Getting homes built: why social and affordable capacity is key

UK housebuilding is in weak state, with quarterly starts dropping significantly since late 2023, meaning that the Government’s 1.5 million homes target is likely to be missed.

A primary cause is soft demand for new builds. Residential buyers, private landlords, and social housing providers are buying at lower rates, largely due to high interest rates straining affordability and undermining investment cases.

We argue that targeted measures to increase the financial capacity of housing associations and councils, thereby enabling them to build a greater number of new homes, should be a key plank of a plan to get housebuilding going again.

Recommendations

The Government should increase the financial capacity of housing associations by:

• using its debt guarantee scheme to create an Affordable Housing Acquisition Scheme (AHAS), allowing housing associations to purchase Section 106 (S106) or off-plan homes from their, and the Government’s, balance sheets
• supporting equity investments in housing associations, either directly (through the National Housing Bank) or through coordinating a new large-scale investment vehicle) to release capital for housebuilding.

The Government should boost council housebuilding capacity by:

• providing a cash injection into Housing Revenue Accounts (HRAs)
• lifting Housing Revenue Account debt from councils and putting it onto the central government balance sheet, either wholesale as part of unlocking a new generation of council housebuilding or in targeted investments designed to unlock scheme viability.

Despite the Government's vocal commitment to delivering 1.5 million homes in this parliament, housebuilding in the UK is in crisis. Quarterly housing starts have dropped significantly since late 2023 and remain below historic levels. Without additional action, the housebuilding target will be missed by some margin.

A core feature of the housebuilding slump is weak demand for private sector housebuilding. Higher mortgage rates and the end of Help to Buy have dampened demand for new build homes and slowed house price growth, while rising construction costs are making development unviable in many areas. At the same time, Build to Rent landlords — who have played an increasing role in buying and building homes in recent years — have seen rising interest rates and construction costs squeeze yields, reducing investment appetite.

Meanwhile, the demand for social housing remains strong and growing. The number of households on council housing waiting lists (1.34 million) is at a ten-year high (MHCLG, 2025a). However, many of the same pressures impeding private sector output are also limiting the financial capacity of housing providers. This has further demand implications, with falling appetite for Section 106 acquisitions — historically a significant share of private sector output — adding further pressure on private housebuilders. It also means that housing providers are, save further action, in a weak position to increase their output to offset the decline in private sector output.

If the Government is to hit its 1.5 million homes target, boosting the financial capacity of housing providers to meet this demand will be critical.

Government is already taking important and welcome steps in this area. Its recently published Section 106 Roadmap and Homes England's new strategic plan both contain welcome proposals for how it will use regulatory levers, financial transaction powers (including through the recently launched National Housing Bank), and rent policy to deliver more social and affordable housing in the current market context (MHCLG, 2026; Homes England, 2025). The scale of this challenge, however, demands further action.

We set out proposals for Government to use targeted spending and/or financial transactions to unlock supply – investments that are both pro-growth and pro-living standards. Our proposals are designed to be scalable in ambition, from targeted interventions to a step-change in social housebuilding capacity.

Government could take action to increase housebuilding by:

• increasing the financial capacity of housing associations
• using its debt guarantee scheme to create an Affordable Housing Acquisition Scheme (AHAS), allowing housing associations to purchase S106 or off-plan homes off balance sheet
• supporting equity investments in housing associations, directly (through the National Housing Bank) or by coordinating a new large-scale investment vehicle) to release capital for housebuilding
• supporting councils to build
• providing a cash injection into Housing Revenue Accounts (HRAs)
• lifting Housing Revenue Account debt onto the central government balance sheet, either wholesale as part of unlocking a new generation of council housebuilding, or in targeted investments designed to unlock scheme viability.

The Government has made housebuilding a key part of its agenda. Its pledge to deliver 1.5 million homes over the parliament is a central part of its mission to deliver growth and improve living standards. It will also be an important yardstick — come the next election — to assess how far it has fulfilled its promise to strengthen the state’s capacity to deliver for the public good.

The Government made a positive start in delivering against this mission. Within weeks of the election housebuilding targets were restored, the National Planning Policy Framework (NPPF) was amended to increase the ability to build on the ‘grey belt’ (MHCLG, 2024a), and a £39 billion settlement for the Social and Affordable Homes Programme was announced at the Government’s first Spending Review (MHCLG, 2025b).

Furthermore, the Planning and Infrastructure Bill, which recently received Royal Assent, will enact reforms to the planning system which should make it easier and quicker to build new homes and national infrastructure (UK Parliament, 2025).

