A recent report by Octopus reveals that economic pressures are leading to a significant drop in the development of new affordable housing in the UK. Factors such as inflation, construction costs, higher interest rates, decarbonisation work, regulatory and policy-related pressures, and the cost of debt are contributing to this decline.
Housing associations are struggling to maintain affordable housing levels, and it is estimated that there will be a 22% decrease in the number of new affordable homes. This presents a challenge for addressing the housing crisis in the country, and alternative solutions such as equity partnerships are being considered by registered providers.
Challenges for Housing Associations
The research conducted by Octopus highlights the challenges faced by housing associations in maintaining affordable housing levels. Professor Alex Lord, Chair of Town and Regional Planning at the University of Liverpool, endorsed the report, saying, “How do you address the housing crisis without the essential evidence and analytical tools to plan proactively for new development? Octopus’s report represents an important step in addressing this question by presenting evidence on the effects of current housing policy on registered providers of social housing. It is these registered providers — numbering over 1,500 in the UK — that will be essential to delivering the new affordable dwellings that the country so urgently requires.”
One of the key challenges is the cap on social housing sector rents, which has resulted in a loss of rental income amounting to £3.2 billion. The G15, an organization representing London’s largest Housing Associations, has confirmed that its members are reducing development programs by up to a third. Some registered providers have even cut back development by more than 40% due to financial constraints.
Housing associations are prioritizing improvements to their existing housing stock at the expense of new projects. Expenditure on repairs and maintenance has increased from £5 billion in 2018 to £6.5 billion in 2022. This trend is expected to continue due to the government’s review of the Decent Homes Standard and increased scrutiny of disrepair in the social housing sector.
The cost of debt is another significant challenge for registered providers. Low interest rates in the previous decade had made debt facilities popular for financing affordable homes. However, since the mini Budget in September 2022, interest rates have risen sharply, leading to a decline in registered providers’ activity in the debt capital markets. Many providers are avoiding raising debt until interest rates become more favorable.
The combination of squeezed surpluses and higher interest payments has reduced the capacity of registered providers to take on debt for building affordable homes. As a result, providers are exploring alternative financing options. This shift is leading to a significant reduction in the delivery of new affordable homes.
Conclusion
The economic pressures faced by housing associations in the UK are resulting in a decline in the development of new affordable housing. Factors such as inflation, construction costs, higher interest rates, decarbonisation work, regulatory and policy-related pressures, and the cost of debt are contributing to this situation.
Housing associations are unable to maintain affordable housing levels, and it is estimated that there will be a 22% drop in new affordable homes. As providers look for innovative solutions to address this challenge, equity partnerships are being considered as a potential solution. The significant reduction in the delivery of affordable homes highlights the urgent need for alternative approaches to address the housing crisis in the UK.