Written evidence submitted by Clarion Submission [FSS 068]

Executive Summary 

As the UK’s largest housing association Clarion can offer a unique perspective on the current pressures facing housing associations and we welcome the opportunity to submit to this inquiry.

Clarion Housing Group manages 125,000 homes, housing 350,000 people across over 170 English local authorities. We exist to make a difference through providing homes for those who need them most.   

Through this submission we have highlighted some of the key issues facing Clarion Housing Group and the wider social housing sector as a result of the current economic and financial climate. As well as seeking to demonstrate where Clarion and our model are best placed to respond to these challenges. This includes:

• Increased interest rates following the September 2023 budget have added pressure to housing association business plans. This has since been compounded by the long-term impact of the 2023/24 7% rent cap that, whilst the right thing to do for tenants, has had a significant financial impact.
• Our operating costs increased by well over 10% in 2021-22 and, while Clarion’s own financial profile remains robust, housing associations are often facing difficult choices as a result of these wider financial and economic constraints.
• Because housing associations’ surplus is all reinvested, significant reductions in income can often only be offset by reducing investment in existing homes, building fewer new homes or by pulling back on community investment programmes.
• To address one of the key potential trade-offs this creates, Clarion is working with the Social Market Foundation on a report examining the case for grant funding for regeneration, which will be published in summer 2023 and which we will share with the committee. 
• Clarion already invest significantly more than our surplus each year through responsible borrowing – for example, in 2021/22 we made a surplus of £186m but invested £638m in new and existing affordable homes.  We can only continue to do this from a position of financial security.

In this context we believe that Clarion’s mission has never been more important.  In 2023, there are still not enough homes for people who need them, overcrowding remains a problem for too many people and many families who might benefit from a social tenancy are unable to get one.  At the same time many existing social homes are getting older and can often become more difficult to maintain. 

The recent economic volatility, with rising inflation and rising interest rates, has again tested the financial resilience of social housing providers. However, the Regulator of Social Housing’ oversight of registered providers’ governance and financial performance ensures that the sector’s financial reputation is robustly maintained. This has helped to encourage the growth of external investment, often focused around the sector’s positive environmental and social credentials, seen in the growth of the use of sustainability bonds by many registered providers. But however successful we have been at bringing in large-scale investment in the past, increasingly expensive additional debt funding does not make up for lost income.
 

Below inflation rent increases will continue to have serious long-term consequences unless mitigated through mechanisms to protect income in future years. Collectively, in 2021/22 G15 housing associations invested around £1bn per year in existing homes and started over 10,000 new homes. Yet by 2024, G15 members will also have absorbed a cumulative loss of rent income of at least £6.5bn as a result of the 2016-20 one per cent annual rent reduction and the more recent 7% rent cap.

At Clarion, our existing homes and residents will always be our priority, whilst also continuing to deliver new affordable homes to address housing need. As a not-for-profit developer, our surplus is reinvested entirely in our homes and services to residents. This cross-subsidy model is essential at current grant levels but is coming under increasing pressure. 

As an example of our commitment to our residents, in 2021-22 Clarion Futures generated over £123 million of social value from our jobs and training service, money guidance advice, hardship grants and supporting food pantries and other mutual aid groups, as well as the community and volunteering projects all from an annual investment of £10m.    

Where we do deliver new homes at scale we can also be a key partner for local authorities, where good long-term relationships are critical for complex large-scale schemes.  An example of this is how Latimer, our commercial development arm, is a key participant in the £3bn Tendring Colchester Borders Garden Community, on a joint project for Tendring District Council, Colchester Borough Council and Essex County Council. This partnership plans to deliver 7,500 homes at least 30% of which will be affordable housing. Clarion’s role as a Housing Association-lead master-developer relies on our scale and our ability to make a long-term commitment to the area beyond the 25-year construction period.

Our ability to commit to these large longer-term projects helps to demonstrate how counter-cyclical government investment through housing associations, whether through additional grant or other mechanisms could offer a significant boost to housebuilding at a time of economic uncertainty.