Over the long term, these will be important measures which make it easier to build the right homes in the right places. In the short term though, these measures are being undermined by current market conditions.

Data shows housebuilding to be in a parlous state. Quarterly housing starts in England dropped notably in late 2023 and, while slightly recovering, have settled at lower than historic levels since. The number of Energy Performance Certificates for new build homes, a leading indicator for net additions, shows the delivery currently stuck around 200,000 a year, with a shortfall of over 120,000 homes against the Government’s target already built up since the election (MHCLG 2026). And the latest S&P Global UK Construction PMI — an index tracking construction industry activity — has seen its biggest fall since May 2020 (S&P, 2025).

The demand issues facing housebuilding are significant blockers which will fundamentally undermine the Government's housebuilding target, bringing with them the attendant economic and political challenges. This following section unpacks these issues, focussing on 3 important buying groups: residential home buyers, housing associations, and private landlords.

Residential home buyers are facing strained affordability

Higher mortgage interest rates are constraining affordability for first-time buyers and home movers, reducing the number of transactions and playing a key role in slowing house price growth. The impacts of this are most pronounced in the south of England (including London), where higher loan to income ratio lending is required, and therefore the impact of higher rates is greatest.

This has had an impact on the demand for housing generally, and on the demand for new build homes specifically, and is reflected in estimates of the number of mortgages issued for new-build purchases. Analysis from BuiltPlace shows a drop of approximately 50,000 mortgages a year issued against new builds in 2024, from their peak in 2021 (Built Place, 2025). While the high cost of borrowing is reflected in sentiment data. For example, the Building Societies Association Property Tracker sees a significant spike in respondents reporting the cost of borrowing as weighing on households’ decisions to buy a home (BSA, 2025).

Taken together, the issues facing residential buyers, Build to Rent landlords, and registered providers mean that greater action to support the supply of new homes is needed if housebuilding is to recover and, ideally, exceed recent averages.

Calls for action on demand are growing and have so far focused largely on spurring residential demand — through a return to Help to Buy or a similar equity loan scheme (HBF, 2025b). There is a case for this. The previous scheme successfully boosted housebuilding in the aftermath of the Global Financial Crisis and, contrary to common perception, had modest to no impact on house prices (NAO, 2019).

However, the context has shifted considerably. The original scheme addressed the limited availability of high loan-to-value (LTV) lending on new-build properties post-crisis, a problem that does not exist in the same way today, with 95% LTV mortgages more widely available. Any new scheme would instead be addressing affordability pressures from higher mortgage rates and would need to be carefully designed to protect households from the risks of taking on equity loans in a higher interest rate, lower house price growth environment.

But action to address the demand for new homes, and the financial capacity of different actors to deliver them, demands action on all fronts. Accordingly, alongside any effort to support homeownership there ought to also be a further focus on efforts to get social housebuilding going to tap into the large demand for these homes. This approach has many potential benefits, it can enhance supply, directly address affordability, and — given that Government already holds many levers to direct supply — is directly at the gift of policy and regulatory change.

The Government is already taking important steps in this area. Its recently published Section 106 Roadmap and Homes England's new strategic plan both set out how it will use regulatory levers, financial transactions, including through the new National Housing Bank, and rent policy to support social and affordable housing delivery (MHCLG, 2026; Homes England, 2025).

These are welcome and meaningful steps, but the scale of the housebuilding slump, and the fact that even returning to recent averages would fall short of meeting the Government’s house building target, merits going further. Building on the current financial transactions approach will be important, but where this reaches its limits, targeted additional spending is necessary. Of all the competing demands on the public finances, investment in housebuilding offers a pro-growth, pro-living standards return that should be high on the Government's list of priorities when fiscal space allows.

The following sections set out a range of options for achieving this, spanning targeted interventions, for example to offset the current slump in Section 106 delivery, to more fundamental increases in social housebuilding capacity.

Re-capitalising housing association balance sheets in a targeted, pro-supply way

Government’s action at the spending review, and more recently, has been positive for housing association balance sheets, with an above inflation rent settlement and the ability to converge rents offering some additional financial capacity, and additional low-cost lending giving a boost to viability. But, this is most likely to maintain and not enhance social housing supply. There is a case to go further still if housing providers are to expand their rates of building and acquisition. We propose 2 ways the Government could use its balance sheet to achieve this — issuing debt guarantees and targeted equity investments.

