The chancellor’s £39bn boost buys time for social housing – now innovative private finance models must help deliver at scale | Comment

The housing sector gave a massive sigh of relief yesterday. After years of subdued capital funding allocations, we now finally have a “proper“ affordable homes programme.

With a total of £39bn of grant over 10 years, backed with a 10-year rent settlement, a consultation on convergence and equal access for social landlords to building safety funding, it has felt as though all the social housing sector’s Christmases have come at once.

And although there was no mention of shared ownership or older people’s housing or any update on supported housing, the spending review has surely exceeded the expectations of many in the sector.

In many ways we have come full circle. I started reporting on the housing sector in 2010 at the tail end of the New Labour government, when multibillion-pound annual expenditure on social housing was the norm.

We all know what happened next, the incoming Cameron government slashed the housing department’s budget by 60%. Housing ministers were left wanting to maintain delivery but with pitifully low levels of grant. They tried to square the circle by spreading the grant more thinly, restricting new build to largely higher “affordable” rents and pushing housing associations to borrow more off the higher income stream to plug the gap.

The return of a substantial grant funding settlement worth nearly £4bn a year could not have come at a more crucial time

As we now know, this “cross-subsidy” model is now creaking with landlords, particularly in London, hitting borrowing cost constraints on their balance sheet.

Therefore, the return of a substantial grant funding settlement worth nearly £4bn a year could not have come at a more crucial time.

But the funding tension between the number of homes built and the rental affordability to residents has never gone away.

We do not yet know important details of the new £39bn Affordable Homes Programme, such as the precise grant rates and full tenure breakdown of the homes to be built.

However, Labour in its election manifesto pledged to “prioritise the building of new social rented homes” and Rachel Reeves said yesterday the £39bn was direct government funding to support housebuilding “especially for social rent”.

It is clear that whereas previous governments have been content to deliver other forms of social housing, traditional social rent is the priority of this government.

The problem with this is that grant does not go as far when used for social rented housing as opposed to other forms of housing.

The total amount of grant per home when social rent was delivered was around £53,000 in 2008, compared with £22,000 in the affordable rent austerity era and £38,500 in the 2021-2026 programme. A largely social rent programme means England will build fewer homes, but homes that are genuinely affordable to people on low incomes.

I’ve been heartened by the creative thinking in the sector and in government to look at fresh funding models to attract more private finance

And this is tricky for a government that has also promised to build 1.5 million homes by the end of the parliament.

The fact of the matter is we desperately need social rented housing, but we also need, and Labour needs, to ramp up numbers of homes as well.

This is why I’ve been heartened in recent months by the sheer amount of creative thinking going on in the sector and in government to look at fresh funding models to attract more private finance into the sector for development and improvements to existing stock.

These include Low Income Housing Tax Credits – a model in the US that has been used to attract institutional investment into sub-market rental housing through a scheme whereby the government foregoes tax income – that could have an application here.

Housing associations, consultancy PWC and officials are also working on a model that could see large numbers of shared ownership properties transferred into a for-profit vehicle owned by an institutional investor, which could free up capital for development. 

Talks are also under way about changes that could make it easier for investors to fund temporary accommodation.

To solve short-term interest cover constraints that are restricting development, officials are also continuing to discuss a proposal by Building’s sister title Housing Today and the G15 for an amortising grant model, under which housing associations receive a higher upfront amount of grant funding (meaning they have to borrow less to fund a development) and then repay some or all of it back.

This also has the advantage of being counted as an investment rather than debt on the government’s balance sheet. It is not clear whether the £2.5bn in low-cost loans announced in the spending review yesterday could be used for this purpose, but housing association bosses in London will be hoping they can be.

Over the next few months, Housing Today and its sister title Building magazine will continue looking at these ideas and plenty of others and I hope some of them will ultimately lead to more funding to build the homes we need.

With planning reform, a substantial social rent grant programme and new institutional investment coming into the sector via new models, we may yet be able to ramp up delivery to 1.5 million homes (or close to it) while ensuring we meet different housing needs.

Carl Brown is head of content at Housing Today, Building and Building Design