Financial viability of the social housing sector: introducing the Affordable Homes Programme - Public Accounts Committee Contents

Conclusions and recommendations

1.  The Department has not done enough to understand the full impact of higher rent levels on tenants. Housing providers can charge higher rents than before (on average 65% of market rents in London and up to 80% elsewhere). This will affect tenants' ability to afford the new housing and may exclude some of the poorest from accessing this new housing. Where higher rents are paid through increased housing benefit, tenants may find themselves caught in an even stronger benefit trap where it has become even harder to find sufficiently well paid employment to make working worthwhile, countering the Government's objective of ensuring that the benefit system makes work pay. However, the Department does not hold information on the rent levels being charged for individual properties and it has not considered the impact on tenants or prospective tenants of these rent levels or the interaction with wider Housing Benefit reforms. The Department should consult tenants and providers to understand the impact of the higher rent levels on tenants, and commission research into the financial and other characteristics of those tenants living in 'affordable rent' homes and build the results into future programmes.

2.  The allocation of funds under the Programme did not fully focus on the areas of greatest need. The Agency allocated funds across regions, and the level of grant per home was the main factor behind its decisions on which housing providers' bids were successful. It was not clear to us whether and how funds were targeted at specific areas of greatest housing need. We are also concerned that people in the greatest need may not benefit—higher rent levels may mean that new social housing ends up with the 'richest of the poor' and we are aware of areas where larger properties in London have gone to couples instead of families. The Department and the Agency should ensure that decisions to allocate resources in future social housing programmes prioritise areas of greatest need and target families in greatest need.

3.  It is unclear whether the shift of public resources from capital grants to increased housing benefits will provide better value for the taxpayer. The Programme will be delivered with an average government grant per home of around £20,000, compared to £60,000 under previous housing programmes. In part this will be funded by a one-off use of capital surpluses held by housing associations. In part it will be funded by providers charging higher rents to tenants, two thirds of whom are supported by housing benefit, with a consequential increase in the housing benefit bill of an estimated £1.4 billion. To inform decisions on future housing programmes, the Department should review whether and how the current mix of revenue and capital funding provides best value for money for the taxpayer and tenants over time and take the results into account in future programmes.

4.  The Programme has a risky delivery profile with little room for slippage. Half of the new homes expected to be built are planned for the final year of the Programme, and half do not yet have confirmed sites or planning permission. If providers fail to make agreed progress, the Agency will need to reallocate funding to others. The Agency should monitor providers' progress closely, and, in particular, when funds are re-allocated, ensure that replacement schemes still meet the specific housing needs previously identified.

5.  The Programme has taken advantage of the sector's current financial capacity but this may be a one-off opportunity. With the rise in the value of property in the preceding 10 years, housing providers have strengthened their balance sheets and were able to use their surpluses and borrowing, as well as other sources, to provide around £10 billion of funding alongside government's contribution. Whether or not this approach is repeatable will depend on the future financial health of the sector and its ability to continue to borrow on the scale required, which will in turn depend on factors such as interest rates and the strength of the housing market. To enable the sector to play its part in meeting the substantial unmet demand for social housing in the future, it needs clarity on the government's plans and the role it will be expected to play. The Agency should analyse the financial position of providers to assess whether the model can be repeated, providing more certainty to the sector on its intentions for social housing beyond 2015.

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Prepared 12 October 2012