The opportunity costs of the expected contraction in delivery of new homes will extend beyond our residents to the wider contribution of house building to the economy now and into the future. New and specific grant funding for regeneration, as well as greater access to public land for affordable housing are both mechanisms that could directly support housebuilding in the current climate.  Along with others in the G15, Clarion also support:

• interventions that facilitate Housing Association borrowing
• removing barriers to our maintenance and retrofit programmes, such as additional funding to help deliver a fit for purpose Decent Homes Standard or removing VAT on housing association activity
• increased certainty around rental income through longer term rent settlements

Clarion’s unique position as the UK’s largest housing association, a significant developer, a key partner for several local authorities and our focus on regeneration makes us well placed to respond to this inquiry. We have included detailed answers to the questions below and we look forward to engaging further with the committee.

Section 1 The financial sustainability of the social housing sector 

Q1. How would you assess the financial resilience of the social housing sector currently? Are increasing pressures and requirements putting financial viability at risk?

The overall viability of social housing sector remains strong and financially resilient but is weaker than it was. The cost pressures on the sector are familiar; increasing construction material and labour costs, supplier and payroll pressures, expanding building safety responsibilities, investment on energy efficiency, decarbonisation and other sustainability measures.

The sub-market housing model is inherently more limited when compared other models. e.g. build to rent; social rents are already heavily discounted against market rents (Clarion’s are on average just 55% of LHA) with over half of the sector’s properties built between 1945-1980 [1].  The model may be holding up now, but viability may be in doubt in the future if economic shocks or decline continues without additional funding.

The Regulator of Social Housing’s oversight of registered providers’ governance and financial performance helps ensure the sector’s financial reputation is robustly maintained. Even though there have been a recent number of downgradings to V2 this is still an acceptable rating. 

Clarion continues to be financially robust, but even we have seen our headroom eroded by the increased pressures.  Clarion saw our operating costs increase by well over 10% over the last year (2021-22).  Clarion has increased investment in our existing homes from £89m to £92m year-on-year including £5million extra investment in LCDM a year.

This tighter constraint has seen a return to focusing on the essential tasks of being a good landlord; investing in the quality of our stock, its safety and energy efficiency. This all constrains services and reduces the capacity for support to residents if funding gaps cannot be met. 

Q2. What pressure has high inflation, increased energy costs and any other additional costs placed on the finances of social housing providers?

The 2023/24 7% rent cap on Housing Associations, immediately reduced rental income substantially and our voluntary decision to cap Shared Ownership rents in line with the 7% rent cap further reduced our re-investable income. This will impact Housing Associations’ business plans in perpetuity, even if mitigating mechanisms such as rent convergence are applied in the future. For example, the 2015 rent freeze consequences were deep and long lasting.  After four years, our income was £85 m per annum less than what it would have been had we increased by CPI +1.  Over 15 years with inflation, the cumulative impact of the rent freeze is £1.8 bn - the same as the investment we are making in the large-scale and much needed regeneration of three Merton estates.  Including the 7% rent cap results in a 15 year negative impact of £2.1bn. Income reductions of this scale can only be offset by reducing investment in our homes and reducing new build levels. 

Q3. To what extent can social housing providers maintain output levels in housing development to provide a counter cyclical balance in otherwise tightening market conditions?

The funding gap for new homes is an area of particular pressure on maintain output levels. Collectively G15 estimate that the cost of constructing a new home has increased by more than 11% with L&Q reporting 12% increase.  NHF have estimated increased costs to average 14% across the sector. This will inevitably lead to a reduction in new home building programmes.

The 2018 Letwin Review highlighted the benefits of diversified housing delivery.  Like most developing housing associations Clarion’s mixed tenure approach has historically provided a helpfully counter cyclical delivery pipeline. Our ability to flex between tenures as part of the cross subsidy model has also helped. However, current constraints to this model (see Q2 above and Q5 below) mean we have the capacity to do less.

