The mystery of Ed Balls' plan for 100,000 new houses

Can the shadow chancellor really fund these houses using the 4G cash?

Ed Balls has a plan for growth.

He will use the £3bn proceeds from the 4G mobile spectrum auction to build 100,000 new houses.

He says his numbers have been crunched by the National Housing Federation, giving him a flagship policy to bash the Tories with.

But do the facts add up? In the days after Balls announced this policy at the Labour Conference, various doubts have arisen. First came the question over whether the 4G licenses would really raise £3bn.

Officials pointed out that the reserve price for the auction is £1.5bn. Business minister Matthew Hancock pointed out that £600,000 from the auction has already been allocated to investment in science and further education.

So Balls’ budget for his new houses might be around 70 per cent lower than he thinks he’s got. Not good.

But!

There is another issue. Even if Mr Balls has £3bn to spend, can he really build 100,000 new houses with it? After all, it works out as £30k per house. Surely not enough to build one.

Let’s look at the numbers.

Balls is planning to spend £500,000 on a two-year stamp duty holiday for first time buyers. This won’t build any new houses directly. It might stimulate the market from the demand side, but, as Treasury officials were quick to point out, the last stamp duty holiday was a flop.

So Balls only has £25k for each house.

The National Housing Federation confirms to me that you can’t build houses for this sum:

“You’re right to note that £25k is not enough to build a new home. This figure simply relates to the level of government investment per home, but doesn’t include the money housing associations will invest (derived from their own private borrowing e.g. bond finance). Housing associations will match every £1 of government investment with up to £5 from their own resources. “

So will we really be looking at 100,000 “new” homes? Or is this just a subsidy for homes which are already earmarked for construction? The National Housing Federation hedges its bets.

“Our understanding is that this will be 100k new homes, in addition to the 170k homes currently being delivered under the Government’s Affordable Homes Programme. However, as this is a Labour Party proposal, they will be better placed to provide more detail.”

With such lack of clarity, one might ask what role the National Housing Federation played in Labour’s plan. Did they really “crunch the numbers” for Ed Balls?

“We provided some research on the cost of building new affordable homes to the Labour Party to inform their proposals,” they tell me. Hmm.  Not exactly what Balls is claiming…

So how will Balls build his houses?

A spokesman for Ed Balls tells me the £2.5bn is a partial subsidy, which will act as a “catalyst for the construction which allows the housing associations to raise the capital they need – and also allows the rents or sale prices to be kept affordable.”

In other words, the bulk of the money will come from Housing Assocations, who will need to borrow the money. The figure is likely to be between £10bn and £12.5bn – numbers confirmed by the National Housing Federation.

Does that sound likely? After all, it is stupendous sum to borrow.

The National Housing Association points out that under the current Affordable Homes Programme, the housing assocations are matching £1.8bn of government money with £10bn of their own. That scheme is building 170,000. So we are in familiar territory.

Would the extra money be borrowed?

“It is impossible to say how much of this would be ‘newly borrowed’. There is likely to be significant variation between housing associations – some may have a good deal of capacity within existing debt facilities, whilst others may need to take on new debt,” says their spokesman.

Just so you know, there were 109,020 new homes completed in England last year, up from 103,300 in 2010, but below the average of 142,000 for the previous decade.

Adding an extra 100,000 houses is almost equivalient to a whole year’s house construction.

Cynics may point out that government subsidies to fund the construction of sub-prime houses at a time when house prices remain over-valued have a poor track record. And to claim that £2.5bn will build 100,000 homes is certainly not the full story.

Not when up to 80% of the cash will be found via extra borrowing.

But the mystery surrounding Balls and his £25k houses has been solved.