The government has made its intention clear - build 1.5 million homes in the next five years. As many commentators have observed, this is the most ambitious house building target for decades and we eagerly await more details in the Autumn Statement on how this will be achieved. Of those homes there is, as always, a strong push to deliver more affordable (for example up to 50% affordable being targeted on new greenfield developments).
Maximising the delivery of affordable homes comes with challenges. The seemingly ever-dwindling capacity of registered providers to acquire section 106 dwellings - what was previously a certainty, is now slowing down developments, as providers are focusing instead on maintaining their current stock. Registered providers are financially constrained, and grant, where it is available, may not be enough to plug the gap, particularly as it cannot traditionally be used to fund units mandated under the planning system.
However, there are still positive signs in the sector. Institutional investment has been increasing year on year, evidenced by the correlating increase in the for-profit registered providers being registered with the Regulator of Social Housing. This shows the market is viewing affordable housing as a liquid asset more easily traded and attracting investors, through equity and debt. The promise of a long term rent settlements should help stabilise that investor interest.
So where does this leave government?
Inject more cash (grant or loans) – the simple solution. Whilst the ideal would be to generate grant rates of days gone by, covering 100% of the development costs, there is simply not enough money.
Amalgamate the funds – there are several grants available and rules which attach to each. Some providers have been calling for an amalgamation to make funding easier to access and more flexible for partners to help deliver on government's ambitions.
Increasing knowledge – linked to the above, some potential recipients of grant could be missing out where they are new to the sector or haven't fully appreciated how they can access subsidy (or if they are able to). Whilst the larger registered providers will be fully aware of how the system works, newcomers, including potentially some For-profits, and even in some cases unregistered entities (such as developers) may need guidance on how the funding could benefit them and their developments.
Update the planning system – we have already seen the consultation on the NPPF which seeks to streamline the planning process and focus on unlocking troubled sites.
Solve the "Section 106 problem" – this one is nuanced. It is arguable that putting government funding towards units which are already mandated through the planning process seems counter to protecting the public purse. However, there could be a role for government agencies to act as aggregators. Amy Shaw, a partner in our Real Estate team, posed this at the Housing 2024 conference in Manchester earlier this year (Service charges should be capped within planning system to encourage Section 106 purchases).
Other "funding" – there are alternative options out there for government to use, including considering the use of public sector guarantees as a way of reducing borrowing costs on developments and in turn accelerating and potentially increasing delivery. Whilst not a new concept, it's perhaps more invaluable now in the high interest rate environment. See our article published recently in Local Government Lawyer (Can public sector guarantees help get Britain building again?).
