Written evidence submitted by the National Housing Federation (RDC0096)

Summary

Housing associations are prioritising remediating their buildings of combustible materials and other safety defects as quickly as possible. However, when the previous government first announced the Building Safety Fund in March 2020, it took a decision to limit social landlords’ access to government funding for remedial works, and this is a strong determining factor of the pace of building safety remediation programmes.

The recent National Audit Office (NAO) report into the remediation of combustible cladding found that the current funding policy poses a risk to the pace of remediation in the social housing sector. This then raises serious questions about whether buildings across all sectors are being prioritised for remediation according to risk, or according to tenure based on eligibility for government funding.

Eligibility rules mean that social landlords have received just 10%[1] of the available government funding for remedial works of non-ACM cladding, so housing associations have no choice but to phase work over time, according to risk. While the sector is attempting to recover costs from those developers and contractors who are responsible, this can lead to disputes over the approach to works and who will pay, which can take years to resolve. On the current trajectory, building safety programmes could take a decade to complete. As the lack of funding is one of the biggest barriers to faster remediation in our sector, the government’s funding policy is effectively prioritising buildings according to who lives there, rather than the risks presented in the building. It is also therefore jeopardising their ambition to remediate all unsafe cladding by 2029.

To ensure residents’ safety, housing associations are being forced to divert funding away from other necessary investment in existing buildings and from building new, much-needed social and affordable housing. The NAO report also recommended that MHCLG do more to ensure that its policy for building safety funding does not work at cross purposes with other government priorities. Our members stand ready to be mission-delivery partners of government, helping deliver a significant portion of the 1.5m new homes, a key priority for the government as part of its Plan for Change agenda. But our members also tell us that current building safety funding arrangements are hindering their ability to invest in delivering new homes.

As well as providing homes to those who need them, new affordable housing can bring significant financial benefits to the taxpayer and boost the economy. Investing in new social housing at the rate it is needed could add £51.2bn[2] to the economy and make savings for the taxpayer by reducing the benefits bill. By making housing associations eligible for building safety funding, the government could free up the sector’s capacity to build new homes and realise some of this additional economic value.

Taxpayers’ money could be protected if the government were to pursue other irresponsible actors, including construction product manufacturers and contractors, who have not yet had to contribute to the costs of building safety works. The government should also exempt housing associations’ remedial works programmes from VAT, as it has with commercial entities carrying out remedial works programmes, so that this can be invested in new affordable homes.

In order to accelerate remediation, ensure that buildings are truly prioritised according to risk and ensure funding is spent effectively, we recommend that the government:

• Provide housing associations with equal access to government funding for building safety works as private building owners. 
• Coordinate the resources needed to remediate all buildings with safety defects, ensuring that they are directed first to the buildings that need them most.
• Exempt building safety works from VAT.
• Hold contractors and construction product manufacturers to account for their mistakes in the same way they have with developers.

Introduction

The National Housing Federation is the voice of England’s housing associations. Our 700 members provide 2.6 million homes for more than six million people, and are driven by a social purpose - providing good quality housing that people can afford. Most homes in our sector are provided as social rented homes to people on the lowest incomes.

Many of our members own and manage multi-storey buildings that have been remediated of dangerous cladding or need to be remediated. Housing associations typically either bought these buildings from developers, or commissioned them from contractors, who had constructed them with serious defects. Nothing is more important to housing associations than the safety of their residents, and our members are working as quickly as they can to remediate buildings to ensure the safety of their residents. We want to do everything we can to ensure that a tragedy such as the fire at Grenfell Tower never happens again.

This submission sets out how the previous government’s funding settlement for building safety continues to impact on housing associations and their residents, hindering progress on remediation and jeopardising the government’s approach to remediating buildings according to risk. In line with the scope of the PAC inquiry, we set out:

• The scale of the building safety costs in our sector, and the impact of the government’s funding policy on the pace of remedial works and the prioritisation of buildings by risk.
• How the government could further protect taxpayers’ money by holding all those responsible to account.
• How a change to housing associations’ eligibility for building safety funding could enable them to make a greater economic contribution by building more affordable homes.