NHBC’s most recent update (Q1 2023) found that UK housing starts in first quarter 2023 was 40% down on the figures from the same period in 2022[2].  This is noticeably worse for private sector housebuilders, where it was down 49% on 2022 compared to a drop of 11% for the rental and affordable sector.  This illustrates that social housing providers are at present continuing to perform better. However, we are starting to find that mechanisms or interventions that worked in the past are not now playing out in the same ways as historically.

The NHBC has suggested that developments initially earmarked for private sale are increasingly being sold to housing associations en masse[3]. While this has happened in past downturns, we have yet to see this kind of fire sale.   Volume House Builders are in a better position having reduced their debt and dialled back starts on site to manage the risk. Clarion is building the pipeline we had planned to build, not buying more off the shelf homes.

Q4. What impact have changes in the housing market in recent years had on the strength of housing associations’ balance sheets?

Investors and rating agencies’ take a close interest in Housing Association balance sheets and may start to see the sector as more risky. Investors tend to look further ahead and take pessimistic view of future outcomes.  While the current model is under pressure, it can be made to work better, now is the time to intervene to bring stability. We would support G15’s recommendations (inflation linked rent formula, investment in regeneration)

As the housing market has hardened and sales have slowed down, in parallel with cost inflation surpluses available to reinvest are down, with housing associations paying more costs than the increased rental income. This overall leakage from the system is not sustainable over the long term and will either need to be plugged or our balance of priorities reassessed.   

Q5. Does the cross-subsidy model, by which market housing helps pay for social and affordable housing, have any continuing viability?

The cross-subsidy model still works up to a point. Our new build programme has to continue to meet unmet housing need (see Section 3 Q4 below), even if we can’t build as much.  If we are reducing the number of completions then our charitable mission requires that these are targeted at our priority low–income households. So inevitably, this limits the extent the cross-subsidy model is sustainable in current fragile conditions and the cross-subsidy model will generate less at the time it is needed most.

We aim to create mixed and socially inclusive communities which offer a suitable choice of housing. Yet affordable housing continues to underpins our new homes programme. In 2022 86% of Clarion’ completed homes were affordable (rent or low-cost home ownership) within the top 5 of developing HAs[4]. As a not-for-profit organisation our surplus from private sale homes or market rent is reinvested entirely in maintaining our existing stock and other programmes of social investment in our communities.  We already invest significantly more than our surplus each year through responsible borrowing to sustain our activities supporting residents – for example, in 2021/22 we made a surplus of £186m but invested £638m in new and existing affordable homes[5].  We can only continue to do this from a position of financial security.   

Our long-term corporate strategy requires a sustainable balance of commercial activity and social impact, and between long-term financial stability and short-term imperatives.

Q6. To what extent have private equity investors, and in particular international investors, been entering the sector? What challenges does this present?

We welcome the necessary funding that private equity investors have brought into the sector, and how it has enabled us to expand our programmes. The ongoing certainty of this investment opportunity is influenced by wider global investment and market trends.

Credit rating agencies are publicly concerned about the impact of the 7% rent cap and wider economic volatility on sector ratings. In recent years, individual Housing Associations have raised hundreds of millions via bond issues supported by our ESG credentials. However successful we have been at bringing in large-scale investment in the past, costly extra debt funding will not make up for lost income. As the risks of the whole sector’s credit rating being downgraded increase, borrowing becomes harder and more expensive (on top of the recent significant increase in interest rates). 

Section 2 New challenges to the social housing sector

Q1. The Secretary of State has specified that more resources need to be directed towards maintaining and improving the existing stock. How feasible is this for social housing providers?

The original Decent Homes Standard (DHS) and LSVT of homes to unlock funding for DHS was a result of historical underinvestment in the maintenance of council homes.  While existing homes face different challenges today we’d agree with the principle that a revised modern DHS with long-term programmes of maintenance and decarbonisation are critical.  However, if funding to support the revised Decent Homes Standard isn’t forthcoming there will be spending implications elsewhere, reducing either the new build pipeline or the programmes of community investment.

