Report Claims More Funding Needed For Affordable Housing
In order to reach the target of 300,000 new homes by 2025, the construction sector output will need to grow by 26% over the next seven years or 3.4% per annum according to a new housing report.
According to the joint report by the National Housing Foundation and Savills, there is an expectation that private construction will begin to cool and slow; meaning the only way of achieving the 300,000 new home target will be to increase affordable housing.
However, the report highlights that reduced funding in affordable housing in England and Wales will mean that the current system requires a mass expansion and funding in order to reach the supply of 300,000 new homes per year over the next five years.
Since the record low of 125,000 completed new homes in 2013, the construction sector has enjoyed rapid expansion in housing supply, helped by the mass of Help to Buy property. However, the report claims that this expansion is now slowing because of hostile ‘market headwinds.’
Despite the fact that 260,000 new homes are set to be built each year by 2021, the market beyond this point is difficult to predict. With Help to Buy ending in 2023 the current 33% hold it has on the property market could result in a huge downturn in building construction of new build property.
At the same time, the demand in affordable homes is only going to increase and the government need to be able to accommodate the needs of this section of the market.
The report estimates that 100,000 new affordable homes per year will need to be priced below market levels in order to factor in the declining affordability. When the annual need for affordable housing is 2.6 times greater than supply, rising to 7.6 in London, the urgency to reappraise affordable housing policy becomes clear.
Currently, this leaves a shortfall of 66,000 affordable properties being brought to market each year according to the government’s long-term affordable housing strategy, with 45,000 homes the benchmark being set and 44,000 being actualised in 2018.
The report highlighted the fact that government funding in affordable housing had fallen from 50% of the overall cost of building ten years ago to just 12% today.
However, it recommends that improving affordable housing funding and expanding affordable housing output could also offset any losses from the private market slowdown in construction. The recommendation that increased joint ventures between housing associations, local authorities and private sector developers could increase affordable housing, ensure construction outputs do not dwindle as private sector projects decrease and improve the affordable housing stock for those currently struggling to find affordable accommodation could well be the logical solution.
Paul Hackett, Chair of the G15 and Chief Executive of Optivo, said:
“Increasing grant funding for affordable housing will reduce the market risk that housing associations are currently exposed to and help us build during downturns. Our sector is reliant on a cross subsidy model where the money we make from private house building is reinvested into affordable homes.
“But this model is at full stretch and massively exposed to the market. Savills’ report shows that a new funding deal for affordable housing is now imperative if the Government wants to hit its housing targets over the next decade.”
Kate Henderson, Chief Executive of the National Housing Federation, commented:
“The research shows that relying on private developers to end the housing crisis is fatally flawed. ‘Without Government investment in affordable housing, it just won’t be possible to build enough homes to ensure that everyone can have somewhere stable and affordable to live.
“If we are serious about ending the housing crisis, the Government must do the right thing and invest in affordable housing at the upcoming spending review. Doing nothing is simply not an option.”
Carol Matthews, Chair of Homes for the North and Chief Executive of Riverside, said:
“This has been an important piece of work for Homes for the North to collaborate with key partners on to show that the North, together with all regions, has a pivotal role to play in building the 300,000 homes needed each year.
“As the report finds, volume housebuilders’ rate of delivery is predicted to slow further in the coming years. Housing associations stand ready to fill this gap by working with the Government to grow our development pipelines and make our contribution to tackling the housing crisis.
Emily Williams, Associate Director for Residential Research at Savills, commented:
“Growth is slowing against market headwinds. The tapering and potential withdrawal of Help to Buy represents a significant downside risk to speed and scale of development for the majority of developers, including housing associations. Increased grant funding would widen the range of tenures being built, accelerating the speed of market absorption and therefore the build out of sites.”
Do you think these changes will improve the housing market as the private market ‘tapers off?’