Analysis shows new AHP could deliver 56,000 fewer homes compared to previous decade

Sector professionals have warned that build cost inflation, the level of grant rates, development viability and existing homes commitments are all going to dent the government’s ambitions. 

Patrick Hickey, a director at Make (NW), said: “This government deserves full credit for its efforts to boost the supply of social rent homes and fulfilling its promise to deliver the biggest boost to social housing in a generation.

“Social rents are much more affordable than private rents. So increasing the delivery of publicly funded social rent homes by sixfold is a positive policy decision which will transform the lives of 180,000 households who are in desperate need of a social rent home.

“However, the government now forecasts the new SAHP will only deliver around 300,000 new affordable homes over 10 years from 2026 onwards.

“This means the number of new affordable homes delivered by public funding will fall by almost a sixth (16%) compared to the 355,898 new affordable homes delivered over the past decade.”

Mr Hickey, who is the former head of development at Arcon Housing Association, now called Bolton at Home, also highlighted that there could be additional challenges on some sites with more marginal viability, which only stack up financially for the developer because of grant funding for affordable homes.

He added: “However, it is important to realise that public funding cannot tackle a housing crisis this large on its own. The purpose of the government creating a new 10-year rent settlement and 10-year SAHP is to unlock more private investment into social and affordable housing.

“Having created the long-term policy framework to unlock private investment, the government has now prioritised public funding for social rent homes over affordable housing accordingly.

“Now is the time for private investors to step in with a wall of capital to fund affordable homes which will no longer be delivered through public funding.”

Commenting on the analysis, JLL’s Marcus Dixon, director of UK residential research, and Richard Petty, head of residential valuation, explained that the problem the government and the housing sector face is that the AHP maths has not kept pace with reality. 

They said: “Build costs have risen significantly over the last 10 years, with total inflation exceeding 50%. House prices, outside London at least, have broadly kept pace, but grant rates haven’t, meaning grant does not go anywhere near as far as it once did. 

“At the same time, rents have been cut or capped in critical years, restricting housing associations’ income and constraining capital values to support borrowing – a double whammy. That’s before we even broach the significant retrofit and maintenance challenges providers face. 

“We applaud the government’s financial support for delivering more affordable homes, and also appreciate the wider financial constraints. It can only do so much. But at current, average grant rates, there is indeed a risk that the new AHP will deliver fewer homes over the next 10 years than over the last 10.

“And, whilst it’s right that we should build more social rent homes, government is undoubtedly making the task harder for itself by aiming for 60% social rent when those homes will require so much more grant per unit, especially in London.”

Mr Dixon and Mr Petty said the government is going to need to attract a lot more private finance to reach its housing target. 

They added: “If we are aiming to deliver a third of the 300,000-homes-a-year target as affordable, that would require another 70,000 homes per annum delivered outside of the AHP through unfunded Section 106 or unfunded and direct private investment.

“That will only come with long-term certainty and confidence in housing associations’ business plans and asset values. It’s all very well to talk about ‘private investors stepping in with a wall of capital’, but that capital has to be secure, and it has to be able to earn a sufficient return.

“There is no easy path for that via the not-for-profit sector, which will have to provide the great majority of new, affordable homes.

“The rent settlement and (hopefully) rent convergence are key to meeting those conditions, but we think both government and lenders will have to go further to support a sufficient increase in both borrowing and investment. Building the right homes in the right places is key, but we need to be realistic about how much this will cost and ensure that we are not setting providers up to fail by imposing targets that can’t be reached with grant that isn’t sufficient.”

Paula Heatley, director of development delivery and sales at Platform, said: “Like many of our colleagues in the sector, we welcome the funding committed to by the government.

“With a development programme the scale of ours, we are looking at working with a wide range of partners to ensure we can continue to deliver more affordable places for people to call home.”

The government did not respond to a request for comment.