Government guaranteed debt can do more to unlock affordable rent housing

The country needs more housing and planning reforms alone are not enough. In particular, with record numbers stuck in Temporary Accommodation, we are in desperate need of more affordable rent social housing. 

Social housing development has always relied heavily on government financial support. However, the steep decline in the economic conditions facing social housing providers means the amount of support required per house has roughly doubled over the past three years. 

This is especially unwelcome at a time of constrained public finances. 

Social Finance analysis is that long term government guaranteed debt should feature much more prominently in the subsidy mix and could transform provision of affordable housing.

Capital grant, delivered via Homes England or Greater London Authority in the capital, is the most significant direct government development support currently. 

However, supplies of grant are limited and rising building costs and interest rates mean each £ of capital grant goes much less far. Just a few years ago, grant of 30% of the cost of a new house was commercially feasible. Today you would need 50–70% capital grant. 

Under these conditions, the £12bn 2021–6 Affordable Homes Programme, is looking like it will produce closer to 90,000 affordable houses compared with the 180,000 initially targeted. 

The core element of AHAS is long term (30 year) finance raised from institutional investors at a small premium over the gilt rate and with debt service costs profiled to better match the lifetime cash earnings from managing an affordable rent portfolio; i.e cheap to start with and more expensive later. 

Structured as a new housing vehicle, off the balance sheets of both housing associations and government, AHAS has the potential to reverse the increased capital grant requirement, thereby offering a scalable solution to affordable rent housing provision. 

For government, the debt is a contingent liability only and does not weigh so heavily on the national accounts as new borrowings. For housing associations who will manage and own the homes, it provides a route to expanding their affordable rent provision without weighing down their own balance sheets where retrofit and cladding rectifications are taking away growth capacity short term.

If you would like to speak to us about the Affordable Homes Acquisition Scheme, please get in touch

Jonathan.Flory@socialfinance.org.uk

David.Fletcher@socialfinance.org.uk 

Will.Damazer@socialfinance.org.uk

Bhavya.meta@socialfinance.org.uk