Affordable Rent ‘riskier than market rent’, warns housing giant

Published by 24publishing for 24dash.com in Housing and also in Central Government, Finance, Local Government

One of the UK’s biggest social landlords has warned the Government that if the Affordable Rent model continues in its current form housing associations may be unable to continue development under the programme.

The former housing minister Grant Shapps told 24housing earlier this year he was keen to further extract value from the social stock adding that “there’s more flexibility that can be used”.

However, London and Quadrant (L&Q), which owns and manages 67,000 homes, has warned the Government that housing associations are at “tipping point” with the programme, which sees them switch from a capital to revenue-based subsidy system to generate new supply.

Instead it wants to see rent increases for better off tenants and some social homes converted to shared ownership which it says could deliver 42,500 affordable homes a year.

A report by the landlord, in collaboration with PWC, says that while higher capital subsidies are more cost effective over the long term, the so-called social equity fund (SEF) could generate billions in new financial capacity each year to support higher affordable housing provision.

The report says: “The reality is housing associations are reaching a tipping point; in many local markets the risks of developing Affordable Rent homes are becoming greater than the risks of developing for market rent.

“Housing associations have to fund around 85% of the cost of each Affordable Rent home upfront, with rents under the new system averaging around 60-80% of market levels, depending on local factors. In the majority of cases, local authority partners have as much say over how the property is used and by whom as the providing housing association. Essentially, housing associations are receiving a low level of grant to deliver an inflexible asset and with limited influence or control over the customer profile.

“With further welfare reforms in the offing, Affordable Rent development will become riskier still. Housing associations will be much more heavily debt-laden, but dependent on less certain income streams to service the debt. In comparison, for market rent, while the full price of provision must be funded, rent levels, usage and tenancy terms are fully flexible, offering stronger opportunities to build capacity and flex use. The ability to quickly mitigate risk as circumstances change is a key advantage.”

In his first key note speech as housing minister at the National Housing Federation Conference in Birmingham, Mark Prisk promised to end the uncertainty around the funding arrangements post 2015.