The Affordable Homes Programme since 2015

Introduction

One of the ways the Department tries to increase the supply of new homes in England is through the Affordable Homes Programme. The Secretary of State for Levelling Up, Housing and Communities recently reiterated the government’s commitment to building 300,000 new homes overall every year by the mid-2020s. The Department does not have targets for how many of these should be affordable. For the Affordable Homes Programme, the Department secures funding from HM Treasury and then gives this to Homes England (outside London) and to the Greater London Authority (GLA) in London to achieve set targets. Housing providers (usually housing associations) bid for funding to build these. Bidding occurs through strategic bidding (housing providers bid for funding to deliver on multiple sites across a region) and continuous bidding (housing providers bid on a site-by-site basis). The Department forecasts it will spend £20.7 billion (2021–22 prices) between 2015 and 2032, to deliver 363,000 grant-funded homes.

The Programme has distinct iterations based on funding periods or policy changes. Under the 2016 programme, the Department forecasts that housing providers will build 241,000 new homes, against a target of 250,000 (of these 160,500 are grant funded). However, under the 2021 programme, the Department forecasts considerable shortfalls against its targets. The Department’s central forecast is that housing providers will build 157,00 new homes, against a target of up to 180,000.

Conclusions and recommendations

1. The Department will miss its target under the 2021 programme for 180,000 new homes by March 2029. Disappointingly, under the 2021 programme, the Department forecasts it will deliver just 157,000 new homes against its target of ‘up to 180,000 new homes should economic conditions allow.’ It only expects to deliver 5.0–7.5% of homes in rural communities, against a target of 10%. The Department will also struggle to meet its target for supported homes (where support, supervision or care is provided alongside). In total, for the 2016 and 2021 programmes, the Department forecasts it will deliver 32,000 fewer homes than its published targets. Significant risks, such as cost inflation and labour shortages could mean that housing providers build even fewer homes than current forecasts.

Recommendation: The Department should share with Parliament a revised delivery plan for the 2021 programme.

2. Housing providers do not always build in areas of higher demand. There is a mismatch between where housing providers build compared to areas of highest need. The Department tells local authorities how many homes, not just affordable homes, they should deliver each year but does not use the Programme to target local authorities with the highest need for housing. Under strategic bidding, housing providers only state the region, not the local authority, in which they intend to build. Local authorities lack power to shape development in their local areas and have few powers to insist that housing providers build the right type of homes for local people.

Recommendation: The Department should consider how it can work with local authorities to take greater account in the Programme of local need for affordable homes.

3. We are concerned that the number of homes being built for social rent is not enough to meet demand. There is huge demand for social rent homes which is the only real, affordable option for many people. Despite this, the Department has a target for just 33,550 homes for social rent under the 2021 programme. The Department has shown that homes built for social rent provide higher value for money than those built for ownership, but decisions around tenure are policy decisions made by ministers. The Department notes that building more homes for social rent within the existing funding envelope would lead to fewer homes overall. The Department is consulting on capping the increase in rent that housing providers can charge, which risks reducing the number of new homes built for rent in future.

Recommendation: The Department should assess how much demand there is for social rent and set out how it will use the Programme to better meet this.

4. The Department does not quantify potential savings in some areas, such as temporary accommodation, into the Programme. Surprisingly, the Department can identify, but not quantify, savings in areas such as temporary accommodation and adult social care that the public purse could make through the Programme. For example, from the estimated 8,500 households that could move out of temporary accommodation by 2026–27 through the 2021 programme. The Department needs to improve its knowledge, so it can factor in these further savings when it allocates funding. The Department urgently needs to understand and quantify the savings that building more supported homes can make to local and central government spend on adult social care. It then needs to work harder with the Department of Health and Social Care to overcome the barriers to delivery, particularly in London. The Department does consider welfare savings such as savings to housing benefit and quantified these for the 2021 programme.

Recommendation: Before the next iteration of the Programme, the Department should quantify the wider savings it could make to areas such as adult social care and temporary accommodation.

