Assembly finds affordable housing reforms present challenges to house building in London

In the context of reduced government grant, the new Affordable Rent Model gives housing associations the ability to generate revenue by raising rents for new tenants [1].  But the tension between raising enough income to build new affordable homes and setting rents at levels people can actually afford will be particularly acute in London – especially for families.

Implications of the Affordable Rent Model in London by the London Assembly’s Planning and Housing Committee captures the unique challenges government reforms will mean for housing in the capital, based on in-depth meetings with the G15, individual housing associations and industry experts[2].

Housing associations welcomed the new opportunities the Affordable Rent Model will give them to better manage their assets and tailor rent levels and tenancy arrangements.

However, they highlighted that the new arrangements may dramatically reduce the number of affordable homes that can be delivered, with the potential to halve the numbers built in previous years[3].   Numbers of desperately needed family-sized homes may also fall as they are more expensive to build and will be less affordable for families when benefits are capped[4].

Nicky Gavron AM, Deputy Chair of the Planning and Housing Committee, said:

“We are not the first to point out that London presents a unique and complex set of circumstances when it comes to implementing the Affordable Rent Model, as rents and housing need are already so much higher than the rest of the country.  That is why social rent is so important in London.

“We set out to capture how the new arrangements might play out and while there is a lot of uncertainty, what is clear is that housing associations believe they will not be able to build as many homes as they have in previous years, particularly larger family homes.

“The new affordable rent model is designed to replace the social rent system.  The Mayor and housing associations’ role is to make the new model work in a way that does not worsen London’s housing crisis.  That is going to be a very difficult task indeed.”

Uncertainties around how the Affordable Rent Model will change the housing landscape have left housing associations particularly cautious about their funding streams – and could potentially undermine their appeal to private sector investors[5].

Yet housing associations believe they are going to have to draw very heavily on private sector investment, with the then Chair of the GI5 telling the Committee:

“We (…) are going to have to borrow an enormous amount of private sector money. One calculation is that, to deliver the Mayor’s programme, will take as much private sector money over the next four years as (housing) associations have borrowed since 1988 to deliver the homes in London.”

Higher rents will boost income, but this is dependent on new tenants’ ability to afford them.  It may also mean that because there is greater scope to increase rent on small properties, a new tenant could end up paying more for a one-bedroom flat than an existing tenant pays for a 4 bedroom home, a situation  described as “Alice in Wonderland rent setting[6].

Notes for editors:

  1. Affordable Rent will offer shorter term tenancies at a rent higher than social rent, to be set at a maximum of 80 per cent of local market rent.  Affordable Rent tenancies will be offered on a fixed term of at least two years with appropriate safeguards around termination.  Affordable Rent will be offered on a proportion of providers’ empty properties and re-lets initially and also on new stock. It is the Government’s intention that the additional rental income providers receive will contribute to the provision of new affordable homes.
  2. The following people appeared before the Committee at public hearings: Rod Cahill, Chief Executive, Catalyst Housing Group; Richard Donnell, Director of Research, Hometrack; David Montague, Chief Executive, London and Quadrant; and Professor Steve Wilcox, University of York appeared on 29 March 2011.  View the transcript of the meeting.  Steve Howlett, Chief Executive, Peabody and Chair of the G15 group and Alan Benson, Head of Housing, GLA appeared on 5 April 2011.  View the transcript of the meeting.
  3. Our experts gave us a range of estimates as to how many new homes could be built under the new arrangements.  The G15 estimate is that an average figure for the number of units to be delivered under the new arrangements is that “output will be half compared to what we have been delivering over the least few years”. In the last three years new affordable build, predominantly from housing associations, has averaged around 12,000 units (rent and intermediate) a year.  See paragraphs 4.15 and 4.16 of the report.
  4. The Committee is particularly concerned about the tension between London housing policy to build more affordable family-sized housing and the benefit reforms which will cap the benefit support that can be accessed to pay the new higher rents.  David Montague, Chief Executive of London and Quadrant told the Committee “If housing associations and local authorities all charge up to 80 per cent of the market rent and there is a £500 benefit cap on total benefits then our existing client group will not be able to afford the homes we are building.”  However, the desire to ensure continued provision of affordable family-sized housing has led some housing associations to look at ways to cross-subsidise across their product range. See paragraphs 4.17 to 4.19 of the report.  This issue is also explored in a previous rapporteurship report by the Committee: Crowded Houses (March 2011)
  5. We heard that up until now housing associations’ bond offerings have been oversubscribed and offered at good rates, but the risk rating of housing associations could change as rents rise and benefits are capped. A larger percentage of loan per development increases the risk to the lender and could begin to affect the capital markets’ appetite for housing association debt.  See paragraphs 5.2 and 5.3 of the report.
  6. Rod Cahill, Chief Executive, Catalyst Housing Group made this comment at the meeting on 29 March.  See paragraph 4.18 of the report.
  7. See the Mayor’s current Housing Strategy and more on Mayoral housing initiatives.
  8. Nicky Gavron AM, Deputy Chair of the Planning and Housing Committee, is available for interview.
  9. As well as investigating issues that matter to Londoners, the London Assembly acts as a check and a balance on the Mayor.

About nickygavron

Former Deputy Mayor of London. London Assembly Member, Chair of Planning Committee, and GLA Labour Spokesperson for Planning. NPF Member.
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