There is tremendous potential for housing associations (HAs) to make a bigger contribution towards the delivery of new homes. We estimate that England needs 300,000 new homes a year, 100,000 more than the Government target, if we are to tackle the backlog of undersupply and have an impact on affordability.
To achieve that we need a greater diversity of developer delivering a wider range of tenure. HAs have the potential to help fill the gap between housing need and what the major private housebuilders deliver.
Our analysis of the financial reports of over 175 of the largest associations suggests that the sector could bring forward an additional 44,000 new homes a year by 2029, through greater efficiencies and additional asset-backed borrowing.
Based on current rates of delivery, this approach would increase the annual output from the sector up to 84,000 new homes a year in just over a decade, bringing it closer to the aspiration set by the National Housing Federation of delivering 120,000 in England homes by 2035.
Increasing delivery rates is a long game and it will take a number of years for the sector to transition into the development space as many become more accustomed to operating with greater risk and market exposure.
Support is therefore essential. Some form of subsidy is critical to deliver these homes and to achieve affordability across a range of tenures. Delivering a mix of market and affordable housing both for sale and rent not only provides for the 70,000 new households per year that cannot afford market housing but also ensures that these new homes do not merely displace those that could be delivered by the private sector.
Additional capacity
In previous work, (see Housing Association Financial Capacity) we calculated that the sector has £7.4bn of additional borrowing capacity that could be used to deliver more homes. These funds could be released by improving cashflow capacity through better management efficiency and reduced cash interest ratio to enable higher levels of gearing against existing assets.
A more risk-averse funding strategy may involve a balance of funding sources. This could include re-investing the proceeds from sale of existing surplus stock and conventional development finance.
In this paper, our modelling shows how with an aspirational development programme, a sum of £7.4bn can be used to increase delivery by up to 44,000 additional homes per year. We estimate it would take just over a decade to reach this point at an incremental rate of annual growth of 6%.
We calculate that in an average market in the south of England outside London such as Milton Keynes, these can be spread equally across market sale, shared ownership, market rent and affordable rent with 11,000 homes in each, provided some form of subsidy is available.
In the absence of grant, the spread of tenure in our modelling relies on HAs securing land at zero value for affordable rent or at minimal land value for shared ownership. This needs muscular planning policy and strong Section 106 agreements, based on a realistic growth-oriented approach to viability testing of policy.
If insufficient land is available through Section 106, then grant funding would be required to allow HAs to develop independently.
HOW TO FUND 44,000 EXTRA HOMES PER YEAR
£7.4bn of additional borrowing capacity can be both supported by balance sheet and funded from existing cashflow
.png)
