Sunday Supplement 8 Jun 25 - Social Homes - Whatever it takes?

“The next Labour Government will deliver the biggest boost to affordable, social and council housing for a generation… we’ll start by rebuilding the dream of a safe, secure, affordable home.” - Angela Rayner, October 2023 when deputy leader of the opposition This week’s quote pertains directly to the deep dive which talks about the real numbers needed to build social rent homes in the UK at any scale. Before we go into this week full throttle - Rod Turner and I are running another workshop in July, on Thursday 3rd - Joint Ventures and Mergers and Acquisitions this time around, and it is sure to be a highly popular one - a whistle stop of the agenda: Market dynamics, JV opportunities, and optimal legal structuring for property businesses. Learn the pros and cons of limited companies, share classes, shareholder agreements, and sustainable JV models. Dive into capital structuring, comparing debt vs equity, managing risk, and understanding personal guarantees. Gain insight into property M&A, from due diligence to asset vs share purchases. Apply concepts through two in-depth case studies: acquiring an asset-backed property company and navigating a distressed business sale. Understand strategic disposals, company wind-ups, and how to negotiate under pressure while maximising value. Don’t miss the SUPER early bird tickets - they are only available for a FEW MORE DAYS and are selling like hotcakes at http://bit.ly/pbwseven This week was interesting - as usual - in Trumpwatch land, too. Economics-wise, I shared some content about the US Treasury participating in a big way in a bond issuance - buying $10bn worth of debt back, although there was some (often deliberate) confusion created about this. The US has $9.2tn of debt maturing in 2025, and all (plus some more) needs to roll over of course. At this time the yield curve looks flat and slightly inverted out to 3 years, and then starts to climb again. Longer dated debt (20 and 30 year) hikes quite a bit to around 5%, with the 10 year debt at 4.5%. This makes the 10 year debt (best guess) in 10 years time around 5.5% (half of the 20 years at 4.5%, the other half at 5.5%, averages out at 5%). Even if we go back by the thick end of 20 years - June 2006 - the 10 year is only at 5.1%, and is volatile but generally moves downward until the imposition of the financial system in 2008, so 5.5% is expensive, make no mistake. The UK is no better off - indeed slightly worse - as a segue. The 20 year is trading at 5.25%, with the 10-year at 4.65% - so in 10 years time, the UK 10-year best guess is 5.85%. That’s hugely expensive and makes longer-term debt much less viable. In June 2007 we were at 5.45% (but the 20-year was 5.07%, meaning the 11-20 year best guess at that point was 4.69%, which is eerily close to the current yield but nowhere near the June 2017 10-year yield at 1.33% which is what actually panned out), and that again is cherry-picking the high point, so the fiscal drag on the economy would be incredibly harmful. The debt forecasts are for “an upward trajectory with debt at 274% by the mid-2070s if current policies remain unchanged” (yes, that’s what the OBR says). So let’s say it sits at about £3.5tn by that point - the most liquid and active gilt market would see us paying c. £205bn just in interest, then also borrowing more (assuming we are still in deficit) would only see pensions and welfare being spent more on than this (£276bn in 2024/25 FYI). Flip this on its head for the moment. Shorter-term debt looks cheap in comparison, and so if you HAVE to issue debt (let alone buy your own because no-one else wants it), and are rolling over old debt ($38.6bn of Fed-owned securities expired in the week ending June 5th) - then buying new shorter term debt, while it is cheaper (rather than longer term debt) makes sense IF you believe that the longer-term debt yield will come down and the term premium (the extra being paid for longer-dated securities) is too high. In plain English - you are betting on the situation being sorted out in the longer term - OR you are simply kicking that can down the road for when you are retired/no longer in charge……you decide which one of the two is the case! Personally - if I took a long term view - I’d be buying 20 and 30 year debt and funding it with the issuance of shorter term debt if I was the Bank of England, because they can take that long (and longer) term viewpoint. It would soon sort the yield curve out. The Bank isn’t “allowed” to trade like this, of course, but that’s a real shame because the ONLY way our political system could allow long-term viewpoints to be taken is by having the independent organisations like the Bank. Their remit needs organisation, and yield curve control (which the Japanese have indulged in for decades, and are doing OK, much as I would be highly uncomfortable