Leading UK Affordable Housing Associations issued warnings recently, pointing to a growing shortage of housing supply and the increasing financial difficulty of building new affordable homes.
As public funding falls, schemes to provide affordable housing are increasingly reliant on private sector loans. In addition to encouraging developers to produce less, rising interest rates have made it more difficult to put in place financing structures for affordable housing.
"We are unable to construct new homes," said Clare Miller, CEO of Clarion, the largest housing association in the United Kingdom, managing over 12,000 properties. "The majority of the nearly 10,000 homes we've built in the last five years were on affordable terms, but the current financial environment is difficult."
Decreased Housing Supply Projections
Official data shows that housing institutions in England have reduced their house-building projections by 64,000 homes over the next 5 years compared to last year. These statistics demonstrate a concerning trend in the housing market.
Additionally, separate figures from last week confirm that the number of homes started in the fourth quarter of 2023 was only half the yearly average. Investec Analysts estimate that UK housebuilders built 25 per cent fewer homes in 2023 than they did a year earlier, yet construction spending is expected to remain stable in 2024.
Furthermore, some of the latest official government figures reveal that a record 109,000 households in England were living in temporary accommodation between July and September last year. On top of this, the waiting list for social housing exceeded 1.2 million households. It should be noted that government subsidies generally only cover a fifth of the cost of building new affordable housing.
Election Issues and Challenges Facing Non-Profit Providers
Statistics published by the National Housing Federation suggest that England needs around 145,000 new affordable homes a year to meet demand. One of the main aims of this year's general election will be to find funding to build these homes. Opposition Labour says it will give "the biggest boost to affordable housing for a generation".
Private developers are not only concerned, but also aware of the slowdown in the activity of not-for-profit housing associations. These associations build and manage a large proportion of the UK's affordable housing stock. They are concerned about the impact of this downturn on supply chains, on the construction industry and on the ability to recover and deliver much-needed housing when market conditions improve.
Rob Perrins, chief executive of FTSE 100 developer Berkeley Group, commented: "In previous recessions, housing associations have made counter-cyclical investments that have maintained housing delivery levels and kept more of the construction supply chain running."
Housing Cost Increases
Affordable Housing Associations have been impacted by rapidly rising construction expenditure and interest rates, which traders expect the Bank of England to cut from 5.25% to 4.5% this year. They are under increasing financial pressure because of the need to fund fire safety, mould remediation and environmental improvements.
The leaders of the housing associations called on the government to extend its financial support and reach agreement on a new long-term rent settlement. Five of the last eight years have seen the maximum annual rent increase reduced as part of changes to the current agreement, according to the National Housing Federation (NHF), which represents housing associations.
Andy Hulme, chief executive of housing association Hyde, believes that "England's rent setting policy borders on madness and works against establishing the stable long-term funding environment we need".