If the private sector slumps, unfortunately so too do its obligations to social housing. But that does not mean government will inevitably miss its targets. Here’s why …
Refreshed by three weeks in New Zealand I sat down with colleagues last month to review delivery of our investment programme. The cracking late autumn weather helped many of our funded new-build schemes to be ahead of schedule, and we remain confident of hitting our target of 27,000 homes in the year to March.
Good news, but the figures hinted at a more worrying trend ahead. In certain key regions including, most evidently, the South-east, there has been a slowdown in the number of grant confirmations and starts on site against our planned trajectories. The reason for this is pretty straightforward. Private developers are slowing market schemes and we are suffering as section 106 obligations are left hanging.
There are many positives about the relationship between section 106 and affordable housing. The private sector contribution reduces the average grant rate per unit significantly, making our money go further in high-value locations. It also means we get mixed-tenure communities, albeit we still have to work hard to persuade many developers to integrate the affordable housing properly within the wider scheme.
What it does do, however, is place affordable housing much more at the whim of market trends. More than 40% of our programme is delivered through section 106 sites. If the market hits the brakes, all the carriages slow down.
Historically, we would have taken advantage of a market slowdown by investing counter-cyclically. The most extreme example of this was in the early 1990s slump when housing associations bought unwanted private sector schemes at low prices. These days, land resources are so scarce and heavily optioned that, short of a market meltdown, most private developers will be happy to wait out the cold snap, leaving the affordable housing sector kicking its heels.
So what options are open to us? First, our relationship with English Partnerships is very important. Re-reading part of the 1999 Urban Task Force report, I was amused by a proposal requiring organisations such as the Ministry of Defence and NHS Estates to negotiate the transfer of development land for regeneration projects. Well, it took more than five years but we’re almost there, with EP now thriving as a national land regeneration agency, able to invest counter-cyclically and ride out the waves of market uncertainty.
Some commentators have questioned EP’s investment strategy, suggesting it should not be competing with the private sector, risking fuelling increased land values and using taxpayers’ money when private equity and debt is available. However, those arguments look rather hollow at a time when some private sector players are procrastinating over whether to come out on the pitch, despite the fact that the public’s housing needs still have to be met. The flow of strategic sites from EP, as exemplified by the London-Wide Initiative, is essential in ensuring a continued flow of affordable housing in key growth locations.
More than 40% of our programme is now delivered through section 106 sites. If the market hits the brake, all the carriages slow down
To mark the growing importance of the relationship, we will shortly launch a portfolio of nine strategic locations where we will be undertaking joint delivery.
Another option is to box clever with the private sector itself. Our new ability to pay grant direct to developers may persuade some builders to convert the mix of market and affordable homes to reflect market circumstances. So far we have received 200 expressions of interest in a pilot programme.
At the same time, we can work with housebuilders, housing associations and, where necessary, the local authority, to alter the phasing of development, bringing forward the affordable component of schemes. In other words, we can in some cases actually assist the private sector in riding out the market slowdown while maintaining the output of affordable homes.
Finally, we can look to planning authorities to act flexibly and with economic sensitivity. The same bold section 106 policy that carried the day at the height of market activity may be sufficient to kibosh a scheme at the present time. We can see that the extent of any slowdown is markedly different not just between regions but also within regions. Each authority needs to be on top of local market information and respond accordingly.
Next year our aim is to deliver 35,000 homes from an increased programme. Although market conditions are unlikely to help us, we are already working hard to get there. The market may waver, but underlying housing needs remain, as is evident from the 100,000 households living in temporary accommodation. The market may have caught a cold, but we still have to provide a remedy.
Jon Rouse is chief executive of the Housing Corporation