The UK faces a worsening social housing crisis if the Treasury moves ahead with spending cuts in the upcoming review, senior housing experts have warned. Just days ahead of Rachel Reeves’ announcement of Labour’s fiscal plans, concerns are mounting that housing provision could fall off a financial cliff by 2026.
Spending Cuts Risk Deepening Social Housing Crisis
The ongoing standoff between Chancellor Rachel Reeves and Deputy Prime Minister Angela Rayner’s housing department has left the future of vital funding in doubt. The deadlock comes as a stark warning is issued by Fiona Fletcher-Smith, chief executive of L&Q housing association and former chair of the G15 group.
She warned: “We could see from our own predictions, we were just going to go off the cliff edge, by 2025/2026.”
This comes amid new data showing 51 per cent of local councils are running housing deficits, raising fears that services are becoming financially unsustainable.
England is already grappling with an ever-growing demand for social housing. Over 1.33 million households are stuck on waiting lists, while more than 180,000 homes have been lost over the past decade.
Homelessness charities, including Crisis and Shelter, are calling for urgent investment, urging the government to fund 90,000 new social rent homes annually.
Matt Downie, Chief Executive of Crisis, stressed: “This spending review is an opportunity for significant investment to start to see homelessness levels come down. Small tweaks aren’t enough to fix the problems we face.”
Fletcher-Smith traced the crisis back to 2010, citing then-Chancellor George Osborne’s austerity measures, which cut 63% of the capital budget for housebuilding.
She explained that Osborne had also withdrawn a promise to allow housing associations to raise rent by CPI +1%, a crucial stream of predictable income used to secure loans for development. The sector is now lobbying for that arrangement to be reinstated for the next decade to enable new construction.
Brexit, COVID, and cladding costs compound crisis
The sector is reeling not just from underfunding, but a barrage of external pressures:
- Grenfell aftermath: Cladding remediation costs in London alone stand at £2.6 billion.
- Temporary accommodation: Councils spend £4 million per month housing people displaced by unsafe buildings.
- Post-Brexit and pandemic inflation: Construction materials saw price hikes of up to 30%, driven by supply chain chaos and the war in Ukraine.
These compounded factors have drained the ability of housing associations to finance new developments.
There are growing concerns that Reeves’ priorities—protecting health spending, boosting defence to 2.5% of GDP, and maintaining winter fuel payments—may force painful cuts elsewhere. Backbench Labour MPs are reportedly uneasy.
One MP warned: “Labour’s flagship housing pledge means nothing if the current stock of social housing suffers.”
The Treasury maintains that investment is on the way. In the Autumn Statement, the government pledged:
| Year | Investment | Notes |
|---|---|---|
| 2025/26 | £5bn | Total housing investment |
| 2025/26 | £500m | Extension of the Affordable Homes Programme |
| Spring 2025 | £2bn | “Down payment” for the successor scheme |
Preferential borrowing rates for councils building new homes have also been extended through 2025/26 via the Public Works Loan Board.
The Local Government Association (LGA) warns that pressures are becoming unmanageable. With over half of councils now in housing deficit, capital programmes are being raided to cover revenue shortfalls.
The LGA said: “These trends are not sustainable. There is a growing risk to the financial sustainability of some councils’ HRAs.”
Campaigners insist now is the time to act, not to retrench. As Mairi MacRae of Shelter put it: “Now is the time to invest in building social rent homes, not cut back.”
With millions on waiting lists and homelessness at a record high, cutting housing budgets now risks long-term consequences for vulnerable families and the future of the UK’s housing infrastructure.