5. New homes built under the Programme may need expensive retrofitting to meet net-zero standards in the future. The Department did not set any standards around net-zero for the Programme and relies on housing providers to comply with relevant standards. This lack of foresight when setting up the 2021 programme means that housing providers may need to retrofit the homes they are currently building. The Department has not quantified this potential cost, and we are not convinced by its claim that introducing net-zero standards for the 2021 programme would necessarily have led to housing providers building fewer homes. Housing associations warn that retrofitting their existing stock will increase strain on their funding and resources, potentially limiting future delivery of housing. The Department says that the future homes standard should ensure that homes built after 2025 do not need to be retrofitted.

Recommendation: The Department should clearly set out the impact of including net-zero requirements in the next iteration of the Programme.

6. The Department does not publish satisfactory data on the type, tenure, size, quality, or location of homes built under the Programme. The Department does not, for example, publish data on the number of homes built, where they are built, what size they are or whether they are for ownership or rent. Furthermore, the Department does not routinely publish data on the Programme’s progress. The public, parliament and stakeholders understanding of the programme and its performance is hindered by the lack of meaningful data available in the public domain. The Department agreed to the notion of annual reporting and acknowledged that updating forecasts is useful and sensible. The Department could learn from High-Speed 2 where we called in 2020 for more transparency and open reporting from the Department of Transport, since when the Department for Transport has been providing six-monthly updates to Parliament which have been useful to all parties.

Recommendation: The Department should report annually to Parliament on the performance of the Programme with detail on types, tenure, size, and quality of homes built by local authority area.

1 Building new homes

1. On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Levelling Up, Housing & Communities (the Department) and Homes England about the Affordable Homes Programme.¹

2. One of the ways the Department tries to increase the supply of new homes in England is through the Affordable Homes Programme. The government is committed to building 300,000 new homes overall every year by the mid-2020s. The Department does not have targets for how many of these should be affordable. For the Affordable Homes Programme, the Department secures funding from HM Treasury and then gives this to Homes England (outside London) and to the Greater London Authority (GLA) in London to achieve set targets. These targets have a narrow focus on the number of homes. Housing providers (usually housing associations) bid for funding to build these. Bidding occurs through strategic bidding (housing providers bid for funding to deliver on multiple sites across a region) and continuous bidding (housing providers bid on a site-by-site basis).²

3. The Department forecasts it will spend £20.7 billion (2021–22 prices) on the 2015, 2016 and 2021 programmes to deliver 363,000 grant-funded homes. The Programme has distinct iterations based on funding periods or policy changes. Under the 2016 programme, the Department forecasts that housing providers will build 241,000 new homes, against a target of 250,000. (Of these 160,500 are grant funded through the 2016 programme). Under the 2021 programme, the Department forecasts considerable shortfalls against its targets. The Department’s central forecast is that housing providers will build 157,00 new homes, against a target of up to 180,000 should economic conditions allow.³ At the start of May 2022, Homes England and the GLA had collectively allocated £9.2 billion of the £11.4 billion cash budget for the 2021 programme. Housing providers will continue to bid for funding through continuous bidding.⁴ Programme targets and forecasts are summarised at Figure 1. Overall, the Department forecasts a shortfall of 32,000 homes compared to the targets set for the 2016 and 2021 programmes.

Figure 1 – summary of programme targets and forecasts

Note: The 2016 forecast number of 80,500 non-grant-funded homes to be built, which contribute to a published target includes: around 30,000 of the 45,500 homes grant-funded from 2015 Programme; 13,000 no grant homes delivered outside London; and homes delivered without grant or from other government programmes in London through the 2015 or 2016 programme.