The current funding settlement for building safety and its impacts

There is almost no government building safety funding for social tenants and this impacts on risk prioritisation

• Housing associations have been prioritising the identification and remediation of buildings with fire safety concerns. 

• There are 2,606 11m+ buildings in the social housing sector that have required remedial works, with 45% having started or completed remediation[3].  

• Housing associations do not have access to government funding for the vast majority of the homes they own.
• The previous government excluded homes lived in by social tenants from access to the Building Safety Fund and the Cladding Safety Scheme for remediation – to date, around 90%[4] of the funding in these schemes has been awarded to private building owners.
• The 10% of funding that has been awarded to our sector is only available to remediate buildings where leaseholders and shared owners live, or where a housing association would be made financially unviable by paying for building safety works.
• Current arrangements mean that social tenants are paying through their rents for the mistakes of those who profited from constructing defective buildings and are the only residents still paying for remedial works. This is morally wrong and unfair.
• A lack of funding is one of the greatest barriers to remediation in the social housing sector. This means that the government’s funding policy is effectively prioritising buildings according to who lives there, rather than the risks presented in the building, with social housing tenants’ buildings effectively deprioritised.
• We are therefore calling on the government to end the moral inequity of the current arrangements and implement the End Our Cladding Scandal campaign’s call[5] for housing associations to have equal access to government funding for building safety as private building owners. According to the National Audit Office, the social housing sector’s cladding-related costs could be £3.8bn, and according to our research, this could even be around £6bn when other safety-related costs are included. 
• While we welcome the additional funding for building safety in 2025/26 announced at the October 2024 Budget, which we understand social landlords will be able to access, it is not yet clear how housing associations can access this – and it will not cover the cost of remediating buildings in the housing association sector.  

A lack of government funding for social landlords impacts on the pace of remediation 

• The NAO’s recent report on dangerous cladding[6] identified that “already strained finances among social housing providers, and a high threshold for government support limiting their access to funding for remediation….pose risks to pace in the social housing sector.”
• Given the approximately £6bn of building safety costs facing our sector, social landlords must phase remedial works programmes over time according to risk, to ensure the financial capacity to carry out the works (with risk mitigation measures in place in the meantime).
• It could take up to a decade to complete remedial works on housing association buildings. We believe that there is a link between the lack of government funding and the pace at which our sector can remediate its buildings.  

• The NAO report[7] also found that while placing an onus on developers to remediate buildings they constructed should protect taxpayers’ money, this has led to disputes between developers and building owners over the scope of works, which causes delays to remediation.
• Similarly, where housing associations have to recover costs from contractors who constructed buildings before works can begin, negotiations over what they will and won’t pay for can take years. Many organisations have to complete these negotiations to have the resources to commence remedial works. 
• Where there is no contractor or developer to pursue for costs, the housing association must pay for the works themselves, which is another contributing factor in the timeframes for remediation in our sector.  
• The NHF therefore supports the Public Accounts Committee’s view[8] that the government should take steps to ensure buildings are remediated and end discussions over who is responsible.

A lack of government funding for building safety works impacts on investment in building new homes

• The NAO report[9] identified that MHCLG should do more to ensure that their policies are not working at cross purposes with other government priorities, in terms of developing new homes or decarbonisation.
• Our members tell us that every £1 spent on building safety remedial works is £1 that they have to divert away from other investment into social tenants’ homes, or from developing much-needed new affordable housing. Ensuring tenants are safe will always be our members’ priority.
• The Regulator of Social Housing Global Accounts 2023/24 showed that housing associations planned to invest £4.5bn in building safety works in the coming five years[10].
• Government data[11] shows that affordable housing starts in England in 2023-24 have fallen 39% on the previous year, and in London during the same period, affordable housing starts have fallen by 88%.
• Initial NHF analysis shows that if the £3.8bn costs of cladding-related building safety issues in our sector were spent on new homes, our members could contribute a further 76,000 homes. These additional homes are vital if ministers are to deliver on their headline objectives for government to build 1.5m homes over the course of this parliament.
• Many organisations with building safety programmes are those operating in high value areas of acute housing need, such as London and the South-East. The current funding settlement for building safety therefore greatly impacts on the housing crisis in these areas where it is most acutely felt.   
• In addition to a lack of government funding for remedial works, HMRC recently published guidance setting out that remedial works would typically be subject to a 20% rate of VAT. Given the large amount of the sector’s money already put into remedial works, as well as the projected future spend, this additional cost also amounts to a significant sum that could otherwise be spent on affordable housing – again, to great longer-term benefit to the taxpayer.
• We understand that commercial entities, who are not charities seeking to end the housing crisis (and with it, make vast savings to the public purse) are not required to pay VAT on remedial works they pick up.
   

