The Department for Levelling Up, Housing and Communities

14 September 2022

To whom it may concern,

Re: The Department for Levelling Up, Housing and Communities’ Inquiry into the Affordable Homes Programme since 2015

BusinessLDN is a business campaigning group with a mission to make London the best city in the world to do business, working with and for the whole of the UK. Housing, and the provision of affordable homes, is core to our focus and remains a central issue in London. The shortage of housing is a long-standing systemic issue and with demand continuing to outstrip supply, many Londoners are being left unable to afford the homes they need.

London needs to build a minimum of 66,000 new homes each year, with the London Plan setting a strategic target of 50% of these being ‘genuinely affordable’. The GLA has estimated that £4.9bn per year is needed in grant funding to deliver the level of affordable housing that London needs[1] but, under the Government’s current Affordable Homes Programme (AHP) for 2021/26, London has received an allocation of just £4bn in grant, a reduction on the previous settlement of £4.82bn for the period 2016-2021. This shortfall will ultimately hinder London’s ability to build and housing associations, who have traditionally been the key supplier of affordable homes, will find it increasingly difficult to deliver at scale as they face a growing number of challenges on their resources such as upgrades to existing stock, fire safety works and retrofitting work to hit net zero targets. The cumulative impact of all of this is less money to invest in new housing.

In previous years, many housing associations have relied on cross-subsidy from the sale and rent of market homes to fund new affordable housing, but this model has become increasingly unstable due to a number of reasons not least the pandemic and housing market fluctuations. While public finances are clearly stretched, and grant must be equitably distributed across the country, London must not be forgotten within the broader levelling up agenda. The capital not only has significant pockets of depravation but, with the population projected to grow to c.11 million by 2050[2], the need for more affordable housing has never been greater. Grant levels must therefore reflect this need in any future programme allocation.

Government should also consider the length of term the programme is set. Research has shown that a longer-term programme could help boost supply by offering greater certainty for those delivering[3]. This would be beneficial not only to housing associations but also the wider housebuilding industry by enabling investment in construction, including modern methods, and securing savings though the planning process. The current approach of setting programmes on a five-year cycle creates greater uncertainty over future availability of grant meaning that housing associations may be more reluctant to commit to long term development programmes. In addition, flexibility on grant rates to reflect periods of high-inflation or additional costs from events like the pandemic is crucial and will allow developers to focus finances accordingly.

A key element missing from the AHP in London is that it does not provide grant for replacement affordable homes through large scale estate regeneration schemes. Such schemes can deliver a significant number of affordable homes as well as many wider economic and social benefits, but the costs associated with demolition, loss of rental income and building new homes, will ultimately mean that some schemes will be no longer be viable. This is a significant change from the previous programme and any future programme should bring estate regenerations schemes back within scope.

Finally, it should be noted that the AHP programme is not immune to the wider challenges facing residential development such as increased policy and regulatory demands including changes to planning obligations (S106/Community Infrastructure Levy and the move to an Infrastructure Levy) and fire safety regulations. Furthermore, the Government’s proposed rent cap will leave housing associations with a significant shortfall in their finances resulting in compromises being made on development pipelines. The rent cap will come at a time when the industry is already under pressure and, coupled with the rise in build cost inflation currently being seen, these challenges will only serve to diminish viability of future development.

The AHP needs to reflect a more holistic and long-term approach, a short-term programme is inefficient and does not reflect the needs of the capital and those that are delivering within it. More broadly, and in the absence of increased grant funding, Government needs to think more strategically in how it invests in London. Supporting the provision of new affordable homes through other methods such as public and private sector partnerships, investment by the private sector into affordable housing and the use of modern methods of construction will be key if London is going to deliver the homes that it needs.

Yours sincerely,

Stephanie Pollitt

Programme Director, Housing

BusinessLDN