After some years surviving off crumbs of Housing Corporation grant, 71 housing associations are to sit down to a two-year feast as preferred partners with backing for a string of projects. Josephine Smit looks at the impact on development. Data collated and analysed by Irum Malik of Economic Strategies
Housing associations are benefiting from their biggest ever investment programme: they have more than £3bn to spend on homes over the next two years. The size of the handout is not, however, the biggest news for the affordable housing sector. The real story lies in the way in which the sector's very own Mr Bumble, the Housing Corporation, has revised how it dishes out government funding to the country's cash-hungry registered social landlords.

After years of feeding associations with a subsistence diet of project-by-project cash, the corporation has adopted a new approach for the approved development programme announced this spring. It is putting more money into fewer RSL hands and releasing them from a few of the tighter constraints of traditional bidding and that is dramatically changing development.

The lion's share of funding allocations have gone to a select group of preferred partners – RSLs or RSL partnerships deemed fit to manage big projects and capable of delivering. The grants will be used to back a string of projects over a two-year timespan. This year RSLs have been able to bid for grant funding for individual schemes under the traditional route, but the word is that this option is not going to be around for much longer. Smaller associations that want to grow are therefore having to join a partnership and effectively buy new units from the developer leader of the partnership.

The corporation's change does not come out of the blue. The new funding regime was set out last year in a policy paper called Reinventing Investment, and has some very clear objectives. The government has long been uneasy that affordable housing development and management is in the hands of so many RSLs, well over 1000 in total. It wants to encourage rationalisation and co-operation. It wants greater efficiency both in speeding up housing delivery and spending the precious contents of the public purse.

The move means that 80% of the Housing Corporation's funding pot is going to just 71 housing associations or partnerships, well below the 350 associations usually E E sharing in the spoils. By contrast 195 housing associations have won traditional allocations under the approved development programme.

As the body representing both the winners and the losers in the partnering approach, the National Housing Federation is understandably ambivalent about partnering's meteoric rise. "Obviously we need to build more houses, but the traditional route still has a valid role to play. It may be more responsive to local needs," argues John Goulding, spokesman for the NHF.

But RSLs with preferred partner status are obviously delighted by the shift. "It gives us certainty for the next two years' programme," says Martin Bonnor, programme manager for Midlands-based Bromford Housing Group. "We'll be able to pick the best aspects of volume procurement," says Tom Dacey, chief executive of Southern Housing Group. The programme should allow them to buy everything, from windows to off-site manufactured homes, more efficiently.

"It will enable us to do more," says Martin Aust, development director with Flagship Housing Group. Under the partnering approach Flagship is now working in partnership with two smaller housing associations, for whom it will buy land and develop units. The move increases its overall development programme by 50%. "It protects our development programme and brings in income," points out Aust.

Such growth makes partnering RSLs a much bigger force in housebuilding. "We'll be equal partners in the deal with private housebuilders," says Dacey.

"Preferred partner RSLs are pursuing major private-led residential development sites with their new found wealth," says James Brown, director of affordable and student accommodation projects at agent FPDSavills. RSLs are already looking at assembling new or bigger land banks – London & Quadrant Group announced at the end of last year that it would assemble a £60m land bank in London and the South-east within a year.

Assembling a land bank, as any private housebuilder knows, can be a risky and time-consuming strategy, and ultimately it could result in a delay in affordable housing delivery rather than a speeding up, Brown points out. "It is too early to tell whether the preferred partnering system will lead to the delivery of more affordable housing units in a more grant-efficient manner. There are fears that it may lead to a scenario comparable to hungry school children let loose in the sweet shop with two years' worth of pocket money and Arthur Daley behind the till."

RSLs respond that they are far too prudent to find themselves in the scenario outlined by Brown. They may, however, need the services of advisers such as FPDSavills to protect them from those Arthur Daley landowners and traders, especially in the cut-throat London and South-east markets. Nonetheless, the Housing Corporation's large-scale switch to partnering places a lot of faith in RSLs. Overall the approved development programme is expected E E to fund some 67,000 new homes over the two years. Some 52,000 homes are being built by the partnering route, at an average allocation of £43,000 per unit. Just over 15,000 homes are being built by the traditional route, at an average allocation of £47,000 per unit.

Where the money is being spent is dictated by the government's sustainable communities agenda. Key workers are an obvious area of focus and 16,000 of the homes provided are for public sector employees. About 65% of the programme is targeted at regeneration, but the focus is firmly on strategic projects that will have a big impact.

One sector of the housebuilding industry remains excluded from this year's approved development programme. Private sector housebuilders wanting to access grant to develop affordable housing must continue to wait their turn. With legislation still making its way through parliament, it is expected to be early next year before non-registered social landlords can bid to the corporation.

The prospect is viewed with alarm by some RSLs, particularly as there are fears that private housebuilders will not have to comply with all of the rigorous standards the corporation sets for RSLs. "Providing the government keeps a close watch on standards it won't be a big risk to us," says Southern Housing's Dacey. Dacey believes relatively few private housebuilders will actually want to bid. Maybe partnering RSLs will be able to have their cake and eat it.