Chancellor scrambling to find housing solutions as her popularity plummets to Kwasi Kwarteng levels
Rachel Reeves is certainly more famous than she was a year ago, according to you.gov, but it seems like her unpopularity stats are rising rapidly too, so she doubtlessly has a lot riding on tomorrow’s spending review.
In breaking news, it appears that she is preparing to equip the government’s housing agency with enhanced powers to finance residential development, in what amounts to a significant shift in Britain’s approach to tackling its chronic housing shortage.
Even as her popularity craters, The Chancellor is expected to outline plans to redesignate Homes England as a public financial institution, granting it the ability to provide cheaper and more flexible loans to developers. The move - described to the FT by one official close to the discussions as akin to creating a “British housing bank” - will form a central pillar of Reeves’s first full spending review since Labour’s return to government.
The mechanism is intended to lower borrowing costs for builders and help unlock stalled housing schemes, many of which have faltered amid higher interest rates and cost inflation. By allowing Homes England to act more like an investment bank, the Treasury believes it can stimulate construction while staying within the bounds of its updated fiscal rules.
“This is about reducing the cost of capital,” a source briefed on the proposal told the Financial Times. “It allows Homes England to make more strategic interventions in the market and attract co-investment from the private sector.”
Long-term backing for social housing
Alongside the reform of Homes England’s remit, Reeves is also weighing a decade-long commitment of up to £25 billion to boost the construction of affordable homes. The potential funding package would represent a modest increase to the Affordable Homes Programme, which currently allocates £2.3 billion a year.
The money would support the delivery of new homes for rent and shared ownership — targeting those who are priced out of the private market. The Department for Levelling Up, Housing and Communities, led by Deputy Prime Minister Angela Rayner, is expected to receive a modest uplift in its annual allocation as a result.
In practice, the additional funding is unlikely to translate into a sudden surge in activity. Instead, officials say the reforms will gather pace over the course of the next Parliament, with the greatest impact expected from the late 2020s.
Housing associations, many of whom are contending with repair backlogs and deteriorating stock, have been lobbying for support ahead of the review. A joint letter from 20 of England’s largest not-for-profit providers urged the Treasury to broaden the range of support mechanisms beyond grants.
“Support would not just be through affordable grants but infrastructure funding, project loans, equity and joint ventures, land (especially public sector land) and guarantees,” the letter said.
Fiscal frameworks and political optics
Reeves’s approach is underpinned by a change she introduced in her Budget last October, which permits the Treasury to treat certain investments made by public financial institutions as offsetting liabilities. This accounting change enables the government to invest without appearing to breach its pledge to have national debt falling within five years.
Homes England, once reclassified, would join a small cadre of state-backed entities - such as the British Business Bank and the National Wealth Fund - trusted to generate financial assets through strategic lending.
The Chancellor is walking a delicate line between investment and restraint, with the broader spending review widely expected to leave many departments facing tight settlements. While capital budgets will rise in real terms, unprotected departments may see day-to-day spending cut in real terms to fund larger priorities such as health and defence.
Still, the government is keen to demonstrate that housing remains a priority, amid warnings from both Labour MPs and industry leaders that without intervention, the UK’s housing crisis will only deepen.
There are now an estimated 1.3 million households on social housing waiting lists in England — the highest number in a decade. Ministers are acutely aware that tackling this backlog is a key political test.
“The government inherited an unprecedented housing crisis,” a spokesperson for the housing department said. “But we will get Britain building again and deliver the biggest boost to social and affordable housing in a generation.”
Whether Reeves’s new fiscal framework and institutional reforms can match those ambitions remains to be seen. But the intention is clear: to position the state not merely as a grant-giver, but as a partner in housing investment.
