying o explain it to that halfwit on LBC!!

colin wiles said...

Thanks for the excellent analysis. The Green Party analysis states that each social rented home built will require £60,000 of public money. At present, housing providers receive around £22,000 of public money for every rented home they build but these are the so-called "affordable" homes, i.e. with rents at up to 80% of market rents. In London, the average "affordable" rent is now over £1,000 a mont, which means that anyone on a low to average income is forced to claim housing benefit. As someone involved with the SHOUT campaign, we think the Green Party figure of £60,000 per home is about right. the balance is made up from bow wowing by housing provers, by their use of surpluses and by cross subsidy from market or near-market products such as intermediate rent and homes for outright sale.

colin wiles said...

Apologies, my fingers slipper towards the end of that post. I meant "The balance is made up from borrowing by housing providers…" I think the rest makes sense!

Richard Lawson said...

Many thanks for helpful comments Mildred Les and Colin. I was going to ask about bow wowing, Colin, I know financial jargon gets a bit difficult sometimes, but bow wowing was a first for me.

Anonymous said...

The key thing is where will the money come from for the £60,000 grant, and this piece doesn't address that. I've looked at the figures in this blog for Red Brick:


Richard Lawson said...

Thanks for the link Monimbo. Very helpful.