if the UK level of debt was at the Japanese levels (216% in December 2024). This is often quoted WITHOUT netting off the government assets, which is a bit naughty to say the least - that number comes down to 78% of GDP. Guess where the UK sits on that number - 83.5%, because Japan’s position in foreign held assets (not least US Government bonds, as it goes, which they hold over $1.1tn of). So - arguably - worse than Japan. As a second segue, THIS is why the fiscal rules have to be that tax collected matches public spending, but doesn’t include investment - because investment should create a positive return. Note the use of the word “should”. So - presuming you can borrow at a rate better than the return on the investment (the IRR, technically) - you should borrow and invest (bearing in mind capacity in the economy, and other important points - but in the real world, bearing in mind political considerations of course!). You could borrow at 4.5% for a wealth fund if your target investments were going to make 9%+ (or other suitable debt service coverage ratio). Norway still has debt - $250bn or so - 55.1% of GDP - in spite of the wealth fund’s valuation at $1.75tn or so. 14% LTV, in our terms (although what they are invested in is also inevitably leveraged, probably at around 30-40% or so, so it isn’t quite as simple as that - but it never is!). Their “drawdown rule” is a spend of said fund of 3% a year, as a cap - still $52.5 billion as it stands, and it only costs them around $20bn to service their debt based on current yields around 4% (it’s likely a bit cheaper because of older cheaper debt issued before rates went back up globally) - what a contrast! OK - the heavy stuff from Trumpwatch is over there. Or is it? The moral of that story is that something needs to be done, likely within 10 years, unless life is going to get a lot more uncomfortable. Ray Dalio has a new book out - How Countries Go Broke - the Big Cycle - and he nails it as usual. In typical Ray style, to save you buying the book he tells you the big takeaway - there are only 3 ways to fix this, and all 3 are needed. Raise tax revenue (NOT the same as raising tax rates, note). Cut spending. Grow. Easy to say - and 3 matches the Labour mantra of growth, growth, growth (which I’ve said many times - is absolutely right in principle. It’s the execution that’s the problem). Onto the more soap-opera stuff. They said 2 personalities as large as Donald and Elon couldn’t stay in bed for long, and indeed a little over 6 months looks to have been the shelf life. The left have delighted in the public fallout, of course; the centre are more sanguine, and Tesla stock went from $350 early in the week to $275 and is back at $295 as the market has closed for the weekend. The accusations you will have seen, and ad hominem attacks just don’t interest me - it’s solely a spectator sport, if it’s your sort of thing. The 419 really is that the advertised $1tn - $2tn Musk was going to save the Government never happened, and the “big beautiful bill” is crazy and just adds $2.4tn to the deficit (although it WILL most likely allow for continued growth, so analysis does also need to take that into account). Compare that with the situation above and you will see why the bond markets are, overall, jittery and demanding a healthy premium for both US and UK long term debt. Executive orders banning travel from certain countries (echoes of Trump 1.0 here), drones being targeted (fascinating tech that appears to be largely out of date within 18 months, making Government procurement and value for money a nightmare or basically impossible, I’d imagine), excluding the press from certain events (so much for free speech?), and the battle with the legal system in the US also continued (with firms actively suing the Trump administration) were the other pieces of news. It’s never been so volatile over in the states as far as I can remember, and the resulting news that drags the yield curves upwards (as happened again in the US this week) affects the UK like a mirror, unfortunately. So inching into June - the Real time property market. Chris Watkin delivers - Week 21 is with us, and we must remember that this update is on a short week with the second Bank Holiday Monday contained within. Listings down to 31.9k on that basis, but still 5% higher than 2024 YTD and 9% higher than the pre-pandemic market. My “10% more stock than a normal market” ready reckoner is still working. 21,500 price reductions, 13.4% reduced each month, compared to last year’s 12.1% and the 5-year average of 10.6%. More stock, more reductions - absolutely and relatively. 26% more reductions than the 5 year average, if you take the difference between 13.4% and 10.6%. “25% more reduced properties than a normal market” also works as a ready reckoner. 