Report sets out how more affordable housing could be built in UK
28-09-2012
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The UK government has already boosted the affordable housing sector with its £10 billion guarantee scheme but much more investment is needed in the longer term, according to a report from L&Q and PwC.
It says that higher capital subsidies are more cost effective over the long term, but in an era of limited public investment it suggests that the creation of a Social Equity Fund would generate billions in new financial capacity each year to support higher affordable housing provision.
It is estimated that the total amount of investment needed to meet the government’s own ambitions is £39 billion every year.
L&Q chief executive, David Montague said the report explores a fresh range of options which, crucially, would have no impact on the public purse. ‘With political will and strong partnership working, we can tackle the housing crisis and provide urgently needed new homes for the current and future generations,’ he added.
The report says that a Social Equity Fund of £5.6 billion would finance 42,500 affordable homes a year, enough to provide 25% of a 170,000 a year homes target. The Social Equity Fund would be created by raising rents for just 5% of better off, non-benefit dependent tenants, plus increased asset management flexibilities sanctioned by government. The capacity generated would be ring fenced for new affordable housing development.
Rents would be kept to an average of 35% of net income for tenants to maintain affordability. Capital subsidies to support ‘safety net’ social rent homes for poorer and more vulnerable tenants would provide an important extra boost to overall affordable homes provision.
It also says that a much larger Social Equity Fund of up to £20 billion is possible by increasing rent across the board to a new affordable level above the current average but below the Affordable Rent maximum.
The scope to boost the Social Equity Fund further through greater asset management flexibilities, without impacting on government cost, is also strong. An extra £2 billion could be generated for every 1% of tenants allowed to buy their home through shared ownership, for example, and more capacity could come through measures such as selling a modest number of low yielding, high maintenance properties.
Similar arrangements for local authorities could potentially double the value of Social Equity Funds, yet they can only provide part of the long term solution, given the huge scale of the overall challenge.
Richard Parker, partner, PwC, explained that a ‘golden triangle’ of factors determine whether enough new affordable homes get built by housing associations; funding availability, land supply with planning, and the flexibility of the operating environment.
‘If housing associations had more flexibility, our work suggests they could deliver across the broad rental market, including the private rented sector as Sir Adrian Montague’s report suggested, but more work is needed on planning and long term funding,’ he explained.
‘Local authorities must play their part too by sign posting their strategic housing needs and their willingness to work in partnership they can facilitate delivery and attract investment. The scale of England’s housing and funding challenge is so great that the combined power of the sector is needed to meet it,’ he added.
