Up and down the country Housing Associations and Local Authorities have effectively stalled their housing development programmes. While Government recently committed £500m to extend the Affordable Homes Programme, this funding is limited and some of its conditions remain unclear. There is talk of a new funding programme to come, which will most likely be announced in Spring, following Government’s Comprehensive Spending Review.  So, everything has stopped. Inevitably it will all start again and, if this Government is like its predecessors, there will be a sudden frenzy to start projects quickly as the money will need to be committed over a single parliamentary term.  And there begins the start of another inflationary cycle as the sector lurches from inactivity to hyperactivity.

While sitting on a stage at the recent Affordable Housing Conference in London, I was asked by an audience member if affordable housing grant should be allocated on a 10-year basis to give assurances to the sector. My answer was this: even if this Government did commit to that, that does not bind any future Government to the same commitment, so it is kind of a pointless argument. But there is a far better solution and it lies very simply in a spreadsheet formula.

The Net Present Value (NPV) of 40 years of social rent, at a 4.5% discount rate, is just over £180,000. That is not enough to build a house and so we must subsidise its construction.  However, the NPV of the same rents, over 100 years, is over £318,000, which is more than enough to build a house. So no subsidy is needed if we appraise homes over a longer period.

[As an industry, we have allowed ourselves to build homes that are so poor in terms of workmanship, quality of design and materials. They are also often set in environments with little or no sense of place.]

Sadly, nobody appraises affordable house building over a 100 year period. At the very most, appraisals run to 45 years, in extreme cases 50. But, if we look across other bits of national infrastructure, such as our highways, our railways or energy infrastructure, HM treasury appraises these on a 60 year basis by default.  In parts of Europe, including Germany – heralded for having some of the best roads and railways in the world – this extends to 100 years. Roads, railways, and energy projects are all vulnerable to technological innovation and changing consumer behaviours – things which, in reality, could easily make them obsolete over a 60 year lifetime. Think drones, driverless cars, dare I say even Jet Packs! This is also infrastructure that gets a lot of use and abuse and therefore requires major upgrades at regular intervals.  Can the same really be said of an affordable home, especially one that is well built?  

Unfortunately, profit driven house building has created a culture of poor quality housing output.  As an industry, we have allowed ourselves to build homes that are so poor in terms of workmanship, quality of design and materials. They are also often set in environments with little or no sense of place. Our economists do not trust them to last and are fearful of needing to knock them down every 50 years. Affordable homes are not considered a part of our national infrastructure, and are therefore appraised on what are relatively short term cash flows. This, in turn, drives need for cheaper housing and, critically, more subsidy.

To the audience member who asked the question, I suggested they visit a place called Port Sunlight, which was built by the Lever Brothers in 1888, as affordable housing for their factory workers.  It is a place of enduring beauty, which looks as good today as it did when it was built. Each terrace is different from the next, rose beds are aplenty and there is even an art gallery, to encourage “cultural enlightenment”.  I can think of very few affordable housing schemes built in the last fifty years that were so concerned with genuinely good design, let alone cultural enlightenment.

And so here is my theory: if we build better homes, ones that are fastidiously designed, in beautiful places, ensure they are flexible and adaptable to change, if we build them with robust materials and maintain them well, then they will last. Of course, we must manage them with proper maintenance regimes, that are costed and clearly programmed (unlike the current chaos of tackling “non decency”). Because they will last, our economist allies will start to see them as important national assets, over which we can take a longer-term view, rather than assets that can only be built with oodles and oodles of Government subsidy.  And perhaps some of the money we save could be spent on training the bricklayers and the thousands of other critical artisans that are needed by this new housing revolution.

Gerry Hughes FRICS MRTPI