Latest challenge to social housing providers

George Osborne’s latest budget announced the latest in a line of policy changes impacting on the social housing sector; their rents will be reduced by 1% per year for four years from April 2016.

The Office for Budget Responsibility estimates that 14,000 fewer affordable homes will be built as a result to this change. However estimates from the sector are higher. National Housing Federation Chief Executive David Orr said “At the very least, 27,000 new homes will not now be built, though that figure could be much higher. The right to buy for housing association tenants further compounds this.”

As the latter comment makes clear, this is not the only change the sector is bracing itself for. The government have pledged to extend the Right to Buy to housing association tenants. Assumed by many to have been a policy the conservatives were expecting to drop in the course of coalition negotiations, their electoral success means they are now planning to press ahead with it.

The previous Coalition government’s reforms changed the business models of many housing associations. Higher ‘Affordable rents’, set at up to 80% of market rates, gave associations higher future income streams to borrow against to finance new construction. With the assets underlying these loans now liable to be sold off at a discount, bank lending into the sector may dry up, significantly reducing housing associations’ ability to build.

And the sector seems prepared to fight on this one. Architect’s Journal, Glenigan’s sister company, report that Peabody Homes chairman Bob Kerslake is considering legal action over the policy. He is quoted as saying, “When Peabody was founded George Peabody put in about half a million pounds to build homes for the poor in London. That’s the equivalent of around a billion pounds now. The point is that [these aren’t] the government’s assets to sell off.”

Glenigan previously forecast 14% decline in social housing starts by value this year and a further 10% drop next year. The latest changes mean that even this may be somewhat optimistic.