Can Affordable Rents Help Deliver 34,000 Homes Each Year?

Hometrack has carried out a detailed study which suggests that housing associations will build an average of 34,000 affordable homes each year in England until 2015 under David Cameron’s Coalition Government.

Its calculations show that the affordable rent programme could deliver 69,000 homes by 2015 (in addition to the 67,000 committed under the previous Labour government). This 136,000 figure (34,000 each year), when added to the projected 19,700 grant-free homes, would comfortably exceed the 150,000 target set by the Department for Communities and Local Government.

This is almost double the 17,141 affordable homes built under Tony Blair’s government and the 24,453 built under Gordon Brown.

Half these new homes will be financed by the new regime called ‘Affordable Rent’ – wherein associations can set rents at 80% of the market rate. The other half were already on track when the Coalition came into leadership.

The Hometrack Study, based on 2009/10 Tenant Services Authority Lettings data for the largest 60 providers, assumes a grant of £27,500 per unit and £10,000 funding from housing associations’ surpluses. It is based on affordable rents being 60% of market rent in London and 80% elsewhere in England.

Richard Donnell, director of Hometrack says: “The potential to deliver more affordable homes is clear but success is reliant on a range of critical success factors, not least closer working with local authority partners.”

If housing associations do not put in any additional funding, the figure for new homes will drop to 12,340 each year.

Reactions within the housing sector are mixed. Some of the country’s largest landlords including Family Mosaic, Affinity Sutton, Amicus Horizon and Guinness Partnership have publicly stated that they do not think they will be able to sustain current development levels under the new regime. Additionally, concerns about the affordability of higher rents, benefit caps and the effect on existing loan agreements with banks have even led to fears that some of the sector’s largest bodies may not bid under the programme at all.

So is David Cameron going to be remembered as the prime minister who kick-started the British building industry?

At first glance, some of the assumptions in the Hometrack study appear to be positive. Bromford Group, which owns 26,000 homes in the Midlands, looks optimistic. Bromford states that it is considering moving a significant number of re-lets to the new tenure. But not all housing associations concur. The 69,000 homes are dependent on landlords moving all their re-lets to affordable rents at 80% of market rent (60% in London) in an action which even the Homes and Communities Agency recognises as involving a ‘high degree of risks’ as a drop in re-let rates could potentially leave associations’ finances exposed.

Dale Meredith, Development Director for Southern Housing Group and Chair of Development Directors for the G15 group of London landlords says that associations are likely to switch only 30-50% of re-lets to the affordable rent products: “Social landlords are struggling with the idea of relying on a high number of conversions. Section 106 agreements may mean properties can’t be converted and councils may take a strong view against conversions.” He also remarked that landlords are wary of borrowing long-term against increased rental stream which may be subject to change.

In the north, the Northern Housing Consortium reports a similar picture with landlords considering moving only 25% of re-lets to affordable rents.

Reducing the proportion of re-lets will severely hit the amount of homes that can be built. A 50% conversion rate will reduce the number of new homes from 34,000 to 25,375. If the conversion rate drops to 25%, the figure plummets to 21,062 leaving the government short of its target of 150,000.

The other assumption in the Hometrack report is that landlords can afford to contribute funding from their own reserves of £10,000 per unit. This will be dependent on surpluses, recycled grant and the ability to cross-subsidise from shared ownership schemes. Keith Exford, CEO of Affinity Sutton, said that it was unlikely his association would include much matched funding in its initial bid.

Ultimately, though, this report does not reflect the tough decisions landlords will have to make about how much the tenants housed under the new model will have to earn in order to live there. And it is this moral dilemma between maximising rents to produce the highest possible number of homes and serving a social purpose which is causing the most headaches. David Montague, CEO of London & Quadrant, informed a London Assembly Committee in early April that there is a ‘tension between volume and affordability”.

So the jury is out on this. Do these storm clouds have a silver lining? Hometrack suggests that they do if landlords can take a risk – and make some tough decisions.