Increasing the pace of remediation while protecting taxpayers’ money

• As stated above, the NAO has identified that a lack of funding for the social housing sector presents a risk to the pace of remediation in our sector.
• We therefore believe that there is a strong argument for making social housing buildings eligible for government funding for building safety works, as one method of helping to increase the pace of remedial works in our sector and ensuring that government funding supports remediation of buildings according to risk and not according to ownership.
• Ultimately, we believe that the government should provide funding for remedial works and recoup the costs from those responsible later. In doing so, the government should also coordinate all resources and direct them first to the buildings that need them most, so that there was confidence that buildings were being remediated on the basis of risk only.
• We welcome the government’s Remediation Acceleration Plan[12] and we are committed to working with the government to remediate defective buildings as quickly as possible.
• The Remediation Acceleration Plan refers to plans to regulate construction product manufacturers, and to introduce deterrents that hold them to account in the future. However, it is still not clear how these organisations, together with contractors who constructed defective buildings, are contributing to the costs of remediating buildings with combustible materials.
• We believe that the government should hold contractors and construction product manufacturers to account in the same way they have with developers. This would be a just approach, and would further protect taxpayers’ contribution to the building safety crisis.
   

The economic argument for funding building safety works in the social housing sector

• As stated above, by providing funding for building safety works, the government could ensure social housing is remediated more quickly, and free up our members’ capacity to build new much-needed affordable homes.
• Building social homes is both key to ending the housing crisis and kickstarting economic growth and so using taxpayers’ money for building safety works in our sector, by enabling our members to free up capacity to build more affordable homes, should be seen as an effective investment of taxpayers’ money into the growth of the economy.
• Research from Shelter and the NHF, carried out by CEBR, shows that building 90,000 social rented homes per year (the number needed to meet demand) would result in economic net benefits worth £51.2bn[13].
• Most of this would happen quickly - £32.6bn would be generated within a year and within three years it would break even. The wider economic benefits surpass the upfront costs.
• Housing associations build a quarter of new homes and for every £1 of grant funding, they unlock £4 of private investment. Our members save residents £9bn a year in comparison to living in the private rented sector, and the government £6bn a year through reduced welfare spending.
• Housing associations are not currently able to maximise their capacity to make this significant economic contribution, because they are having to divert funding for developing new homes into extensive building safety programmes, because the sector is ineligible for government building safety funding.

Real world examples of how the lack of building safety funding impacts the pace of remediation and the availability of social housing

• Some of our members have examples of buildings that have not yet been remediated due to a lack of funding for social landlords, whereas nearby leaseholder buildings have had works completed. This is one such example in Tower Hamlets, London.
• Another of our members is advocating for social housing tenants in a building that is not currently being remediated by the managing agent responsible, where three leasehold buildings on the same site are being remediated – the leasehold buildings have qualified for government funding.

• Other housing associations are having to take difficult decisions to be able to pay for remedial works to their buildings. One of our members, Islington and Shoreditch Housing Association, has had to sell off social housing in a high-value area of London to pay for remedial works to one of their buildings.
• A small number of other housing associations are also looking at the future of some of their blocks that need remediating, partly due to the high costs of remedial works. They have told us about difficult decisions they may have to take around whether to retain these homes in the social housing sector.

Our recommendations to government

In order to accelerate remediation, ensure that buildings are truly prioritised according to risk and ensure funding is spent effectively, we recommend that the government:

• Provide housing associations with equal access to government funding for building safety works as private building owners. 
• Coordinate the resources needed to remediate all buildings with safety defects, ensuring that they are directed first to the buildings that need them most.
• Exempt building safety works from VAT.
• Hold contractors and construction product manufacturers to account for their mistakes in the same way they have with developers.