The sector needs to think carefully about implications of the different sources of funding. Although inward investment is hugely welcome to build highly energy efficient new homes, using this borrowing to pay for repairs or even decarbonisation makes poor financial sense.  Retrofitting homes is critical to address fuel poverty, but in most cases the resident benefits from savings before the landlord, with retrofit borrowing increasing interest debts without creating any more income from new rental properties. 

Q2. How do social housing providers choose whether to undertake new development or to focus on maintenance and upkeep of existing stock? Is it currently possible to achieve both objectives? Where social housing providers are undertaking new developments, what consideration has been given to the types of homes they are building? For example, houses versus flats?

We will continue to do both, even if our capacity is significantly reduced. This will require difficult choices about where to allocate investment and the speed of programme delivery. Potential delays to our decarbonisation and regeneration programmes have prompted our work with the Social Market Foundation on the need of grants for regeneration. The current challenging new build market conditions, with materials shortages and pricing escalation, means the group is maintaining a cautious approach to investment in new homes, with a planned reduction in completions.

We are committed to creating successful mixed communities, and to delivering the tenure, size and house type in compliance with local plans and housing need. Local context is all and the type of home achievable is often dictated by externalities such as land availability. Securing land remains a significant problem, and we call for mechanisms ensuring better use of publicly owned land to support affordable home delivery.

Urban brownfield schemes such as Kirkstall Road in Leeds is the backbone of Clarion’s development strategy for viability, placemaking and sustainability reasons.  Yet the viability for 2/3 bed family homes in dense urban areas is challenging. Equally, we are highly conscious of housing management risks from large homogenous tenure estates or overly dense blocks. This is where collaboration and relationships with Local Authorities are telling to agree the appropriate mix and nominations.  The likelihood of poor social integration will stop us from developing in locations as much as poor viability. 

We are also committed to maximising social / affordable homes where possible. Our ambition to increase the number of social tenure homes built existed before the pandemic with our strategic target of delivering 2/3 of new homes pipeline as affordable prompted by factors including external investors increased interest in social housing and the predicted slowdown in the market for both private sale homes and shared ownership.

Q3. What issues does the requirement on Housing Associations to carrying out building safety present?

It is our responsibility to ensure our buildings are safe. Clarion will continue to prioritise our building safety programme. This saw us invest £40 million in our fire safety programme last year with an intention to make similar commitments over the next few years.   The issue is having to fund the remediation of developers’ and others’ failures. We also continue to prioritise our demand-led repairs service as ongoing care is the first step in preventative safety, although any cut in investment programme will unavoidably increase the costs of running this service.

Q5. Have for-profit Housing Associations made the sector, as a whole, more financially robust? 

The for-profit registered providers’ model is set up to extract value from the housing system.  Not only via the profits distributed to shareholders but they also often buy low-cost homeownership S106 homes leaving less available for non-profit registered providers.  They don’t provide the community investment activities or create social value or other community benefits in the way that Clarion Futures does.  In 2021-22 Clarion Futures generated over £123 million of social

value from our jobs and training service, money guidance advice, hardship grants and supporting food pantries and other mutual aid groups, as well as the community and volunteering projects all from an annual investment of £10m[6]. At this point in the economic cycles for–profit can continue to act as they do. As their stock ages, (much of it is less than 15 years old) and the requirement for repairs, maintenance and renewal increases their model is likely to alter.

Q6. Traditionally, struggling Housing Associations have merged with stronger, sometimes complementary, Housing Associations. Will this continue to be possible? To what extent can mergers result in the creation of an umbrella group too large to discharge its duties and responsibilities to its tenants?

A number of recent mergers of medium to large Housing Associations have cited increasing organisational impact, quality service improvement and rationalisation of footprint as drivers rather than growing development pipeline. These consensual positive mergers are logical to deal with the current difficult economic context but the expectation of mergers to ‘save’ struggling HAs seems increasingly high risk and unlikely[7] as HA capacity is constrained.