Source: C&AG’s Report

Targets for new homes

4. Under the 2016 iteration of the programme, the Department forecasts that it will achieve 96%, equivalent to 241,000 homes of its target for housing providers to start building 250,000 new affordable homes by March 2023. Of these, the Department expects to achieve 160,500 grant-funded homes.⁵

5. Under the 2021 programme, the Department agreed an ‘additional stretch target,’ with HM Treasury and set a public target to ‘deliver up to 180,000 new homes should economic conditions allow’.⁶ However, the Department set lower internal targets.⁷ It tasked Homes England to oversee between 122,000 and 130,000 new homes and set the Greater London Authority a target for 35,000 new homes. The Department forecasts that it will oversee 157,000 new homes, considerably less than its public target. Of these, Homes England committed to achieving 122,000 new homes, which it states was a conservative and prudent estimate.⁸

6. Homes England acknowledged that it would not meet its sub-target under the 2021 programme to deliver 10% of homes in rural areas; settlements with a population of 3,000 people or fewer. Homes England has allocated funding for its strategic partners to deliver 6,250 rural homes, around half the total number required. Homes England stated that it would try as hard as possible to deliver the sub-target but given expected market conditions it thinks delivery of between 5% and 7.5% is likely. Homes England told us there is a decent chance that it will get close to, if not achieve, a separate sub-target to deliver 10% supported homes (where support, supervision or care is provided alongside). Homes England has allocated funding for around 8,500 supported homes, so has around 3,700 still to deliver.⁹ However, the Department does not expect to meet its supported homes target overall, because the GLA has only allocated finding for 325 new supported homes out of a target of 3,500.¹⁰

7. The Department acknowledged that its section on risk within business case for the 2021 programme may have been inadequate. We pressed the Department and Homes England over significant risks that may mean housing providers build fewer homes than forecast.¹¹ The Department told us that it has a fixed budget for the Programme, and must deliver within it.¹² The Department acknowledged that these significant risks could mean that housing providers build fewer homes. Significant risks include large increases in the cost of materials and labour.¹³ The G15, a group of large housing associations in and around London, told us that its members, in some areas, report 15%-30% increases in material and labour costs.¹⁴ The Department told us it expects that larger providers will manage cost pressures by using contingency funds and other sources of funding to plug the gap.¹⁵ We questioned the Department and Homes England further about the labour force, skills shortages and delays with the planning system. Homes England confirmed that these ‘non-inflationary headwinds’ led to around a 20-week delay in completions last year. The Department told us that it has secured some extra funding for local planning departments, and that housing providers are using modern methods of construction a great deal, and looking to a different labour model as well as a different construction model.¹⁶

Where homes are built

8. The Department specifies the overall number of homes (not just affordable homes) that local authorities should build each year, through a calculation known as the ‘standard method’. Local authorities must follow this unless they have exceptional circumstances, and face penalties under the Housing Delivery Test, if they do not deliver against their target.¹⁷ The National Audit Office found there is not a strong match between areas of high housing need and where housing providers build under the Programme.¹⁸ Shelter raised concerns there is no objective measure of demand for housing, outside of the total number of new homes delivered across England.¹⁹

9. We challenged the Department about whether housing providers build homes where they are needed most. The Department does not allocate funding from the Programme based on its calculation of local housing need.²⁰ Under strategic bidding, housing providers only state the region, not the local authority, in which they intend to build.²¹ The Department told us that local authorities state what mix of housing they would like when developing their local plans, and that housing providers follow these.²² The Department relies on housing providers to interact with local planning authorities and build homes where needed most, while ensuring value for money.²³ We pushed the Department, noting that local authorities must meet overall targets for new homes, so are pressured to approve new homes, even if they do not meet the most pressing local need. The Department acknowledged that local authorities have to consider a trade-off between meeting local housing need, expressed by the total number of homes built, and their type.²⁴

10. The Department told us it tried to ‘strike a balance,’ between a centrally driven approach to need versus a local approach. The Department explained that outside London, Homes England identifies whether proposals for new homes are acceptable value for money, guided by local land supply and policy. Housing providers must then build homes within the timeframe of the Programme. The Department decides how much funding to allocate to London and the rest of England .²⁵ For the 2021 Programme, the GLA will receive 35% of the Programme’s funding, down from a 50% split of funding for the 2016 programme. The National Audit Office found that the 2021 programme achieved a much higher benefit cost ratio in London compared to the rest of England.²⁶ The Department commented that there are other policy considerations, aside from benefit cost ratios, that determine the split of funding between London and the rest of England.²⁷

