In an increasingly favourable policy environment, housing associations and local authorities have great opportunities to help meet the Government housebuilding target of 300,000 homes per year in England by the mid-2020s. 100,000 of these need to be priced at sub-market levels, according to our 2017 calculations published in Spotlight: Investing to Solve the Housing Crisis. But plugging the gap is getting tougher. New approaches to development are needed to combat the unfolding housing market challenges.
Risks and opportunities
- The number of homes built for market sale by housing associations increased by 24% between 2016/17 and 2017/18. The sector has never been more exposed to a cyclical housing market slowdown. And Brexit may bring risks around cost and availability of resources.
- Reliance on Section 106 to fulfil development aspirations is risky. After the new high of 18,000 additional Section 106 affordable homes in 2016/17, there is little capacity for further increases. But a downturn could cut delivery by 50%.
- House price growth, particularly in London and the South, has generated a high level of cross-subsidy from market sales to fund affordable housing. But forecast growth is much lower for the next five years in these regions. New approaches to delivery are desperately needed if the huge gap in affordable housing supply is to be filled.
- Grant funding can take some of the sales risk out of the cross-subsidy housing delivery model. The more grant, the more countercyclical sub-market rented homes can be built within a development programme.
- Longer term grant funding gives housing associations the opportunity to take a more proactive approach to the land market. Building up a pipeline of land would give the sector more control of future affordable housing supply.
- Local authorities have a growing role to play in affordable housing delivery. The Housing Revenue Account (HRA) debt cap has gone. The number of local authority housing companies continues to grow. More partnerships and collaborations with local authorities may be needed in order to link up development capacity in housing associations and the private sector with the funding and land controlled by local authorities.