Industry wary of new affordable housing model

Fears that the government’s reform of affordable housing funding will lead to a collapse in housing numbers have intensified after the Homes and Communities Agency published its “Affordable Rent” prospectus yesterday.

The HCA outlined how the new system, announced in the Comprehensive Spending Review, will work, with social landlords having to fund homes with far less government grant in return for being allowed to charged 80% of the market rate in rent.

The government has said it wants 150,000 homes to be built with the £2.2bn of grant that will be available to housing providers over the next four years.

However many housing associations have said privately they will reduce the number of homes they build, because the new system requires them to massively increase their borrowing.

Critics also say that the £26,000 benefits cap introduced by the Coalition last year means many high value areas will not be able to afford the new homes, and conversely that low rent areas will offer little extra funding for development.

The package will see housing assocations able to raise rents on some of their existing homes when tenants move out, in order to plough the money back into new housing.

The way the HCA engages with developers and housing associations will also change, with the method of “continuous engagement” of the last three years being replaced by a single bidding round for the four-year settlement.

Philip Browne, affordable housing partner Knight Frank, said the changes will mean that many section 106 agreements will have to be renegotiated, with the delayed bidding round till June 2011 leading to a short-term hiatus in delivery.

He said: “Providers will rely more heavily on private finance, but lenders will be reassessing their lending criteria, considering the security of the rental stream, the potential for higher voids, bad debts and operational costs for the affordable rent tenure.

“The new funding framework gives RPs of affordable housing greater flexibility, but the increased complexity of funding arrangements, the introduction of the new tenure, and the uncertainty from now until June will have impacts that spread wider than Registered Providers - the industry as a whole will need to consider what these changes will mean.”

The National Housing Federation welcomed concessions in the  prospectus, which include continuing to allow the development of homes for low-cost home ownership, but said overall the package would not deliver the number of homes needed.

Federation director Ruth Davison said: “We are disappointed that the government has not made any concessions on the issue of the benefit cap.

“We are also disappointed that it still looks as though the new model will fail to deliver the right number of new homes in low value areas.”

Pat Ritchie, chief executive of the HCA, said the new approach gave increased flexibility for local authorities and providers to plan ahead and deliver much needed affordable homes.

She said: “At a time when funding is tight, this new way of operating will allow us to do more with less resources.”

Housing Minister Grant Shapps said: “With some 4.5m people on social housing waiting lists, it’s clear that not only do we need more homes, but we also need a complete overhaul of the system.”

The propsectus outlines how the HCA will assess the bids, and explains the role of the social housing regulator, currently the TSA.

It also details arrangements for London, where the HCA’s powers are proposed to transfer to the Mayor in April 2012.

Registered Providers will have until May 3rd to submit their proposals to the HCA, after which point all offers will be assessed.

Subject to Ministerial approval of the proposed programme, it is anticipated that initial contracts will be ready in July.