The number of providers similar in size to Clarion is increasing[8]. At Clarion we are less focused on scale per se and more on the positive impact this can have on our operating model. As a national group Clarion can both offer our core services across the country, and via our ‘local offer’ approach, also tailor them locally by understanding the specific nature of the stock and knowing what is needed by individual communities. Economies of scale do bring benefits, but within the uncertain environment, it is unlikely we would undertake further mergers.  Quality of service is not always a function of size and there have been a number of smaller organisations which have failed because they didn’t have the necessary capacity. 

Q7. Has the emergence of partnership working between councils and housing associations in local areas made the sector more resilient? What encouragement has the Department given to such partnerships? To what extent do local authorities and Housing Associations collaborate when considering development plans for housing locally?

Partnership working between councils and housing association is not a new occurrence, but has been a longstanding necessity. We have relationships with over 170 Las across country, and have schemes on site or planned in over 95 authorities. Inevitably, the quality of these relationships is variable. Some forms of partnership working are hugely valuable, especially supporting robust local plans, securing future sites, or where there is regeneration potential. In these cases, there are benefits for everyone if we get the relationship right. As things get harder it is likely that we will choose to work with LAs who we have proactive relationships with.

Establishing resilient relationships between council and housing associations are particularly critical for complex large scale, long-term schemes.  One example is how Latimer, our commercial development arm, is a key participant in £3bn Tendring Colchester Borders Garden Community (TCBGC), alongside house builder Mersea Homes, on a joint project for Tendring District Council, Colchester Borough Council and Essex County Council. This partnership plans to deliver 7,500 homes at least 30% of which will be affordable housing. Clarion’s role as a Housing Association-lead master-developer, advising on issues such as deliverability and viability is highly reliant on our scale and ability to make a minimum 25 year commitment to the locality. As a HA with a hundred year history we plan to be involved at TCBGC for into the next century. 

Ideally, we would be able to commit to more than 30% social rents homes if there was more grant funding over the 10-15 years that TCBGC will take to build out.  However, while the TCBGC business case makes sense, future restricted capacity plus the planning hiatus will bring into question our, and other Housing Associations’ appetites for taking on similar strategic land-led risks in other locations. 

The departments’ encouragement has helped.  At TCBGC, Latimer have benefited from support from both DLUHC and Homes England. This support has manifested in both direct and indirect mechanisms. The project is a beneficiary of a c£99m HIF loan to ECC in order to support improved vehicular infrastructure serving the new community without which the residential capacity would be significantly less. Furthermore – both DLUHC and HE have been proactive in monitoring progress and flexible in terms of timeframes to deliver against the commitments in the context of design changes (Link Road) and Development Plan Documents (DPD) prolongation (preparation of strategic framework masterplan and associated delay in DPD). Indirect support has also been forthcoming through introductions and vocal support for Latimer with local stakeholders.

Latimer’s recent collaborative experience with ECC, Colchester City Council and Tendring District Council, supporting the preparation of the (Regulation 19) submission version of the Development Plan Documents (DPD) has been positive. Through structured dialogue, Latimer were able to expand on the substantive issues included in our Regulation 18 representations, and to work collaboratively to find common ground. Whilst this has inevitably required some additional time in the DPD process, Latimer are happy that the majority of our Regulation 18 concerns have been constructively addressed, and that therefore the DPD is sound and deliverable from the master developer perspective.

Q8. The Affordable Homes Programme includes a high proportion of shared ownership properties. To what extent is this form of tenure desirable for potential purchasers and for social housing providers?