25,000 homes sold subject to contract, still strong given the 4-day week. Healthy is still the right word. SSTCs are up 8% year on year and 16% on 2017-19, and still nearly keeping pace with 2022 (which to this point was a very hot market indeed). Fall throughs are staying below the 7-year average, at 21.7% (last week 22.9%). It’s the lowest fall-through percentage I can remember for a while. The net sales are playing ball as well - 5% up on last year and 12% higher than 2017-19 - not quite at 2022 levels (5.1% below 2022 at this point in the year) but the stamp cliff will have forced a few more transactions out of bed of course, and as the year progresses then in the absence of any more shocks, things will likely catch up because transactions were significantly “disturbed” by the 2022 budget and the bond markets, of course. I always give Chris a weekly shout out here because he’s more prolific than “just” this epic tome he releases weekly on the UK property market - he comes up with some great stats on a regular basis. Drop him a like, subscribe, and all the rest of it and some kind words for his content creation. If you are in the industry and want support in growing your business or to be a more effective communicator/be more in touch with your local market - that’s his core business - give him a shout. The article gets published on the Property Industry Eye website, and the video on his YouTube channel - @christopherwatkin

Time for the Macrobatics. A busier week. This month we get to combine the Nationwide and Halifax Price Indices into one segment. The Bank of England Money and Credit report is with us, that I always like to include, with a particular eye on the money supply for inflationary purposes. We also had the final PMIs for May, and the news was good so it definitely makes it into the third slot!

After that data-fest we will recap on the gilts and swaps markets, as we will continue to do. House price indices then. This was one of those weeks where Nationwide released on Monday, and Halifax on Friday, so we get both in one week. Nationwide says prices up 0.5% for May - Halifax says down 0.4%. The direction of travel was the opposite for each of them in April - so the last 2 months, after the stamp duty comedown which I spoke of extensively last week, appears to have worked out at a flat couple of months on either index. Nationwide’s annual figure is now +3.5%, and Halifax’s is 2.5%. Nationwide’s take on the stamp comedown after the event is that the market is still healthy enough, as mortgage approvals data has held up nicely (more later). Their summary is one that I’m not sure many would agree with if they’ve had their household and council tax bill increases - but they say unemployment remains low, earnings are rising at a healthy pace (above inflation), household balance sheets are strong and “borrowing costs are likely to moderate a little if Bank rate is lowered further in the coming quarters as we, and most other analysts, expect.” I’m not sure how much of that I agree with. Earnings have done well. Unemployment is low but higher, vacancies are lower. Core inflation is not great at all, with CPIH above 4%. Bank rate lowering further in the coming quarters - that’s as up in the air as it has been for some months, because the Governor, recently, in front of the Treasury committee, told them that the trade uncertainty alongside a loosening labour market means that they want to see cooling pay growth and that the Bank would continue to be “gradual and careful”. If he’s not voting “hold” this month at the meeting I’ll be very surprised! (less than 2 weeks to go!) Nationwide focuses their segue for the month on rural versus urban properties - looking at the last 5 years. I’m not sure how useful this is, because the pandemic was such a “one-off” lifetime event - but according to their report, prices are up 23% in predominantly rural areas, versus 18% in largely urban areas (December 2019 - December 2024). There’s no surprise that this tendency to the rural is much more likely the older you are (and 25-34s were much more likely to move “more urban” versus “more rural”). Halifax sees a market down 0.2% since January 1st 2025. This would match a market with a lot of stock available (which we know is the case) and stable interest rates, when you think about it. I still expect inflation to drag things forward by the end of the year (and I only trust the ONS figures anyway!). They have Northern Ireland, Wales and Scotland all well ahead of England (8.6%, 4.8%, 4.8%). They have the North West and Yorkshire both up 3.7% year on year, and London at +1.2% (which is very similar to the ONS numbers). They are less bullish than Nationwide - sounding very flat in their analysis for the rest of this year. Affordability is still a challenge, and it all depends on interest rate cut pace, and the strength of income growth versus inflation. Resilience is their choice of word - flat-sounding, I would say.