Homes for social rent

11. We asked the Department about the number of homes designated for social rent, given social rent is the most affordable for tenants; and the type of tenure most needed. We stressed the human impact that a lack of homes for social rent has. A lack of homes forces people to live in hostels or private accommodation in which they move around every few years; leading to children having to move school or travel long distances. The Department commented that it was acutely aware of housing pressures across the country and the associated impact on people, but it said that it must maximise what can be achieved from its available resources. It said that while the 2016 and 2021 programmes were very large capital investments, they alone are not sufficient to completely eliminate the housing pressures faced.²⁸ As part of its 2021 business case, the Department modelled the economic benefits of the Programme compared to costs, by tenure and region.²⁹ The Department told us that getting into the high 2s, 3s, 4s and 5s indicates a very strong benefit-cost ratio and an excellent use of public money.³⁰ Compared to other housing tenures, social rent has the highest benefit cost ratio, at 3.4.³¹

12. Homes England told us that, under current plans, it forecasts achieving 14,300 homes for social rent under the 2016 programme, exceeding its target of 12,500 homes. For the 2021 programme, the Department told us it set a sub-target of 33,500 homes for social rent, which it forecasts meeting.³² Shelter argued that the Department should refocus the Programme to deliver more homes for social rent.³³ The Department said that ultimately decisions around tenure are for Ministers to make, and it is the role of officials to ensure ministers understand the trade-offs when setting targets. The Department told us that if it did focus the Programme entirely on social rent within a fixed budget, there would be fewer homes built.³⁴

13. We asked the Department about the potential impact of the proposed cap on social rents that it is currently consulting on. The rent cap could prevent housing providers from increasing rents by CPI + 1%, as envisaged.³⁵ Business LDN warn that the Government’s proposed rent cap will leave housing providers with a significant shortfall in their finances resulting in less building of new homes.³⁶ The Department told us that it may introduce a cap as tenants could otherwise face unaffordable increases. The Department accepts that lower forecast rent will have a knock-on impact on the Programme, potentially leading to housing providers building fewer homes for social rent. The Department told us it was considering how it could quantify the effect of the rent cap n its consultation response.³⁷

2 Realising wider objectives

Wider government savings

14. The National Audit Office report found that the Programme could bring greater value to other parts of government, for example, in reducing the numbers of people in temporary accommodation. Local authority spend on homelessness has increased 50% in real-terms from 2015–16 to 2020–21.³⁸ London Councils highlighted particular high levels of homelessness and use of temporary accommodation in London.³⁹ We asked the Department whether it has done a cost-benefit analysis of reducing the numbers of people in temporary accommodation. The Department told us it estimates that the 2021 programme will take 8,500 households out of temporary accommodation, but could not quantify the associated financial savings.⁴⁰

15. The Department also commented that adult social care is another important example of the links and benefits that come from investing in housing, and that it is conducting research to quantify these savings.⁴¹ We asked the Department whether the 2021 programme was suitably aligned with wider government decisions on adult social care. The Department told us that the Department of Health and Social Care (DHSC) is now much more involved in the Programme. It is considering how it can work more effectively with the DHSC, for example through DHSC’s Care and Support Specialised Housing Fund. The Department recognised there are challenges over aligning on-going funding for care support services, and that it needs to further its understanding over how to deliver supported homes in London.⁴² The developer, McCarthy Stone, welcomed the announcement of the older people’s housing taskforce in the Levelling Up White Paper and would like to see 30,000 new specialist homes a year.⁴³

16. We pressed the Department as to why it does not consider these wider savings when it allocates funding through the Programme. The Department told us it is working on improving its research base to do so but contended that the great majority of the financial benefit of the Programme would still accrue from land value uplift.⁴⁴

