A question of capacity

‘I’m determined to keep building homes in the months ahead, with further cash to come for councils, housing associations and developers,’ housing minister John Healey declared last week.

Mr Healey was explaining how a previously announced development handout - £290 million for around 5,500 affordable homes - would be divvied up between England’s developing housing associations. He told an audience of trade union members that the cash comes with strings attached: recipient landlords must provide apprenticeships to ‘safeguard the future of the industry’.

Memories of the heady days of 2007, when UK housing delivery for the year peaked just shy of 225,000 homes and social housing grant came minus safeguarding duties, faded long ago for developing housing associations.

Public funds have kept coming - £1.8 billion has been pumped into the system via the Homes and Communities Agency since June alone, lest development should splutter out completely. But once handsome returns from building and selling market housing to cross-subsidise social and affordable developments have dried up.

Associations’ development departments have shrunk, schemes have stalled despite the handouts, and outputs have fallen. Figures from the National House Building Council show applications to build public sector homes fell to 8,599 in the three months to the end of September, down 13 per cent on 2008.

True, as we head into 2010 there are some signs of improvement. New house building applications are at their highest level for more than a year. New home registrations nudged 25,000 across the UK in October, according to the latest figures from the NHBC. This was a 27 per cent improvement on the previous year. And some of the nation’s largest private house builders have made cautiously optimistic noises about the market of late, predicting gradual improvement at least for the short term.

But for those delivering the lion’s share of the nation’s affordable housing programme, the development prognosis for 2010 is decidedly mixed. In a bid to gauge the sector’s capacity to build new homes, Inside Housing polled the top 20 recipients of social housing grant in 2008/09. The 15 that responded are set to deliver around 16 per cent of the general needs social homes the Tenant Services Authority predicts will be built in England next year, and 9 per cent of the shared ownership properties. Both collectively and individually their outlook is patchy.

Consider the headline numbers, for example. By the end of this financial year the group expects to finish 720 fewer homes collectively than they did last year, a 7 per cent drop. Next year’s starts, on the other hand, are due to increase by 10 per cent - that’s 1,092 more homes between the 15 landlords. Behind those figures lie both winners and losers.

Take London & Quadrant. The 60,000-home association should complete 1,823 homes in London and the South-east next year - more than any other developing landlord.

But that is a third less than it built last year, despite being helped along by a £42 million kick-start payment from the HCA, a sum not included
in our table. Sentinel Housing Association on the other hand will build just 454 homes next year - yet that’s 166 per cent more than the previous year nonetheless, and a significant number for a landlord with just 7,600 homes.

One of the main differences between the two - aside from the sheer scale of its development operation leaving the larger association with more to lose - is that L&Q will rely more heavily on grant funding than Sentinel.

More than half of those polled said downward pressure on grants was among their chief concerns for the coming year. Since the HCA has already committed two-thirds of its £9.2 billion National Affordable Housing Programme pot for 2008-11, and recently posted a £492 million operating loss, it’s not an unreasonable concern.

‘Obviously we are anticipating reductions in availability of grant in absolute terms,’ confirms Mike Johnson, L&Q’s land director. The association is piloting several new schemes aimed at bolstering low cost home ownership completions by introducing different forms of intermediate tenure. ‘Completions have dried up really in line with mortgage availability which is where we’re seeing much lower delivery across the board,’ says Mr Johnson.

He reckons around 15-20 per cent of buyers for existing low-cost schemes are dropping out of purchases, and would like to see government-owned banks offering more and cheaper mortgages. Current mortgage lending in the UK is little more than a third the size of 2007 volumes, when £3.6 billion was borrowed and house building peaked. ‘One of our main messages is we need to get publicly controlled banks lending again,’ says Mr Johnson.

He is ‘optimistic’ about the coming year and insists L&Q’s rolling ambition to build 10,000 homes in any given five-year period is on track; but he concludes that 2010 will be little different from 2009 development-wise.

‘Challenging’ was the word picked by most of our 16 respondents when asked to describe their expectations for 2010. Their reasons were plenty: grant and mortgage availability, the uncertainty of the recovering housing market and an uncertain political climate among them. In short, the chances of achieving the 290,500 annual target for new homes recommended by the government’s National Housing and Planning Advice Unit look remote. Achieving even a third of this number this year would be a result.

Peter Williams, newly installed interim chair of the NHPAU, combines both cheer and gloom in his predictions for next year. ‘Clearly there’s been a hiatus during the downturn and there are some signs of recovery,’ he says. ‘We shouldn’t forget that in the past Britain has built up to half a million homes in a year. But clearly there has to be some realism in this… Much of that turns on very big state investment and a fully funded mortgage market. Clearly, going forward we have issues on both of those fronts.’

Data from the TSA suggest that the worst is still to come for those building new social and affordable housing. Every year the watchdog asks any developing housing association planning to build at least 100 units in the next three years to submit its forthcoming development plans. Figures collected earlier this year from 249 landlords - owning 90 per cent of the sector’s homes - suggest both general needs and shared ownership development still have a long way to fall.

If you think the 33,659 general needs homes the TSA predicts will be built next year sounds horrendously low, how about 10,671 in 2019? And new shared ownership homes are forecast to halve: from 23,147 this year to 10,356 by 2019.

Jonathan Walters, the TSA’s assistant director in charge of running these numbers, is unsurprised. He explains that the data are based on necessarily conservative development plans. ‘It’s what we’d expect housing associations to be doing. They submitted these [plans] to us in June, but put them together in the spring of this year. And March was the absolute bottom.’

There is a sliver of hope as housing associations continue to tweak their plans to suit fluctuating economic and political climates, improvement is not out of the question. ‘The further out you go, the more things could change. These numbers are forecasts. They are not guarantees,’ says Mr Walters.

Our research suggests those changes remain a way off.

Additional research by Gene Robertson

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