The Bank of England Money and Credit Report. After last month’s report (which was reporting on March) there was of course an incredible difference - from £13.7bn net borrowed to £0.8bn net repaid, in April! Net mortgage approvals fell to 60,500 (remember those transactions will actually vest in several months time) - the 60,000 number is seen as “stable”, 65k is more like the number for a healthy enough market which is where we have been before the stamp duty disturbance. Remortgages were up to 35.3k, which is the highest number for many months.

Consumer borrowing increased sharply in April - I would imagine there was a strong correlation between the “Awful April” from a bills perspective and consumers' need for credit. It went to £1.6bn net, with £0.8bn of that being on credit cards (double March’s number). M4Ex - the money supply measure the Bank prefers - was up another £6.2bn, on top of £12.7bn in March. This isn’t conducive to lower inflation, let’s put it that way. Net mortgage lending stayed at 2.5% up for the year - very slow and steady - with 2.7% being the figure last month. Some semblance of health has returned to this figure over the past year, however. The difference in gross lending for the month was the largest since the last Stamp Duty tweak, of course. Lending to SMEs is almost non-negative growth at this point. A strange sounding point, I know. What it means is that since late 2022 (yep….), SMEs have borrowed less and less money each year. That’s still happening - but borrowing is “only” down 0.8% year-on-year at this time. Big business by contrast has largely pressed on, and is up 5.8% year-on-year. SMEs paid 6.79% on average in April (compared to 6.39% for large businesses). My favourite comparison in these figures is the current rate on “stock mortgages” - all debt outstanding - which is 3.86% - compared to the rate on newly drawn mortgages on average - which is 4.49%. The stock figure is only 14% adrift of the drawn figure, and the crossover point looks perhaps 12 months away (when drawn mortgages are cheaper than the outstanding stock) - at that point we can say we are truly weaned off the cheaper debt, in the second half of 2026 I’d speculate (talking about households as a whole).

PMIs. The flash PMIs were not good, and still below the magic 50 point as a whole. Good news - the final numbers are revised upwards, and the last week of May must have been a positive one for business.

I’ll deal with the composite first, because it is the most important number. The flash numbers said 49.4, but the final number was 50.3. Services made the biggest contribution by moving from their flash number of 50.2 to 50.9 in the final print for May. S&P dismisses this as “marginal, and much weaker than the long-run survey average”. We can’t argue with the marginal comment, because 50.3 (composite) is nearly as marginal as it gets of course, and the long run average is 53.3. The rest of the headlines though - business optimism rebounds to a seven-month high. New work and employment continue to decline, though. Exports were stable but new work decreased for the fourth time in five months. The Economics Director kicks off his analysis by confirming that May was a lot less uncertain than April, thanks to tariffs. He points to the 8-month period in falling employment numbers as the longest streak since 2008-10. The final point is that price pressures have contributed to softer cost inflation after April’s large cost increases. The difference between the 50.9 and the 50.3 numbers is found in the construction and manufacturing sectors. The Manufacturing number was 46.4, citing “turbulent conditions” but also citing easing input price and selling cost inflation. A rough number, but an improvement on April’s 45.4 and the flash number of 45.1. How about construction? 47.9 in May was another improvement from 46.6, but is still below the 50 of course. House building was once again the weakest performing segment - printing 45.1 - with subdued demand being cited as the reason. Civils printed 45.9 extending a 5 month contraction period. Commercial work was more marginal printing 49.5 and the trend is set to break the 50 mark for Commercial next month. Output growth looks positive for construction going forward, however, and they are hoping for a tailwind from falling interest rates (keep dreaming, is my message, at this time!). Price pressures were more prevalent in May in construction, unfortunately, although it was the lowest increase for 4 months. Wages up, margins down, and subdued demand weighed on construction employment, the Economics Director at S&P says. Job shedding was the steepest since August 2020, and subcontractor usage decreased to the greatest extent for 5 years, we are told. Doesn’t sound great, but the whole sector and even the economy sounds like they realise that there has been a shock (the NI increase), they’ve absorbed it and things will get better as the year goes on. In plain English……Keep Calm and Carry On…… OK - any gilt-y pleasure this week? Not really. The larger rate of earnings growth (a mere 3.9% in the US versus consensus of 3.7%, far more controlled than the UK number though) meant that yields moved the wrong way, and dragged us with them when those numbers came out on Friday. Having said