17. In contrast, the Department does consider welfare savings and quantified these in the 2021 programme business case. The Department’s modelling showed that delivering new homes for social rent in London leads to significant savings in future housing benefit costs, compared to other regions. The Department forecast that over a 30-year and 60-year period respectively, 69% and 110% of the grant funding needed to deliver a home for social rent is repaid by forecast housing benefit savings.⁴⁵ The Department noted that these savings are very long term, with the payback period measured in decades. The Department told us that it was an option to allocate more money to London, but this must be balanced with other policy considerations.⁴⁶

Net-zero standards

18. The Department did not set out to use the Programme to advance the government’s net zero objectives. The Department and Homes England did not include any specific targets around net-zero for the 2021 programme. Instead, housing providers must comply with existing and future environmental standards set out in the planning design guide and building standards.⁴⁷ The Department said it expects that housing providers will follow the national design code. Homes England said that the overwhelming majority of homes under the 2016 programme will get an energy performance certificate of B, C or better.⁴⁸

19. The Department told us that it could have set higher standards from the outset for net-zero, but that doing so would likely reduce the number of homes delivered. We challenged the Department on this assertion, because it had not modelled the extent to which it might have been reduced. The Department replied that it ‘was probably not exactly where it wanted to be,’ at the end of the 2021 programme but will be better in the future.⁴⁹

20. The National Audit Office found that neither the Department nor Homes England modelled the potential costs of needing to retrofit homes built under the 2021 programme, to meet net zero standards.⁵⁰ The Department said that the future homes standard, when it is introduced from 2025, will mean that homes after this date will not need to be retrofitted.⁵¹ The G15 group told us that the future homes standard will add at least £5,000 to the cost of a new home and that existing social housing stock will require wholesale regeneration. The G15 group and Business London warn that retrofitting existing stock will increase strain on funding and resources, potentially limiting new supply.⁵²

Transparent reporting of progress

21. The Department does not expect to deliver the intended benefits of the 2021 programme, and there are significant risks that could mean housing providers build fewer homes than forecast.⁵³ We asked the Department about whether it would be revising its published targets, notably the 2021 programme target of “up to 180,000 should economic conditions allow” when in practice the Department was working to a forecast of 157,000. The Department explained that these were ambitions set out at the start of the Programme. We suggested that the Department could consider annual reporting to Parliament on progress. The Department told us it is content to update the Committee when it next produces a forecast. The Department agreed to the notion of annual reporting but will need to work on its precise form.⁵⁴ In 2020 we reported on the High Speed 2 programme and made recommendations around the need for greater transparency and for regular reporting of progress to parliament. The Department for Transport accepted our recommendations and has since published very useful six-monthly update reports on progress, in the form of a written statement to Parliament.⁵⁵

22. The Department said that it thought the National Audit Office recommendation to annually update forecasts was useful and that it was a sensible thing for the Department to do.⁵⁶ The NAO report had also noted that the Department accepted that it needed to make improvements around data and performance reporting, including that it needed to develop a consistent approach to forecasting housing starts, completions and spend by Homes England and the GLA, and improve its capability to stress-test and report these.⁵⁷

23. We commented that it would be good if the Department transparently published data on the tenure, area, and size of new homes.⁵⁸ The NAO report used internal data from the Department, Homes England, and the Greater London Authority with regards homes completed and spend.⁵⁹ Rentplus UK raised concerns over the lack of information over how many shared owners buy their home outright, and the lack of official data on the incomes of those benefitting from shared ownership.⁶⁰ Homes England said it is not aware of whether it tracks what percentage of a home shared owners purchase, but probably do so indirectly. Homes England acknowledged that it was too soon to know how shared ownership may be impacted by potential changes in the mortgage market.⁶¹

Formal minutes

Monday 28 November 2022

Members present:

Dame Meg Hillier

Dan Carden

Sir Geoffrey Clifton-Brown

Mr Jonathan Djanogly

Mrs Flick Drummond

Mr Mark Francois

Mr Louie French

Peter Grant

Anne Marie Morris

Sarah Olney

Nick Smith

The Affordable Homes Programme since 2015

Draft Report (The Affordable Homes Programme since 2015), proposed by the Chair, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.

