The housing secretary is exploring a government-run developer with the power to borrow at below-market rates, a move that could put Whitehall in direct competition with Britain’s biggest builders.
Steve Reed has been tinkering with plans for the state-owned housebuilder, according to details leaked to the Guardian, as ministers hunt for new ways to forcefully revive low prices.
The proposals, which have yet to be finalised, would create an independent body that could borrow at lower rates than private developers and housing associations. For SME builders looking at tightening margins across the board, the prospect of a serious public competitor is important, even if the government insists the new entity will not be allowed to overwhelm the private sector.
These plans cannot be implemented before Sir Keir Starmer steps down as prime minister. The Cabinet Secretary has ordered that no major announcements be made until the new government takes office. However, they could convince the potential occupant of Number 10, Andy Burnham, who has spoken of taking greater public control over “the essentials of life”.
Sir Keir came to power two years ago promising a big boost to housing. To get there, his government loosened the planning framework and allocated £39bn for social and affordable housing over the next decade through the Social and Affordable Housing Programme, managed by Homes England.
The stimulus increased the output from the end of 2023 and the beginning of 2024. Ministers said last week that the number of affordable homes has risen by 26% in the past 12 months, a figure that is very much in line with figures published by Homes England itself.
The title total, however, remains well below where they were three years ago and well short of where they need to be. Sir Keir promised 1.5 million new homes in this parliament, yet the latest figures show builders started work on 130,170 in the past 12 months, almost half the annual rate needed to reach the target. As Business Matters reported, the promise of 1.5 million homes is already slipping, and London is building only a fraction of what it needs.
Much of the problem comes down to the cost of materials and debt. The wars in Ukraine and the Gulf have increased inflation and, therefore, the cost of new construction. Housing organizations warn that the structure of the affordable housing budget, with more money arriving in the later years of the program, risks making things worse.
In the meantime, Reed and the Mayor of London, Sadiq Khan, have agreed to reduce the allocation of affordable housing in an attempt to persuade private developers to build more. It’s a trade-off small developers have long argued for cuts both ways, as Business Matters noted when small firms seek more flexibility in government affordable housing programs.
Reed is now understood as a weight of great intervention. Under the plans, money currently allocated to Homes England will be used to set up a new, outreach body to oversee housing.
The organization will use the money to buy land and deliver projects. It would not take over on its own, instead contracting out private construction firms, a framework that would open up SME contractors who have seen their market share shrink for decades. It could also be empowered to borrow, which would allow it to grow into a much bigger business, albeit at the cost of higher government debt.
The state-owned developer will build homes of all types. In another kind of vision it will build real estate, and see it directly competing with the biggest house builders in the country. It will also deliver affordable housing, taking on the role currently held by housing associations, many of whom are struggling to afford subsidized properties that private developers have already built.
This program will first be started in a small area, and those in the know say that it will not be allowed to grow in such a way that it destroys private companies.
Reed’s policy review came at a time when many ministers were looking for ideas that would appeal to the incoming Burnham administration. The home secretary was one of Sir Keir’s supporters and defended him even in the final days before he resigned. He did not, however, appear on the steps of Downing Street for a resignation speech, and appeared in the Commons later to take Burnham’s first photo as Makerfield MP.
Burnham is likely to be named Labor leader on July 17 and take office three days later. He is expected to outline early thinking on funding and the economy at a speech in Manchester on Monday.
Ministers are now prohibited from announcing new policy, and some are already stuck with floating ideas. In last week’s Times article, Home Office minister Mike Tapp suggested exempting overseas care workers from plans to make it harder for immigrants to settle. This sparked a conflict in the government, with the Secretary of the Interior, Shabana Mahmood, accusing him of leaking the internal plans of the department and demanding that the prime minister fire him. The No 10 said Tapp would be “reminded” of his role in the joint venture, but the appointment and dismissal remained in Sir Keir’s hands.
A spokesperson for the Department of Housing said: “New house building has increased by almost a quarter compared to the same period last year, and last year saw the highest level of council house completions since 1992.
For Britain’s small builders, the question is whether the state builder ends up being a customer, a competitor, or both.
