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

1 Delivering the Programme

1. In December 2010, the government announced a new programme to build affordable housing (defined by the Department as below market price) in England. The Affordable Homes Programme (the Programme) allocated £1.8 billion capital funding in government grants to social housing providers. The Department for Communities and Local Government (the Department) has overall responsibility for the Programme, which is delivered by the Homes and Communities Agency (the Agency) through contracts with housing providers.[2]

2. The Department expects the Programme to support the provision of approximately 80,000 homes in the four years from April 2011 to March 2015, less than 5% of the total number of families on local authority waiting lists in November 2011.[3] The Agency secured commitments from providers to build 24,000 more homes than its initial target of 56,000. At the time of our hearing in July 2012, the Agency told us that they are on track with work starting on 13,800 homes.[4]

3. Most of the Agency's work to date has been on appraising and selecting applications from housing providers. Through negotiation the Agency reduced the average grant per home to £20,000; a third of that under the previous programme.[5] Most notably, government funding in London has reduced from around £90,000 per home under the previous National Affordable Housing Programme, to around £26,000 per home under the current Programme.[6]

4. The delivery of new houses is skewed towards the end of the Programme, with more than half planned in the final year. The Agency told us they have revisited the timetable for planned completions and have brought forward the development of 6,500 new homes for areas outside of London.[7] There is also a provision to move funding allocations between providers if it looks likely that they will not be able to deliver on their commitments.[8]

5. In addition, in order to get the Programme moving, the Agency revised its payment structure. The Agency originally planned to pay providers 100% of agreed funding once the homes had been delivered. However, to encourage providers to start earlier, the Agency paid 75% of the grant to housing providers who started development by March 2012, with the remainder to be paid on completion.[9] The Agency told us it considers paying 25% on completion a sufficient incentive for providers to deliver on their commitments but they plan to review how paying 75% of funding upfront will impact on the flexibility to move between sites or between providers.[10]

6. Some 51% of schemes are indicative, because sites have not been identified, projects are not sufficiently progressed, or do not yet have planning permission.[11] The Agency explained that having indicative sites is a symptom of the fact they invited housing providers to submit offers for the whole four-year Programme. The Agency plans to work closely with housing providers to firm up the schemes. Where a provider is not able to deliver indicative schemes, there is an opportunity within the Programme to move to alternative sites that are more certain.[12]

7. Under this Programme, providers are required to finance a greater proportion of the cost of the new homes themselves. The NAO report estimates that housing providers will spend some £12 billion on new homes, funded by a combination of the £1.8 billion government grant, £6 billion in borrowing and £4 billion from other sources.[13] Providers told us that they have used their surpluses, profits from selling stock and re-letting some properties, to borrow more.[14] They have also benefited from stronger balance sheets as a result of the rise in the value of their housing assets in the last ten years.[15] The Department told us that the sector has £11.6 billion in undrawn borrowing facilities.[16]

8. The Agency told us that as part of its application process, the Tenant Services Authority, (the then regulator) assessed whether housing providers were in a financially viable position. It told us that it looked at each of the associations that put forward a bid and identified a few where there were some concerns.[17] We queried how the assessment took into account changes to interest rates given that the current rates are so low.[18] The Agency told us that each housing provider has different arrangements for its borrowing and it was therefore not possible to identify a 'tipping point' at which a change in interest rates could impact on the financial viability of all providers. The Department also told us that due to the size of their portfolios, housing providers were able to secure preferential interest rates and are less affected by short-term movements.[19] Most of the borrowing for this Programme is on fixed rates and the Agency told us that, in its view, interest rates would not affect this Programme, but could affect housing associations overall.[20]

9. We asked about the sustainability of the Programme in the longer-term. Witnesses from housing providers raised concerns about whether they could continue to borrow at the same scale and therefore, if the model could be repeated.[21] The Department thought that there was still 'headroom' with capacity in the housing sector to do more. It admitted that it still had to make decisions on the size, scale and form of the Programme post 2015 as part of the next spending review.[22]

10. More broadly, there was acceptance from all the witnesses of the urgent need to find a way to fund the growing demand for social housing, given that 4.5 million people are still waiting to be allocated an affordable home in England. The sector cautioned that there needed to be serious attention given to where the subsidy for social housing will come from post 2015.[23]

2   C&AG report, paras 1-3 Back

3  Back

4   Qq 87-89 Back

5   C&AG report, para 2.20 Back

6   Q 68 Back

7   Q 126 Back

8   Qq 125, 128  Back

9   Qq 91, 126-127 Back

10   Qq 126-129 Back

11   Q 125; C&AG report, para 2.25 Back

12   Q 125 Back

13   C&AG report, para 3 Back

14   Qq 18, 94,  Back

15   Qq 47, 82 Back

16   Q 81 Back

17   Q 74 Back

18   Q 76 Back

19   Qq 76-78 Back

20   Q 80 Back

21   Qq 3-4, 42-43 Back

22   Q 94 Back

23   Qq 15, 114 Back

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© Parliamentary copyright 2012
Prepared 12 October 2012