What impact will the Conservative’s cut to rents paid for affordable housing have on delivery?

Chris Tinker

The new 1% reduction per annum in rents paid on affordable housing announced in the budget was primarily aimed at reducing the cost of housing benefit (and possibly also reducing the size of surpluses retained by Registered Providers). Such changes, and especially those which are not consulted upon, usually have unforeseen consequences however and this is no exception.

Within days of the announcement, Registered Providers (RP) had withdrawn from some agreements with developers to acquire affordable housing to be delivered pursuant to section 106 Agreements. Others had reduced the value of such offers for the rented component, and thereby undermining deliverability.

Subsequently, having had time to digest the significant impact of the rent cap, several RP’s have announced changes in policy limiting their activity in future to shared ownership models and not housing for rent. This is rapidly becoming the most un-favoured form of housing tenure.

All things being equal, it will take higher levels of grant to deliver the same proportion of rented housing in the future

The 1% reduction has to be seen in light of the pre-budget plans of RP’s and Councils which were in the majority of instances assuming rental growth during the period thereby compounding the economic impact upon their business models.

For those developments which had been consented but have not contracted their affordable housing, there will no doubt be an impact upon delivery, especially as the rented element of Section 106 affordable housing normally comprises circa 70% of the affordable housing component. Those more experienced developers who may have negotiated cascade mechanisms and/or base affordable housing values into their Section 106 agreements however, should be ok as the mix of tenure may well make up the shortfall. Otherwise, schemes caught in change without such a cascade could struggle to make the numbers add up which may well then require a change to the planning consent resulting in significant delays.

Housing need for the less well-off across the Southern half of England in particular is for rented forms of tenure. With RP’s suggesting that their focus will switch to shared ownership and shared equity models, the question remains as to whether Local Authorities will be willing to change the form of tenure required in future consents to match the new financial realities or whether they will continue to insist upon a majority of rented properties with the inevitable impact upon scheme values. All things being equal, it will take higher levels of grant to deliver the same proportion of rented housing in the future, especially on sites where the land value is already marginal, and it is by no means clear that such extra grant will be available.

Ironically, it is much of the lower value and previously used brownfield land (targeted by the new administration for extra delivery) where viability remains constrained and where the new rent caps may well impact future delivery most. It will be interesting to see whether the government partially solves this conundrum by classifying new starter homes as a form of affordable housing. This will further stimulate home ownership, increase the value of the affordable housing component of a development, and relieve the tensions arising from the unintended consequences of this latest rent cap policy.

Chris Tinker is executive board director and regeneration chairman at Crest Nicholson