Research from Legal & General and the British Property Federation has found that a new funding structure is needed to meet the shortfall in affordable homes, as well as billions of pounds of additional funding
With 1.2 million households on waiting lists in England, an estimated 145,000 affordable homes are needed each year to meet demand, 95,000 more than the recent annual delivery.
The new research paper, named ‘Delivering a step-change in affordable housing supply’, calls upon the government to support a level playing field between housing associations and investors, to greatly scale the levels of institutional investment in affordable housing that are required to meet the deficit.
The research further illustrates the importance of providing a long-term rent settlement to help significantly decrease the subsidy burden on the government.
The report analysis puts the amount of additional capital funding needed to meet affordable housing demand at £34 billion per year.
The pressure is on housing associations, who have driven affordable home delivery along with local authorities and central government and are near to borrowing limits and unable to raise new equity due to their not-for-profit status.
Only capital injection from institutional investors alongside an increase in grant levels from the government can overcome the sector’s current financial limitations.
To increase affordable housing delivery to 145,000 new homes per year, the research finds that £34bn of additional funding will be required each year which will need to be made up of £10bn of equity from investors, the same from the debt markets and up to £14bn from a government grant.
The report outlines government actions to take:
- Introduce a longer-term rent settlement, to provide confidence to housing associations and investors to increase output.
- Create a level playing field between housing associations and investors through tax positions and grant agreements to remove the obstacles for closer collaboration between institutional investors and Housing Associations.
- Commission a review into subsidy provision to understand the optimum means of targeting subsidies to increase the supply of affordable housing. This could be through increasing grant levels or supporting new models through co-investment.
‘Rapidly scale up the amount of long-term institutional investment into the sector’
Simon Century, managing director of housing at Legal & General, commented: “Our research aims to shine a light on the reality of delivery in the affordable housing sector.
“The demand for affordable housing is huge – at best an annual short-fall through time of some 95,000 homes a year. The main existing players – housing associations – can only do so much alone given the huge and increasing demands they face.
“The only way to overcome the challenges in the years ahead is through a new coming together between all players. Working together, we need to rapidly scale up the amount of long-term institutional investment into the sector, supported by further subsidy from Government. This is the only realistic way to deliver more homes at the scale the country so deeply needs.”
‘The need for more homes that are affordable’
Ian Fletcher, director of policy at the British Property Federation added: “If there is one thing that unites most of the housing sector it is the need for more homes that are affordable.
“This analysis shows, however, that we cannot hope to meet that need through existing sources of funding alone. There is a funding gap, and if anything, it is getting bigger as other financial pressures increase on the affordable housing sector.
“We have seen that institutional investment can contribute to increasing affordable housing supply, but there is more that can be done to create the right policy environment to boost all forms of funding.”