Using debt guarantees to support new off-balance delivery vehicles

Government’s roadmap for Section 106 delivery sets out a number of approaches for increasing access to lower-cost borrowing for registered providers, recognising that this is a barrier to scheme viability and an overall pressure on balance sheets (MHCLG 2026). They propose achieving this through access to lower-interest borrowing, through the National Housing Bank, and through the extension to the existing Affordable Homes Guarantee Scheme. On the latter, they are also looking to consider how best to deploy Government guarantees to shore up Section 106 delivery, for example establishing ‘an affordable housing acquisition vehicle supported by debt guarantees which is able to buy Section 106 homes’.

This would be a welcome approach to take and Social Finance, with funding from JRF, has already proposed the creation of a new off-balance sheet, non-profit vehicle for affordable housing acquisition to unlock new financial capacity (Social Finance, 2025). They call this the Affordable Housing Acquisition Scheme (AHAS).

AHAS would be set up and operated by housing providers, who would invest equity into the vehicle alongside a government grant (either from the SAHP or in addition to it). The vehicle — which could be a Registered Provider — would then acquire homes to rent, which it would let out via management agreements with individual housing providers.

This could then be further supported by Government guaranteeing the debt, reducing the cost of borrowing and therefore reducing the amount of grant needed per home. Alternately, were the vehicle to acquire homes through S106 agreements, it would enhance its capacity to take on a greater number of these homes.

There would be a number of advantages to this. By being off balance sheet for housing associations, it would unlock additional financial capacity, and — depending on how it is designed — could be off balance sheet for Government, which may be useful in the current fiscal context. While lower grant rates can expand the overall number of homes which can be delivered.

Social Finance estimate that a £500 million pilot scheme designed in line with the Affordable Homes Aquisition Scheme (AHAS) approach could acquire approximately 2,500–3,000 homes, which could scale to around £2 billion (and around 10-12,000 homes) annually (Social Finance, 2025) — therefore potentially offering a significant contribution to housing supply. This is an area the new National Housing Bank should urgently pursue.

This model could be spun up in a number of different locations and focus on a mix of purposes. For example:

• creating a guaranteed buyer for S106 homes (subject to guarantees on quality, price, and management arrangements)
• expanding social housing supply in areas of high demand
• targeting the use of temporary accommodation, scaling up alternatives to reduce cost for councils and improve the quality of provision
• delivering mid-market or intermediate homes (let at affordable or living rents) for those who typically do not qualify for social housing but, due to high local rents, face affordability pressures, similar to the Mayor of London’s Key Worker Living Rent offer (Mayor of London, 2024).

Targeted equity investments

An additional option would be for the Government to work directly to recapitalise housing association balance sheets. This could be achieved by the new National Housing Bank making targeted equity investments into housing associations, in return for a commitment to increase supply.

It has become more common for traditional housing associations to partner with for-profit housing providers to sell them units, often taking these back under management agreements, and then using the freed capital to reinvest in their stock. Often this has focused on Shared Ownership units. This offers some welcome financial capacity for housing associations but comes at the expense of privatising an asset that would otherwise have provided returns to a non-profit or public entity. And to date, this has not necessarily happened in a strategic way.

This model could be replicated in a way that keeps these assets, and the returns they generate, in the public domain, through the National Housing Bank acquiring stock from housing associations. This would free capital for those providers in return for a commitment to increase supply, which Homes England could further enable by providing grant, or other assistance, from the Social and Affordable Homes Programme. While requiring an initial capital outlay, this would ultimately be self-funding for the Government with the rent and any future sales receipts from the shared ownership units providing a return on their investment.

Housing Association Global Accounts reveal that housing providers held £218.2 billion in housing assets in 2025 (with £105.4 billion in debt) (Regulator of Social Housing, 2025). Releasing even a small portion of this asset value could support a significant increase in housing supply. For example, a £3 billion equity investment would be approximate to the ten-year cumulative impact on rental incomes from allowing housing associations to converge rents at up to £3 a week — though, with a more immediate, front-loaded impact (CIH, 2024).

If the Government wanted to be more ambitious, it could look to establish a funding vehicle (or vehicles) to lever in greater capital. The National Housing Bank could work alongside institutional investors, such as public sector pension funds, NEST (the workplace pension scheme set up by Government to act as the default pension provider), and other UK-based institutions to establish a national social housebuilding fund, which could direct funds towards equity investments in housing associations.

Some may argue that such an approach is already happening with for-profit providers, but there are a number of reasons to see a Government coordinated approach as advantageous. First, involving Homes England allows for investment to be targeted in pursuit of housebuilding, targeting it in areas of need and in partnerships where the recipient is committed to schemes for increasing social and affordable housing output.

Second, it can ensure the returns yield to UK-based investors (including the Government itself) and pension holders, promoting the wider UK economy. And lastly, it enables MHCLG and the Regulator of Social Housing to work together on the policy and regulatory framework needed to ensure tenants continue to be protected.