Paragraphs 1 to 23 read and agreed to.

Summary agreed to.

Introduction agreed to.

Conclusions and recommendations agreed to.

Resolved, That the Report be the Twenty-ninth of the Committee to the House.

Ordered, That the Chair make the Report to the House.

Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.

Adjournment

Adjourned till Thursday 1 December at 9.30am

Witnesses

The following witnesses gave evidence. Transcripts can be viewed on the inquiry publications page of the Committee’s website.

Thursday 22 September 2022

Jeremy Pocklington, Permanent Secretary, Department for Levelling Up, Housing and Communities; Peter Denton, Chief Executive, Homes England; and Emran Mian, Director General, Regeneration, Department for Levelling Up, Housing and CommunitiesQ1–97

Published written evidence

The following written evidence was received and can be viewed on the inquiry publications page of the Committee’s website.

AHP numbers are generated by the evidence processing system and so may not be complete.

1 BusinessLDN (AHP0003)

2 G15 (AHP0004)

3 London Councils (AHP0006)

4 McCarthy Stone (AHP0001)

5 Rentplus-UK Ltd (AHP0002)

6 Shelter (AHP0005)

List of Reports from the Committee during the current Parliament

All publications from the Committee are available on the publications page of the Committee’s website.

Session 2022–23

Session 2021–22

Session 2019–21

Footnotes

1 C&AG’s Report, The Affordable Homes programme since 2015, session 2022–23, HC 652, 8 September 2022

2 C&AG’s Report, paras 2, 9

3 C&AG’s Report, para 2, 4, 13, 14

4 C&AG’s Report, para 2.12, Figure 9

5 C&AG’s Report, para 1.13

6 Q 38

7 C&AG’s Report, para 2.3

8 Q 39

9 Q 40

10 C&AG’s Report, para 2.13

11 Qq 63–64, 69–76

12 Q 52

13 Qq 63, 64

14 Written evidence submitted by G15 group, dated September 2022

15 Q 63

16 Qq 69, 72

17 C&AG’s Report, para 4.4

18 C&AG’s Report, para 21, Figure 13

19 Written evidence submitted by Shelter, dated September 2022

20 Qq 59–62

21 C&AG’s Report, para 4.3

22 Q 45

23 Q 52, 59, 60

24 Qq 45–46

25 Q 59

26 C&AG’s Report, para 2.2, Figure 5

27 Q 79

28 Qq 47, 49–50, 52

29 C&AG’s Report Figure 5

30 Q 61

31 C&AG’s Report, Figure 5

32 Qq 47–48

33 Written evidence submitted by Shelter, dated September 2022

34 Qq 48, 52

35 C&AG’s Report, para 1.8

36 Written evidence submitted by Business LDN, dated September 20222

37 Qq 65–68

38 C&AG’s Report, paras 22, 4.10

39 Written evidence submitted by London Councils, dated September 2022

40 Qq 40, 52

41 Q 53

42 Qq 82–84

43 Written evidence submitted by McCarthy Stone, dated September 2022

44 Q 81

45 C&AG’s Report, paras 22, 4.9

46 Qq 78–79

47 C&AG’s Report, para 23

48 Qq 54–55

49 Qq 55–56

50 C&AG’s Report, para 4.16

51 Q 57

52 Written evidence submitted by G15 group, dated September 2022 and written evidence submitted by Business LDN, dated September 2022

53 C&AG’s Report, paras 14,15

54 Qq 85–89

55 Public Accounts Committee, High Speed 2: Spring 2020 update, 3rd Report of Session 2019–21, HC 84, 17 May 2020; Treasury Minutes, Government responses to the Committee of Public Accounts, CP 270, July 2020.

56 Q 87

57 C&AG’s Report, para 3.17

58 Q 91

59 C&AG’s Report, figures 16–19

60 Written evidence submitted by Rentplus, dated September 20221

61 Qq 91–95