Why social and affordable housing is seen as a driver of economic growth by the government
26th September, 2025
The Labour government has committed to delivering “the biggest increase in social and affordable housebuilding in a generation”.
In this article, Joanna Lee-Mills and Alexander Rose explain why this is regarded not only to be a moral obligation but also an opportunity to drive economic growth.
How is the Labour government changing social and affordable housing?
Affordable housing is made available, upon sale or rental terms, at a reduced price to people that would not otherwise be able to afford housing at market prices. Although affordable housing is not defined in law, it is widely accepted that it covers situations where housing is provided for an ‘affordable rent’ (up to 80% of market rents) or sold at a discount of at least 20% below local market value. ‘Social housing’ is a form of affordable housing which is provided for lower income people, often at 50% of local market rates. Affordable and social housing is provided by local authorities, housing associations (private, not-for-profit organisations set up to provide affordable homes) and for-profit organisations. In June 2024, there were around 4.1 million people living in social and affordable rented homes in England, which is around 16% of the total housing stock. There has been a significant fall in the proportion of such housing available; around 20% of people lived in social and affordable rented homes in England in 2000.
The Labour government argues that there has been long term under-investment in social and affordable housing. This appears to be supported by the data – in the long term the construction of social housing has reduced dramatically: Shelter reports that over 200,000 homes were created annually in the 1950s but this dropped below 10,000 in 2023/24. The stock has also been depleted, for example the Right to Buy scheme led to the sale of millions of council homes, but few have been replaced. The human impact of this situation is that over 1.3 million households are currently on the waiting list for social housing, with thousands forced into temporary accommodation (the accompanying financial cost of this is high, with local councils in England paying £2.29bn towards temporary accommodation costs in 2023/2024). The situation is exacerbated by house prices rising at higher rate than earnings. As the BBC reported in August 2024, “for a home to be deemed affordable, it needs to cost less than five times workers’ earnings. Across England & Wales, on average, that hasn’t been the case since 2002. Homes in 2023, cost £285,000 on average – more than eight times average earnings of £35,000”.
In July 2025, the Labour government published its plan to put “in place the foundations for a decade of renewal in social and affordable housing“. This set out five interventions, these being:
- deliver the biggest boost to grant funding in a generation: the headline announcement for this part of the plan was a 10-year £39bn billion allocation to the Social and Affordable Homes Programme (SAHP) which JLL estimate could deliver 500,000 new homes if used to provide an £80,000 subsidy per unit. The government also anticipates a further £10bn will be made available in the form of financial instruments (now called financial transactions) providing loan and equity support to unlock developments;
- rebuild the sector’s capacity to borrow and invest in new and existing homes; the government sought to strengthen the financial position of housing associations and councils by authorising social housing rents to increase by CPI+1% each year from April 2026 and providing £2.5 billion of low-interest loans;
- establish an effective and stable regulatory regime; this includes updating the Decent Homes Standard (DHS) and creating the £1 million Resident Experience Innovation Fund which will be made available to social landlords, tenants and other organisations to test and scale up innovative projects that aim to deliver better outcomes for social tenants;
- reinvigorate council housebuilding; the Plan expressly states that the government wants “to support councils to build at scale once again” and to ensure that there are the skills to do so has created a £12m Council Housebuilding Skills & Capacity Programme (CHSCP) to provide centralised training and guidance to councils to upskill their existing workforces. Of course financing will be central to any such plans and the government intends to announce how it will revise the Housing Revenue Account (HRA) to support this in autumn 2025; and
- forge a renewed partnership with the social and affordable housing sector to build at scale; the government recognises that there have been tensions between previous administrations and housing providers, so has sought to reset relations.
Building for Growth: Unlocking the economic power of social housing
On 29 September 2025, the new Secretary of State for Housing, Communities and Local Government, Steve Reed OBE, will lead a panel discussion about the importance of social housing in delivering economic growth at the Labour Party Conference.
In doing so he is expected to talk about the local benefits that come from such investment, drawing upon research carried out by CEBR in February 2024 for Shelter and the National Housing Federation which shows that building 90,000 social rented homes can be expected to add £51.2bn to an area’s economy during a 30 year period. Part of the benefit calculated by CEBR comes by way of a short term economic stimulus, building projects support jobs within the construction sector. However, creating housing for people who would otherwise be outside the local market also creates new opportunities for local employers. This is estimated within the research to be worth £3.8bn in tax revenue, but also the employment reduces the need for benefits (calculated to be a saving of £1,218 per household, generating a further £3.3bn in savings over the long term). There is also a link between employment and health outcomes, which over a thirty year period is calculated to save £5.2bn in NHS costs. Clearly there’s a moral imperative to create better life chances for children, but there is also a financial benefit – unstable homes linked to inadequate accommodation disrupts education, which in turn is linked to lower economic contributions, increased crime, and greater use of public services. Reducing these disruptions is estimated to generate £2.7bn in savings. Whilst the numbers attached to the forecast can be challenged, there is a logic within each of these points – by investing in appropriate housing, people have the opportunity to live better lives and therefore need less State support.
He is also expected to talk about the steps that the Labour government is taking to position social housing as a driver of national economic growth, with particular emphasis upon the decision to categorise housing (particularly social housing) as critical national infrastructure alongside transport, energy, and digital networks within the UK 10-Year Infrastructure Strategy, which was published in June 2025 and is backed by a commitment of £725bn of public funding over the next decade.
This represents a fundamental shift in governmental thinking. For decades the government’s infrastructure policy focused on roads, rail, and utilities, whilst housing was treated as a separate social concern. The new strategy acknowledges that social housing is essential infrastructure that contributes to the country’s economic productivity, public health and social cohesion. As the strategy notes, social housing anchors communities, houses key workers and enables labour mobility – all of which is crucial for economic growth.
The government is now looking at ways to build upon that growth, coordinating how critical national infrastructure is rolled out to ensure all the benefits are captured. For example, when HS2 stations or Elizabeth Line extensions are confirmed, social housing providers may acquire sites knowing that transport connectivity will transform their viability. The commitment to 99% gigabit broadband coverage by 2032 means new social housing estates can be designed as digitally-enabled communities from inception. Such an integrated approach means housing delivery can be synchronised with infrastructure provision, reducing delays, cutting costs and ensuring new communities are properly connected from day one.
Conclusion
The government recognises the benefits that can come from social housing and is backing the growth of the sector through public funding (including the £39bn commitment to the SAHP and additional £10bn investment in the form of financial transactions) but also improved coordination when investing in infrastructure. However there remains serious impediments to delivering more social housing and the success of this initiative will ultimately be judged on the number of new homes delivered and the time it takes for these to be built.
Ward Hadaway is one of the country’s leading legal advisers upon matters involving social housing. Please do get in touch if we can support you in the delivery of your objectives.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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