Improving the ability of councils to build

A further means of enhancing demand for new building is to look to councils. Historically, councils have played a major role in housing supply, but reforms enacted since the 1980s have impeded their ability to build. In the 1950s councils were building 147,000 homes a year, but this has fallen to an average of just a few thousand a year in recent decades (LGA, 2025).

Councils are held back from building by their financial position. Stock holding councils’ rental income and expenditure sit in their Housing Revenue Account (HRA), a ring-fenced account. This ring fencing intentionally prevents revenue from housing being used to fund wider local authority provision or general funds being spent on the maintenance of existing, or construction of, new housing.

HRAs were subject to a new self-financing agreement in 2012, which intended to put councils on a path to funding the maintenance of homes solely from their incomes. However, this agreement has been changed by Government multiple times both on the expenditure and incomes side, through both additional regulatory obligations and changes to rental policy (LGA, 2025). The combination of these trends and wider economic pressures, such as high build-cost inflation and higher interest rates, mean council HRAs are expected to be in deficit by £2.2 billion by 2028, impeding the ability of councils to both maintain and expand their stock (LGA, 2025).

While a new settlement on rents, which brings greater certainty and more income, will ease this pressure going forward and the recent announcement of some revenue funding for councils will also be beneficial, alone, this will not unlock the additional capacity needed to increase council housebuilding capacity. And with it, this ignores a potential untapped source of demand for new homes. Government should look at ways of enhancing council housebuilding. It could do this through a number of means.

A cash injection for HRAs

One option is for Government to offset some of the financial pressure by resetting HRAs through grant funding. A collective of local authorities, organised by Southwark Council, have called for such a cash injection to reset their finances, enabling councils to meet their obligations and invest in new homes. They estimate that £644 million, equal to the lost revenue from the 2023-2025 rent cap, would stabilise HRAs and avoid the cancellation of investment plans. This relatively small investment could therefore see significant returns in terms of housebuilding, and the economic activity this generates (Southwark Council, 2024).

Lifting HRA debt onto the central government balance sheet

Another approach — similar to the equity investments proposed for housing associations in the previous section — would be for central government to lift debt from Housing Revenue Accounts and into central government debt, therefore freeing financial headroom for councils to invest.

Councils have called for the whole HRA debt to be lifted through a process of re-opening the 2012 self-financing agreement and rebasing debts based on an assessment of the preceding 12 years, and an assessment of likely conditions going forward. Modelling from the Chartered Institute of Housing (CIH) and Savills (2024) estimate this would mean lifting around £17 billion of debt from local to central government balance sheets.

Transferring debt from local councils to central government would not increase the total government debt figure, since it's already counted as public sector debt. However, any new borrowing by councils through their Housing Revenue Accounts after the transfer would increase overall government borrowing. The advantage is that central government would know this new borrowing is specifically targeted at housing stock, whether maintaining existing homes or building new ones, and therefore supports wider government housing objectives.

Unlocking a significant increase in social house building needs council capacity to be unlocked, but if — in the short term — government is concerned about the impact of this on its headroom it could more selectively move debt from HRAs in return for commitments to deliver additional house building and/or to take on S106 units. This would more explicitly target financial capacity to the goal of increasing housebuilding, potentially with HM Treasury and Homes England jointly striking deals which combined SAHP grant and targeting debt lifting on a scheme-by-scheme basis, where there are opportunities for new land-led delivery of Section 106 or off-plan acquisitions (for example from joint ventures with developers).

This paper has set out a series of targeted interventions which build on the Government’s already welcome efforts to boost social house building. Recapitalising housing association balance sheets through debt guarantees and equity investments could unlock significant additional capacity for acquiring new builds. Similarly, lifting HRA debt onto central government balance sheets would enable councils to resume their historic role as major housing developers.

Of all competing demands on public spending, boosting housebuilding stands out as both pro-growth and pro-living standards. If the Government is serious about its mission to deliver 1.5 million homes, it must recognise that this requires doubling down on public investment to shore up demand. The proposals outlined here offer an approach for achieving this.

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The author of this briefing benefitted from a number of conversations with colleagues and external partners in developing these proposals. Particular thanks to Rosie Worsdale, Joseph Elliot, Liz McCulloch, Neal Hudson, Steve Partridge, Jonathan Flory, and David Fletcher. All views are the author's own.

If you are using this document in your own writing, our preferred citation is:

Baxter, D. (2026) Getting homes built: why social and affordable capacity is key. York: Joseph Rowntree Foundation.