that, we opened at 4.175% yield for the week on the 5y gilt on Monday, and closed at 4.154%, so it was still a down week. Thursday’s close was 4.131%, which we prefer! Nothing on this side of the pond really moved the needle at all this week - the big stats for the UK economy are out over the next couple of weeks. Thursday’s swap close was 3.789%; the discount back to where it has been for many months at 34.2 basis points. Concerns from last week have abated somewhat. One month ago the 5y swap was 3.602% yield, one year ago it was 3.995%, for some recent historical context. This puts our best guess of the cost of ltd co mortgage debt at 5.8% or so, and our “safe range” of 6% debt cost being a realistic one to work from. The Deep Dive has crept up on us once again, although we went fairly deep into Trumpwatch this week! I wanted to discuss the regulations in the mortgage market in some more detail, as the changes have not been as yet what I was hoping for but I still feel a summary review would be useful - however, I was sent a report late Friday night (thanks!) that I wanted to share the output of with Supplement readers. In keeping with recent Supplement themes, this one was about subsidies and affordable housing, putting some real figures on the situation - so it makes a nice continuity piece, and the mortgage market will wait for one more week. The source will remain confidential, but it is well researched and runs to some 80+ pages. The subject matter is viability of affordable homes. The language is compelling - an unprecedented housing crisis that demands immediate and decisive action. The key stats here - 1.33m households on local authority waiting lists and over 164k children in temporary accommodation. Crisis calling for 90k social homes annually for the next 10 years. The Tony Blair Institute has been calling for 700k social rent homes over 10 years. The housing permacrisis. Then - the real problem. Social and affordable rent homes do not pay their way (for the purposes of this report, affordable rent is considered capped at the LHA rate, which in itself is gigantically problematic when divorced from the rental market, as it has been so many times since the 2014 “first freeze”). The capital value of the homes is significantly less than development costs, which creates a viability gap - not just because of the shortfall in development costs, but also the cost of capital over the lifetime of the homes. This is even when considering very long time horizons - far longer than the typical political time horizon! This leaves only one option, of course. Public subsidy to bridge this viability gap. This report concentrates on proper and well-researched numbers, to give context to the size of the subsidy needed in order to get this programme underway. The number concentrated on is Crisis’ 90k social rent homes per year. The conclusion is that £20.35bn is required if for profit providers are used, or £18.84bn if a housing association/council is the provider - this subsidy instead looks like £7.75bn at affordable rent if delivered by a for-profit provider, or £4.01bn if affordable rent provided by an HA/Council - so you can very starkly see the cost differential. How robust is this conclusion? 10 BRMAs (Broad Rental Market Areas, large areas which LHA rates are equalized across) across England have been used, using a discounted cash flow mode to calculate the internal rate of return using differentiated assumptions. In plain English? It’s been done (very) properly compared to some of the papers and publications that I review in the deep dive on a weekly basis! The following assumptions are used - 50-year time horizons for not-for-profit RPs, with an IRR target of 5.5% (when you look at that, compare that to the bond yields - current 50-year bond yields are 4.65%, so that doesn’t leave much margin above the cost of Government debt - looks fair or even too low). The assumption after that 50 year period is zero exit value. For profit the assumptions move to 7% and a 30-year time horizon with an exit at investment value. These assumptions look reasonable although a longer discussion about nil exit value for RPs would be one consideration (it also won’t make that much difference to the calculations as crazy as that sounds, because that exit value is being discounted by 50 years at a reasonable discount rate). Every 100 houses is assumed to contain 20 2-beds, 40 3-beds and 40-4 beds. Apartments are 20:40:40 1:2:3 beds by comparison. Costs are using BCIS location specific indices, and using published capitalisation yields for affordable housing assets. Again - very robust and factual, using real data. Land is valued using Residual Land Value methodology which many will be familiar with - start with the end value, consider margin (if required), consider construction costs, and end up with what the land is worth. Why not just use s106 agreements? Because there just aren’t enough of them to deliver 90k homes per year. The next point is a crucial one. By waiting this long, this is a typical “tragedy of the commons” - debt was cheap for 13 years by my reckoning. Now it isn’t, and the cost of capital is right in this debate - at 4.5% for Government bonds (a pretty fair rough estimate of the 10-year yield over the past 18+ months). The next point is very pleasing, and often missing from Governmental policy in this area. The CEBR (Centre for Economics and Business Research) - a respected economics consultancy who are known for preferring policy to politics - delivered a report last year looking into the economic impact of building social housing (another future deep dive assignment there!) - produced for Shelter and the National Housing Federation (a worthwhile collaboration). This is critical - not just looking at the cost and the subsidy needed, but considering the overall economic benefit of stable and good quality housing for lower-income families - absolutely critical. This report claims that the subsidy was underestimated in the CEBR report, but also points out that whilst those benefits are tangible and substantial, they accrue to society (and therefore HM Treasury) rather than directly to the housing providers - this is undeniable of course. But - this makes a strong case for the Treasury to invest the subsidy provided - and this needs to be taken into account in any decent impact assessment, and correctly forecasted - often easier said than done. Context for current funding - about 12% of the subsidy needed to deliver 90k social rent homes per year. That’s based on the 2021-26 Affordable Housing Grant Programme at £2.3bn per year. Much more significantly - the average subsidy of £64k per affordable home across mixed tenures contrasts with the subsidy needed for social rent houses and apartments using the methodology laid out above - c. £170k per house and c. £250k per apartment (that’s not for profit, 50/50 split houses and apartments - and I know what you might think, because I did - why build any apartments then? Because apartments are badly needed and to an extent the only option in high density urban areas. I’m such a suburban bear!) That averages £210k per unit, or £226k if using for-profit providers - or averages out around £19.6bn per year based on a unit subsidy of £217.6k (a blend between the non-profit and the for-profit providers). This explains why s106 agreements deliver shared ownership or other affordable housing such as intermediate rent affordable homes - the current subsidy per unit is nowhere near enough to deliver social rent homes. The report is well-written for its audience and it understands the type of person that might read it - and therefore handles objections before they come up. How about free land, for example? Not the silver bullet, substantial subsidy remains necessary. There’s no creative funding model to get around the requirement for “appropriate returns on capital investment” - just enough to cover debt margins at this time, basically. S106 is not enough on its own to address the crisis, and Government subsidy is essential and unavoidable for meaningful affordable housing delivery. So - what to do? Corporation tax credits are one option (these have been used internationally with success in a variety of areas, not to say they aren’t open to abuse of course) - the model has been used at scale with overall net benefit (in my view) in the USA, for example. Fixing housing values at the planning stage is a process change which sounds very sensible and practical - a solution proposed by someone who understands the process well, quite clearly. The abolition of Right to Buy - all made harder and less advantageous to the tenants over the years because politically no single party has wanted to be the one to abolish it, but still a mechanism that leaks stock each year - is the next suggestion. Next up - delighted to see the “flex rent” model, also known as the Community Rent model which was the brainchild of Darren Rodwell, the former Labour leader of Barking & Dagenham council who sadly did not make it into central Government in the 2024 election due to a series of allegations beforehand that were dismissed - I’m the first to speak out against conspiracy theorists but what I will say is that from a policy perspective, Labour are worse off for not having Rodwell as part of the housing team. What is flex rent, or community rent? Simple - when circumstances change, rent moves - up or down. So instead of moving from a property where there are very likely to be roots and continuity is desired, instead the rent can adapt. Those who need the most help get it, rather than an inefficient model. Those who can pay a bit more, pay a bit more. A progressive system. The last one is a key, because there are really two structural economic points that need addressing here. Firstly - this problem has been almost completely ignored since 1980, politically. We lost over 375,000 homes from local authorities to their new owners in 1981-84, and whilst this was incredible for social mobility, that was only ever going to be a one-off transfer because money was not reinvested in building the same opportunities for future generations. This wasn’t political - Labour did nothing to address this at all, and their numbers between 1997 and 2010 for getting affordable housing delivered were shrouded in politics as we moved from “social rent delivery” to “affordable home delivery”. The crash didn’t help of course and it took many years for the coalition come Conservative government to get delivery back to anything like speed in that