Budget report reveals housebuilders have won just 1.6% of Housing Corporation's £3.9bn grant initiative

Developers have shunned a Treasury initiative to expand affordable housing funding to the private sector, it emerged in the Budget last week.

Of the 81 successful bids for the Housing Corporation's £3.9bn investment programme for 2006/08, six are from private firms. Developers blamed an over-complex bidding process for the lack of reponse.

The limited take-up by the private sector of the inaugural National Affordable Housing Programme looks likely to increase tensions between the corporation and the Treasury, which insisted that grants should be paid direct to developers.

The six winners are Barratt, Bellway, Lovell, Persimmon, Taylor Woodrow and George Wimpey. They secured £61.5m of grants, or 1.6% of the £3.9bn. Wimpey was awarded £31m, half the total.

Seventy-four of the successful bids came from housing associations. The other winning bidder was the Gentect consortium, a joint venture between Genesis Housing Group and a number of private firms.

Of the 98 organisations on the shortlist for grants, 19 were private developers working on their own or with consortiums.

A string of companies withdrew because of concerns about the bidding arrangements established by the corporation to ensure that public money was not misused.

David Saffhill, a director of David Wilson Partnerships, said: "We didn't bid because we weren't prepared to abide by the regulations."

He added that it had instead gone into partnerships with associations to develop the social housing that it is required to provide on its sites.

John Slaughter, external affairs director of the Home Builders Federation, said: "If the idea was to get more developers building affordable housing, I'm not sure how successful they would feel it's been.

The Treasury won’t let this drop. They want more bangs for their buck

Roger Humber, HBA

"It's a modest number, and not what the government would have expected, and raises questions about the effectiveness of the competition. We need to find out what's happened and learn the lessons."

Roger Humber, policy adviser at the House Builders Alliance, said the limited take-up from the private sector was likely to sour relations between the corporation and the Treasury, which is anxious to increase value for money in affordable housing provision.

He said: "The Treasury won't let this drop. They want to see more bangs for their buck."

Corporation chief executive Jon Rouse defended the way the quango had run the competition, but acknowledged that there were lessons to be learned.

He said: "We would like to see the proportion of money going to private developers, including commercial developers, increasing over time. We want to work hard with developers to find out what they thought the main barriers were and what would make it more palatable."

He added that the starting point for discussions would be a focus group for developers that the corporation is holding next week.

Rouse said opening up the competition for funds to the private sector had succeeded in its aim of making better use of the corporation's investment, as a 15% increase in the quango's budget was likely to deliver a 33% rise in the number of homes to 84,000.

Rouse pointed out that this rise included a higher proportion of social rented properties, which were more expensive for the corporation.

But Peter Redfern, George Wimpey's chief executive, welcomed the grant announcement. He said: "Among private developers, there is an increasing commitment to drive quality and value for money and, at the same time, increase the supply of affordable housing."

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