Michael Gove’s department is handing back £1.9bn to the Treasury originally meant to tackle England’s housing crisis after struggling to find projects to spend it on.
The Department for Levelling Up, Housing and Communities (DLUHC) has surrendered hundreds of millions of pounds budgeted for 2022-23, including £255m meant to fund new affordable housing and £245m meant to improve building safety.
Officials said the department was unable to spend the money, which accounts for about a third of its entire housing budget, thanks to rising interest rates and uncertainty in the housing market after the Covid-19 pandemic.
But experts warn the lack of investment is likely to exacerbate the housing crisis in England, where homebuilding is forecast to drop to its lowest level since the second world war.
Jack Shaw, a local government expert who uncovered the figures through a freedom of information request, said: “The government is experiencing significant challenges investing in housing because of a perfect storm in market conditions.
“But the decision to delay housing investment or withdraw it altogether as a result of lower than anticipated spending will mean fewer homes are built.”
Others blame bureaucratic inefficiency for the government failing to find the right schemes to spend the money on.
Lisa Nandy, the shadow housing secretary, said: “The Conservatives have simply given up trying to solve the housing crisis that they helped create.
“Not content with slashing housebuilding by scrapping housing targets, stalling on renters’ reform or rowing back on their promises to leaseholders, ministers are either too incompetent or too out-of-touch to consider it a priority to fix dangerous buildings or build new affordable homes in the middle of a housing crisis.”
Gove recently called Britain’s housing system “broken”, adding: “We desperately need more homes to bring ownership within reach of many more people.”
But his critics have accused him of exacerbating that crisis by dropping a mandatory target for councils to build 300,000 new homes a year, making it voluntary instead. That decision has been cited by several councils as a reason to pause or scale down their housing plans.
Analysis by the consultancy Lichfields has found new housebuilding is expected to drop to its lowest level in decades, while 580,000 extra people are likely to find themselves homeless, “sofa surfing” in the homes of friends or family.
Meanwhile mortgage costs continue to rise quickly. Earlier this week, two-year fixed mortgage rates rose to their highest levels since 2008.
Officials point to the funding allocated to schemes such as the Affordable Housing Programme as evidence that the government remains committed to increasing housing supply and helping more people get on the housing ladder.
A DLUHC spokesperson said: “Our target of delivering 300,000 homes a year remains and we are fully committed to funding and delivering our programmes that help us meet that target, including the £11.5bn affordable homes programme.”
But the figures released by the department show it is not spending its full allocation. In 2022/23, the department underspent on the affordable housing programme by over £600m. Of that, it has saved £363m in the hope of spending it this financial year and given a further £255m back to the Treasury.
It has also given back £245m meant for improving building safety after the Grenfell fire and £1.2bn in money allocated for Help to Buy.
The Help to Buy scheme, which George Osborne launched in 2013 as a way to help more young people get on the housing ladder, offers government loans to first time buyers.
Last year was the final year of its operation, but officials say demand for the loans proved much smaller than expected, in part because of the impact of the pandemic.
Officials say the government remains committed to spending the money on housing. But under Whitehall rules, anything that is being pushed back until the next spending review, which could come next year, has to be officially surrendered to the Treasury.
A spokesperson said: “These are multi-year funding programmes that are being spent flexibly – meaning some money can be moved into future years depending on demand and the wider economic climate.”
Experts however point out that once the money is back with the Treasury it is purely a decision for the chancellor over what to spend it on in the future. Jeremy Hunt is already under pressure to spend extra money to raise public sector pay and to offer voters tax cuts.