time. It wasn’t prioritised. Now it needs to be more than ever, as the problem has just got worse and worse and worse year on year, with new pressures (population increases that are much larger than forecasted, for example), and at a much worse time because we’ve missed our window of interest rates or the cost of capital being around 2% (so a 3% IRR would have been fine versus a 5.5% IRR) - looking at the average 10-year bond yield of the 2010s. Anyone who has ever looked closely at capitalisation rates and commercial angles to property will be able to tell you - the difference between a 3% IRR requirement and a 5.5% IRR requirement is incredible - but crying over the missed opportunity of the cheap debt era is simply crying over spilt milk. The milk has long gone and is evaporated, leaving behind that residue you will be familiar with and an unpleasant smell! So - typical politics really. The problem has gotten bigger and bigger until words like “permacrisis” are now being used, and the solution is far more expensive and less workable than it was 10 years ago. The solution in the paper proposed - recapitalise the Housing Association sector. At a time when money is shorter (mostly because of the desired size of the state) than in recent memory - this just sounds unlikely! So - can nearly £19bn annually be committed to social rent homes, when the current commitment is £2.3bn? There’s a great piece of financial engineering here which is used in the paper at this point to provide a solution. Temporary accommodation currently costs £2.3bn per year (2024 figures). For context - since 2015, in the past 10 years - there were 1.24m households on waiting lists (so, not up by an incredible amount at all and no real per capita increase) - and 103,430 children in temporary accommodation (this one has increased at an eye-watering rate in the past decade). That £2.3bn could be considered as funds to service index-linked government debt. That is inflation-protected money, which has a much lower yield on top of the inflation-linked payment. At a fair estimate of current index-linked yields, that could service £180bn of such bonds - funding almost all of the social rent homes needed. How can index-linked bonds be justified? Because social rents are also index-linked. The multiplier effects of reduced welfare dependency, improved health, and better social cohesion would provide the Government with a substantial return on investment. You wouldn’t issue £180bn of (any, let alone index-linked) bonds without ruffling some feathers in the bond market. However - it is borrowing for investment, and could therefore fit within the fiscal rules framework. It also is by no means a drawdown from day one. Timing the market is also suggested - counter-cyclical investment, rather than blowing up the construction sector from day one. There’s a reminder also that increased building safety, and net zero, are both bringing much higher costs of delivery. The report concludes around a tautology - you can’t have subsidised housing without subsidy. If you look at the £18.8bn annually, and use the temporary accommodation argument (there will always be frictional temporary accommodation, I am sure) - you can see the numbers very nearly add up, if framed in the right way. More colour from the CEBR report would be useful and will follow in the future, as I’ve said. There’s a positive conclusion - “social rent homes are not for people in need - they are for people we need”. The argument then becomes the fact that this is an investment that we can’t afford NOT to make as a nation. The talk is of political courage (in short order, but something you would think Angela Rayner does have), and decisive action at scale. The approach needs a fundamental shift, which can’t be disagreed with - since 1984 (or arguably 1980) the numbers have never added up, the can has been kicked out of shape by so many people in so many different directions, towards the end of the road but now we are close to the end of that road. Let’s see - when the report does become public - who is listening, or not. This is a longer-term strategic solution from a tough starting point, at a bad time. The housing market and the entire economy is behind the 8-ball. It would be great for social mobility and inequality, which is growing and causing more and more disquiet - anyone sensible should want that to be a reversing trend! As we’ve come to the end once more, remember to book your tickets for Thursday 3rd July for the next Property Business Workshop too, on Joint Ventures and Mergers & Acquisitions - another fabulous day of learning and discussion is guaranteed! Hurry, because those SUPER EARLY BIRD tickets only have a few days left - book here: http://bit.ly/pbwseven Above all - please remember to Keep Calm, ALWAYS listen to or read the Supplement, and Carry On; there will be opportunities abound this year and towards 2030 - the risks around at this time, while they feel significant (the geopolitical ones) are far less meaningful to the UK housing market than they have been for several years - of that I have no doubt. Good luck!

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Sunday Supplement 8 Jun 25 - Social Homes - Whatever it takes?

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