Written evidence submitted by National Housing Federation [DSH 026]
We welcome the opportunity to submit further evidence to this inquiry. This submission augments rather than replaces the written and oral evidence we have already provided, and concentrates on three developments since that evidence was submitted:
We are happy to provide further oral or written evidence to the committee and facilitate further engagement between housing associations and committee members on these questions.
March 2020 Budget
We welcomed the announcements in the March 2020 budget of additional support for affordable housebuilding. Most significantly, these included an additional £9.5bn in funding for the Affordable Housing Programme, to create a new £12.2bn five year programme starting in 2021/22.
At the time we welcomed both the additional funding and the timing of the announcement, which provided the quick certainty over future funding which housing associations had been calling for. However, we also noted that while £12.2bn over five years is a nominal increase compared to funding for the current programme, it falls far short of the £12.8bn per year which we believe is needed to deliver the affordable homes the country needs, and which we explained in detail in our previous submission to this enquiry.
We noted that there was no indication given on the split of tenures which the new programme would deliver, the geographic spread of the homes, or new conditions which would apply. The Government subsequently confirmed that they intended the Right to Shared Ownership to apply to rented homes funded through the programme.
We welcomed the commitments in the budget to a brownfield land fund, to further housing infrastructure funding, and to support for local authorities to build as further signs of Government’s commitment to affordable housing supply. And we welcomed several measures announced subsequently around planning, including greater transparency around land ownership and options, and revisions to the NPPF to encourage good design and placemaking.
Understandably, given the Coronavirus crisis, there has been little progress on this work in the intervening weeks. And the crisis itself has significant implication for how these policies could be implemented and the future for affordable housebuilding more broadly, which we discuss below.
The Government’s consultation on First Homes
We think the government’s First Homes policy is relevant to this enquiry, because the proposed implementation could lead to a significant reduction in delivery of social and affordable rented homes.
We support the goal of increasing home ownership and believe that First Homes – homes for sale at a discount to the market price in perpetuity – could make an important contribution to this aim.
However, we are concerned that if the discount is funded via Section 106 contributions as proposed, the policy will significantly reduce the supply of social and affordable homes to rent in areas of high need.
First Homes would require a deeper discount than most shared ownership homes, many affordable rent and even social rent homes – depending on the discount offered and the values in local markets. Therefore, one First Home is likely to result in the loss of more than one other affordable home.
If 40% of homes delivered through Section 106 were displaced by First Homes, it would cost approximately £1bn in additional social housing grant per year to replace them. The recent announcement of a £12.2bn Affordable Homes Programme (AHP) is a welcome increase on the previous programme, but would not make up this difference.
Further, First Homes would not simply displace more affordable tenures directly, but may have a ‘negative multiplier’ effect on overall affordable housing supply. Shared ownership is an important part of an overall affordable housing programme for many housing associations, because of its different cashflow and viability profile. A reduction in shared ownership homes – directly from Section 106 and via displacement of shared ownership in the market – could worsen the viability of an overall affordable housing programme, requiring further grant even to maintain existing output of rented tenures.
In our consultation response, we also note that in many areas First Homes are unlikely to be affordable to most buyers without a very significant, and therefore expensive, discount. In most local authority areas, even a 50% discount would not bring median-priced new homes within reach of median income households.
Therefore, we argue that First Homes should be introduced into the planning system but local planning authorities should retain the power to decide which affordable tenures – including First Homes – best meet the needs of their local communities.
The impact of the ongoing Coronavirus crisis on affordable housebuilding
The ongoing coronavirus crisis has significant implications for the future of affordable housebuilding. We are working with our members to set out the role housing associations can play in the economic and social recovery from this crisis, including via building new affordable homes. We will share further work on this with the committee as it emerges over subsequent weeks.
Social housing will be vital to support people who have been affected by the crisis in a wide variety of ways – including former rough sleepers who have been supported off the streets, key workers who currently struggle to afford their home in the private rented sector, older people who have faced the gravest health risks, and households effected by the wider economic impact of the crisis.
In addition, housing investment, and particularly affordable housing investment, is a tried and tested route to quickly and robustly sustaining demand during an economic downturn. Schemes are shovel ready, with housing associations and developers having pipelines of sites with planning permission, many of them already being built out. Demand for social and affordable rented homes is immune to uncertainty in the wider housing market allowing it to be delivered irrespective of market conditions.
Over the course of the last few years housing associations have shown their capacity to gear up delivery rapidly. Last year they started building 55,300 homes, up 20% on 2018. However, in recent years, housing associations have made up for reduced government investment by using cross-subsidy to keep building – in particular by developing homes for sale and investing the proceeds into building affordable homes.
In the current environment this will become more challenging model to sustain. If there is a drop in private demand for new build it will be all the more important to ensure there is a fast boost in housing construction via public sector investment so that the number of new homes is not only sustained but accelerated during these challenging times.
And housing associations also need to invest in remediation and zero carbon retrofit of existing homes, which could detract from investment in new homes.
In order to give housing associations the confidence to restart sites quickly, continue to build out pipelines, and support the wider housebuilding sector, we are keen to work with the government on how to de-risk delivery and overcome practical challenges to building. For example via:
 From analysis conducted by Savills for the NHF