Shared ownership is an established way for people to take their first step onto the property ladder where they could otherwise not afford to do so.  It works very well, particularly when buyers have a plan to staircase to full ownership from the outset. It is a tried and tested tenure that has been supported by Clarion over the past forty years. In our experience it is a very popular product - we sold 961 SO homes in the year to March 2023 and have over 1,700 such homes either due to start on site, being sold off plan or close to completion across the country – either in joint-venture partnership or Latimer-led projects. A significant proportion of these are outside of London, where shared ownership continues to grow. Research has shown that Shared Ownership serves different socio-demographic groups across the regions, for example Northern and West Midlands Shared Owners tend to be largely older and longer in residence, yet less affluent than Southern counterparts, with a lower proportion of first time buyers than in London[9]. Latimer’s pipeline (which includes 84 homes in York, 123 in Norfolk, 119 in Plymouth, 195 in Northampton, with 307 units at Kirkstall Road in Leeds and over 340 across Manchester) is able to reflect this shift in audience and location.

However, the Shared Ownership product has altered between the AHP 2021-26 and AHP 2016-23 programmes (the new model lease, 10% initial share, micro-staircasing and ten year repairs and maintenance responsibilities for Housing Associations.)  There is unknown appetite amongst potential Shared Owners for taking up these new terms, and doubt might remain around the benefits of owning only 10% of a home. 

We've modelled some of the negative impacts, for example smaller initial purchase share (and HA’s receiving less money up front) making Shared Ownership a less financially viable product in areas with lower property values. The transaction and administrative costs charged by HAs are already contained by the new model Shared Ownership Lease.  All this introduces new uncertainty into the viability and business plan for Shared Ownership making it slightly less attractive as part of a Housing Association’s mixed portfolio.  Regardless, shared ownership remains a desirable and successful product for residents. Clarion’s consistently high Net Promotor Score remains a strong measure of how well received shared ownership is.

Clarion has signed up to the London Mayor’s Shared Ownership Charter for Service Charges and we are committed to improving transparency on all forms of costs (from service charge costs, value for money and overall affordability for the customer).  Whenever additional costs such as unrecoverable service charges, are carried by Housing Associations themselves this again can limit delivery of additional homes.  

Q10. Will the introduction of the Infrastructure Levy and changes to section 106 significantly affect the capacity to develop affordable housing?

Yes. The proposed Infrastructure Levy is a cause of considerable concern to Clarion and the social housing sector more widely, both as developers of new affordable homes and where they are currently acquired from private developers under Section 106 agreements. 

We support the government’s ambition to achieve a simpler, more effective system, which provides more certainty to all parties in the planning system and captures contributions from a wider range of developments. We all wish to speed up planning decisions and reduce unnecessary delays.  However, we are concerned the current Levy proposals may not deliver that.

We worry that the lack of certainty around the protection of future Levy income for affordable housing. While the government has repeatedly stated its desire to secure at least the same level of affordable housing through the new system, it has not closed off the possibility of diverting it for other purposes (specifically mentioning social care in its current consultation). We can foresee the temptation for hard-pressed local authorities to support essential spending in areas other than affordable housing may be strong. 

It is increasingly unclear whether the new system will be simpler or more efficient than the current one. We and others are well aware of the shortcomings in the current approach to developer contributions – but also believe these could be addressed in large part with sufficient will and resources. Equally, it is clear that the new system would require considerable resources and learning too, perhaps helping outweigh any notional advantages for many years.

The proposed Levy requires local authorities undertake a large amount of upfront work that many are unlikely to be able to resource adequately (already one of the biggest issues facing the planning system). It also pushes a much greater burden of financial and political risk and responsibility to make choices about location and nature of development onto authorities, which experience with local plan development suggests they often find difficult. Coupled with the government’s proposed changes to planning policy to ease requirements around land supply, green belt review and development density, we can foresee the Infrastructure Levy discouraging or diverting development – often in areas where it is most needed. 

Section 3 What are the policy and regulatory challenges to the Department and the Regulator?

Q1. Is the current Departmental policy on social housing and affordable homes appropriately focused? Q2. Is Homes England being directed appropriately by the Department, and is it achieving its objectives?

