Social Housing Development: Weathering The Perfect Storm

The UK is facing a social housing crisis without parallel. Waiting lists now top 1.2 million households in England alone, as an entire generation finds itself priced out of home ownership. Social Housing Development Partner, Joanna Lee-Mills, explores some of the challenges still faced by the affordable housing sector in 2024.

Registered providers, long the backbone of affordable housing provision, are one of the last remaining lifelines for struggling families. Yet intensifying pressures faced by the social housing sector threaten to cripple these vital social landlords, almost past the point of no return.

In recent times, the sector has seen many registered providers dramatically reduce spending on new affordable homes. A combination of rising borrowing costs, and the costly demands of retrofitting existing housing stock to meet environmental targets (plus building safety remediation bills), have forced some associations to cut back capital expenditure by as much as 40% over the past two years.

Decline in Affordable Homes

The most recent figures from the National Housing Federation (NHF) paint a dire picture; the commencement of constructing new homes by registered providers dropped an alarming 42% in Q4 of 2023, compared to the same period in 2022. This drastic reduction shows the extent to which development pipelines are being squeezed. In raw numbers, only around 15,000 affordable homes were started in Q4 2023, down from over 26,000 the previous year.

Compounding the slowdown, existing social housing stock is disappearing nearly as fast as new units can become available. The NHF data reveals over 17,000 rented homes were sold off or converted to market rates last year alone, further eroding desperately needed supply. Registered providers are facing the double hit of constructing drastically fewer new affordable homes, while existing ones continue to exit the social pool. At this rate, the country’s affordable housing deficits may become insurmountable within the decade.

Reduced Lending Appetite

Rising interest rates have dealt associations a punishing financial blow, driving up borrowing costs on development loans by as much as 2.5 percentage points over the last 36 months. The average association building project now carries 6% interest rates, rendering many unviable. This financing pressure compounds existing budgetary trauma from widening maintenance deficits and growing arrears.

Even more worryingly, some lenders have begun to heavily scrutinise balance sheets and are pulling back financing entirely. The Bank of England’s 2023 Q3 Credit Conditions survey showed a net 13% of lenders reporting reduced appetite for lending to the social housing sector, topping all other categories. Without easier capital access, even associations with willing development partners will find themselves blocked from starting urgent building projects.

Collaboration Models

In light of the above, 2024 should see more registered providers proactively seeking out new collaboration models to access alternative funding channels and unlock development capital. Partnerships and joint ventures between charitable and for-profit bodies could inject fresh financing to reignite stalled projects. Rather than a last resort, these innovative unions with impact investors and private developers may offer a vital lifeline – marrying non-profit’s social missions with the resources of revenue-focused partners. Private capital may therefore hold the keys to overcome financing hurdles.

Other Challenges

The challenges faced by registered providers have indeed been manifold. Mounting bills for example, resulting from post-Grenfell safety remediation works, add to financial pressures, which in turn contribute towards reducing budgets for new homes. The UK Cladding Remediation Fund underestimated total costs by at least £5 billion, leaving many associations faced with the decision to divert funds that would have been allocated to acquire new housing.

And the complications do not end there. Recent changes to critical planning frameworks have thrown supply targets into question, with councils falling short of their Strategic Housing Market Assessments without consequences. Proposed reforms in 2023 to streamline the planning system largely failed to materialise. And those elusive joint ventures with private developers have often fallen short of affordable unit delivery targets as well.

Looking Ahead

Many social commentators have taken to calling this a “perfect storm”. But make no mistake, while the factors are complex, the outcome is shockingly simple. Without emergency intervention from Westminster, supported housing in this country could face collapse and bring disastrous humanitarian impacts. The policy solutions are clear – increased grant funding, easier financing access, and flexibility on safety timelines to name only a few.

Concrete steps need to be taken otherwise any reprieve may soon be out of reach. With the General Election now likely to take place this Autumn, the window for action seems to be closing rapidly. Whether the UK housing sector can benefit in time from proposed or promised changes to policy remains to be seen.