What do the AHP top-ups mean for development?

The government has been clear that the top-ups should prioritise homes for social rent. Eamonn Boylan, Homes England’s interim chief executive, recently confirmed that 60% of the first two top-ups will deliver social rent homes. 

Anabel Palmer, executive director of property development and partnerships at West Kent Housing Association, tells Inside Housing the government is “clearly very focused” on social rent.

“They’re funding shared ownership, but where there’s rent, it’s social rent,” she says.

Yet social rent homes are the most expensive to build and margins are extremely tight.

Patrick Hickey, a director at development management consultancy Make (NW) and former head of development at Arcon Housing Association, now Bolton at Home, says social rent homes require “around double the level of grant needed to build an affordable home and more than three times the amount to deliver a shared ownership home”.

Are the grant rates sufficient to make new schemes viable? Thirteen’s Ms Thomas says details of the grant rate levels are still to come. While they will vary based on geography, “for social rent, our initial assessments indicate we would require a higher rate of funding than we currently receive”.

John Bowker, chair of JV North, a consortium of housing associations and councils in the North West, says the economics of the shift from homeownership and affordable rent to social rent specifically means an increase in the level of grant required.

JV North’s members have found that in “extenuating circumstances”, Homes England will continue to support shared ownership and affordable rent projects, where there is clear justification for the tenure.

But a wider conversation with the government and Homes England around the calculation of grant rate is needed, he says. This includes updating the property valuation data that rents are based on – which currently dates back to 1999 – “to enable fairer and more representative grant levels to be achieved”.

Robbie Mannion, development programme manager at Prima Group, a North West housing association, adds that the call for more social rent is welcome, but flexibility is needed so that shared ownership homes and supported housing can also be delivered.

Chris Bowen, managing director of Torus Developments, says the landlord has had to complete its existing development commitments at grant rates that are now too low to be viable.

Overall, “grant rates being discussed in the top-up rounds are of a more realistic level than previously, but this will be scheme-specific”, he says.

Extra certainty could be built into the £2bn top-up via “a review or reset mechanism that factors in potential risk of delay, contract sum changes or increasing costs of borrowing”, he suggests. This would mitigate the issue of agreeing grant rates now that could be applicable for the next four years.

Mr Bowen argues that it could make sense to continue funding affordable rent, particularly in areas where there is little difference between 80% of market rents and social rents.

Positive injection

The North of England has an even larger viability gap than the South, Mr Hickey says. “As an example, we’ve just been working with a council to deliver more than 80 new homes on a scheme which will deliver 25% affordable housing in an affluent area in the North of England,” he says.

Yet it remains challenging to deliver housing in the area, despite a successful regeneration scheme. Two previous developers walked away over viability issues, he says. “If the government wanted to make funding for social rent homes stretch further, then there is a strong argument that they should build more of these homes in the North where land is cheaper.”

The 2021-26 AHP funds entire regeneration projects, and many in the sector say this is vital for true placemaking. So far, the sector doesn’t know whether the new programme will have the same rules.

The alternative is that grant would fund only the additional homes, rather than covering the cost of demolishing and replacing poor-quality housing as well.

PlaceShapers’ Ms Ryder says regeneration funding is “the missing link”, noting that she was recently asked to show Darren Jones, chief secretary to the Treasury, how the funding would be used for new homes. “We visited Aspire Housing in Staffordshire where he also saw the critical role of housing-led regeneration,” she says.

West Kent Housing Association has a scheme that it is confident will be approved under the new funding. “That’s helped our pipeline immensely,” Ms Palmer says. But crucially, the additional funding is giving “a positive injection to proceed with some regen schemes we’ve got”.

“We know we can deliver them, but we’ve had no certainty on if there was going to be funding available. We know that these schemes will fit the criteria, so we are now able to push ahead with them. That’s, I think, what we’re probably most pleased about,” she says.

Looking ahead, the lack of clarity on regeneration funding under the next AHP is an issue, she notes.

“I think housing associations’ concern is that with a massive push for extra homes, which is of course what you need, there’s going to be less of a focus on replacement homes,” Ms Palmer points out. “That’s a worry, because it’s really important to give certainty to your residents.”

The sector hasn’t lost its focus on the need for long-term certainty. One development director tells Inside Housing that the extra funding “will enable us to deliver an increased number of land-led opportunities in the short term”.

The additional funding is positive, they add, but “it doesn’t really impact longer-term plans as it is a one-year extension to the existing AHP”.

Phil Jenkins, chief investment officer at Peabody, agrees. “While one-off funding boosts do help, to truly scale up delivery of new social housing and provide the affordable homes so desperately needed, there needs to be a package of measures to help rebuild stability and financial capacity in councils and housing associations,” he says.

This means elements like a long-term AHP, rent convergence, a 10 or 15-year rent settlement and equal access to the Building Safety Fund for not-for-profit organisations.

Prima Group’s Mr Mannion also emphasises that associations with smaller development programmes should be provided for in the next AHP because they have the potential to make a big contribution to the government’s housebuilding target.

Ms Palmer says West Kent has “a small but constant programme. The top-up is fantastic for that, but just like every other housing association, we still need certainty around all the other things that are going on to make us really confident to take up that money”.

“Even if we know we’ve got grant, I still have to work with my finance director to fund these with no rent settlement certainty, with no absolute clarity on what that grant level will be,” she says.

Until June’s Spending Review, the top-ups remain just that – a fix designed for the near term.

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