Tendring Colchester Borders Garden Community (see Q7 above) cites the support provided by the Department and Homes England for larger scale schemes.  Clarion has a positive and robust relationship with both HE and GLA. As a strategic partner we welcome the recent greater flexibility they have shown (either to draw down funds or to have individual discussions / negotiations with HE / GLA on specific sites that required more subsidy due to the weakening economic circumstances.) 

The focus given by HE to this kind of flexibility has been welcome is an appropriate response to housing market volatility, but is no substitute of adequate grant funding (see Q4 below)

Short-term five year[10] funding cycles offer housing associations only limited certainty over future grant funding. Longer term programmes would help Housing Associations plan ways to ride out the current economic volatility and smooth the historical peaks and troughs of construction activity.  

Q4. Is the current range of grant funding available appropriate to address the issues and challenges that the social housing sector faces?

The Affordable Homes Programme (AHP) 21-26 provides a welcome £11.4 billion in grant funding for social and affordable housing over a five year period from 2021-26. This equates to funding of £2.3 billion per year.  Current DLUHC forecast is that AHP 21-26 will deliver 157,000 new affordable homes[11].

This falls far short of the scale of investment required for the country to build 145,000 social homes (90,000 for social rent) per annum. The 145,000 annual target is from a study by the National Housing Federation (NHF)[12] and is a figure that Clarion Housing Group supports in order to meet social housing need over the long-term.

To meet social housing need will require an average of £14.6bn in capital grant from Government each year for ten years[13]. A six fold increase on the grant funding that is currently available. This is required for three key reasons:

        Our starting point is very challenging, we have more than 1.1 million people on the social housing list and acute demand for homes for social rent in London & the South East in particular

        The current AHP allocates around 50% of funds for discounted rent (both affordable and social rent), but to meet demand we need at least 62% of future homes (90,000 of 145,000) to be for social rent. DLUHC’s target is only 33,500 social rented homes out of the 180,000 homes supported under the AHP 2021-26.

        Homes for social rent require more subsidy per unit than any other tenure. The NHF study projects, “across all of England including London the average grant per home over the 10-year programme is £183,000 for a social rent home, £99,000 for an affordable rent home, and £32,000 for a shared ownership home.”

Building additional homes is not the only challenge the sector faces. There is currently no grant available for regeneration schemes, in which councils or housing associations replace old and energy inefficient housing stock with brand new and energy efficient homes. As the DLUHC committee has previously concluded, it is logical to extend the scope of grant funding to regeneration schemes – to allow us to accelerate the modernisation of our housing stock and to cut carbon emissions in the process.

Clarion is working with the Social Market Foundation on a report examining the case for grant funding for regeneration, which will be published in summer 2023 and which we will share with the committee.

In the current uncertain financial circumstances as well as taking a flexible approach, the GLA / HA could set grant rates indexed to a measure of build-cost inflation as a responsible way of increasing the grant rate per unit

Q10. It is already accepted that the numbers of dwellings likely to be produced under the 2021 Affordable Homes Programme will be less than initially forecast. Will the financial challenges that the sector faces reduce these numbers even further?

Yes. It is realistic to expect the number of completions under the AHP 21-26 to reduce as a programme total. So much has altered since the targets were set and HE has been engaging with the sector to reassess and set realistic outcomes.  Exactly how reduced the AHP 21-26 is, will be dependent on the circumstances of individual RPs and the financial decisions they are making. 

Collectively, in 2021/22 G15 invested c.£1bn per year in existing homes and starting over 10,000 new homes. Yet by 2024, G15 members will also have absorbed a cumulative loss of rent income of at least £6.5bn as a result of the 2016-20 one per cent annual rent reduction and the more recent 7% rent cap. The sectors’ increased costs alongside this reduced income has added pressure to business plans. Any future wider economic fragility or banking shocks would further destabilise development cross subsidy models which are already stretched, so caution around pipelines is understandable.  But this could be reversed by improved grants, and other mechanisms to improve sector and investor confidence.  Now is the time for these kinds of swift interventions.

May 2023