The Chancellor’s decision to top-up the affordable housing programme (AHP) with funding to the value of £500 million, is welcome. However, funding for 5,000 new homes is really just a drop in the ocean when you consider the Government’s target to deliver 1.5 million new homes over the course of its parliament.
The supply of social and affordable homes has been shrinking for many years, largely due to the Right to Buy scheme, the spiralling cost of keeping social housing properties in repair and rent decreases/capping. This funding announcement for the AHP is nowhere near enough to address the current shortfall in supply, and registered providers will also be wondering what will happen in years to come.
There is a systemic problem here that the Government has so far chosen to ignore. Private sector property developers have been used to operating on 40% profit margins when selling Section 106 agreements to housing associations, and few are willing to accept less. Many housing associations have stopped bidding for such agreements because they don’t stack up financially. Planning reforms – in particular, the removal of ‘hope value’ for development land – could make a difference, but even then, it would seem unlikely that developers would voluntarily drop their prices further.
Fundamental changes are needed and many housing associations and other registered providers believe developers should be forced to sell their Section 106 agreements at cost (based on the cost of the build alone). If a figure can’t be agreed, then it should be adjudicated upon by an independent body in a similar way to fair rent legislation. Alternatively, local authorities could take a leaf out of Harrogate Borough Council’s book and set the price that registered providers are required to pay for affordable housing in Section 106 agreements in the local area.
Consultation on long-term rent settlement
Chancellor Rachel Reeves also announced plans to introduce a new, long-term rent deal in social housing rents, which will be welcome news to many housing associations as they navigate current challenges.
However, capping annual rent increases at Consumer Price Inflation (CPI) plus 1% is not going to make much difference, particularly given the different demands now placed on housing associations. Many are struggling to ensure their homes remain safe and warm.
Build cost inflation is rising much more rapidly than CPI and rent caps have left housing associations operating on wafer-thin margins, which means they have no room for manoeuvre. Allowing annual rent increases to track inflation won’t make up for years of underfunding and restrictions on social landlords, many of whom own properties in urgent need of investment.
Much more needed
With ambitious housing targets to meet in this parliament, the Government needs to do much more to support the delivery of social and affordable housing. A more radical approach is needed to overhaul housing policy and force developers to change their ways by reducing their profit expectations on the sale of Section 106 agreements.
The changes that the Chancellor has made to fiscal investment rules could help to free up investment for new social housing in the short term. But this still wouldn’t be enough.