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Every new 'affordable home' to cost £17,500 in increased housing benefit

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Every new 'affordable home' to cost £17,500 in increased housing benefit

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Published by Jon Land for 24dash.com in Housing and also in Central Government, Communities, Local Government

Every new affordable home to cost £17,500 in increased housing benefit costs Every new affordable home to cost £17,500 in increased housing benefit costs

Taxpayers will have to fork out £17,500 in increased housing benefit costs for every new home built under the Government’s Affordable Rent programme, figures highlighted by the National Audit Office (NAO) reveal.

Despite concluding the launch of the programme to deliver 80,000 by 2015 has been a success, the NAO has concerns that there could be slippage as more than half of the homes – 45,000 – are set to be completed in the final year of the programme.

It also warns that some providers in London have concerns they may not be able to charge rents at the levels they originally agreed.

Amyas Morse, head of the National Audit Office, said: “The Affordable Homes Programme has made a good start, with providers committing themselves to building some 24,000 more homes than originally expected.

“There are key risks, however, including the fact that more than half of the homes are planned for the final year, with no room for slippage. The final judgment on the success of the Programme will depend on how well these risks can be managed between now and 2015.”

The programme sees the Government stump up just a third of the grant per home (£20,000) of earlier affordable housing schemes (£60,000), with housing providers taking on additional debt – made possible through charging higher rents – to fund new housing schemes.

In addition to the Government’s £1.8bn of grant, providers will have to borrow around £6bn which will be supported by the higher rents – on average 75% of the market rate.

Average weekly rents will range from around £100 a week in the North East, Yorkshire and the Humber to £182 a week in London.

By charging higher rents – totalling some £500m a year – the Department for Communities and Local Government (DCLG) has estimated that over 30 years these will result in increased housing benefit costs to the tune of £1.4 billion, or approximately £17,500 per home.

Labour MP for Barking Margaret Hodge, who is Chair of the Committee of Public Accounts, says she has concerns the Government is "simply passing the costs of building new homes onto tenants who can ill afford to pay higher rents".

She said: "The Department has scrapped the target rent guidelines for this programme, leaving vulnerable tenants increasingly dependent on housing benefits and increasing the welfare bill by £1.4 billion. It is shocking that for every new home built under this programme, the taxpayer will have to pay £17,500 in increased housing benefit costs."

The NAO concludes, however, that while continuing with the old programme of higher grant rates and lower rents would have resulted in a lower benefit bill, the Government’s option will deliver the most amount of homes and presents the largest net economic value of benefits to society i.e. the increase in housing supply.

The NAO warns the key risks associated with the programme is failure to meet the target number of homes and the risks borne by providers.

The report notes that some 51 per cent of schemes are indicative, because they have “not been identified, are not sufficiently progressed, or do not yet have planning permission”.

It warns that schemes that are planned for late delivery are “more likely to be provisional and are therefore inherently more uncertain”.

Another risk is that some councils in London – such as Islington – may be reluctant to work with providers to develop or convert homes under the affordable rent model because of concerns around whether charging rents at an average of 65 per cent of market rate are affordable.

It says the Greater London Authority is aware of this issue and is in discussion with providers and local authorities over it.

Unlike the previous programme, councils and registered providers are committing to deliver housing over the whole of the period of the programme at a fixed price, rather than agreeing commitments on a site-by- site basis. It warns the sector faces challenges in getting bank financing for capital investment. The report notes: “Excessive borrowing could increase the cost of borrowing, and potentially put financial viability at risk.”  

The NAO concluded that the regulator’s assessment of the financial viability of providers – which initially highlighted risks to six – was robust.

It concluded, however, the department will need to carry out a thorough analysis of the financial position of providers to assess the repeatability of the affordable rent model after 2015.

As of April 2012, 120 of the 146 (82 per cent) Affordable Rent contracts had been signed. Of the 26 contracts still to be signed, 23 are with local authorities who had been delaying signing contracts pending confirmation of final borrowing capacity arising from the changes to the Housing Revenue Account.

Stuart Ropke, Assistant Director of Research and Futures at the National Housing Federation, said: "With all contracts and financing now in place housing associations will now be able to ramp up building the new homes over the coming months and deliver their commitments to the Affordable Homes Programme.

"They have already raised £5.4bn in bond finance to fund the building of these new homes and are matching each pound of government investment with £6 of their own.

"But we also need to be planning ahead now on how to invest in affordable housing post-2015. Investing in new affordable homes is excellent value for money for the taxpayer.

"It is the quickest way to drive economic growth and unlike infrastructure investment, almost all of its benefits are felt locally, with local jobs created, local suppliers used and local people in secure homes.

"The Government can help by confirming the rent formula up to 2020 and establishing how much grant will be available for social housing after 2015 to keep this momentum going."

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