Committee publishes findings on financial viability of social housing sector

• Report:  Financial viability of the social housing sector: introducing the Affordable Homes Programme

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, said:

"We welcome the 80,000 homes due to be built under the Affordable Homes Programme, but have serious concerns about the impact of financing the scheme partly through higher rents on the Housing Benefit bill and on affordability for tenants.

The Programme will be delivered through £1.8 billion of government grants to social housing providers, but the average grant of £20,000 per home is only a third of that under the previous programme.

The government expects providers to make up for the lower grant in part by charging tenants higher rents. This will lead to an estimated £1.4 billion increase in the Housing Benefit bill over the next 30 years.

The Programme therefore shifts costs from one government department to another, and it is unclear whether this will provide better value for money in the long term

Where higher rents are paid through increased housing benefit, tenants may find it even harder to find work that pays enough to be worthwhile, undermining the Government's objective of ensuring that the benefit system makes work pay.

We are also concerned that the poorest people may not benefit–higher rent levels may mean that social housing ends up with people on higher incomes rather than those in the greatest need.

The Department must do more to understand the full impact of higher rent levels on tenants and ensure that resources are targeted where need is most acute.

Delivery of the new housing is heavily skewed towards the end of the Programme. Half of the new homes expected to be built are planned for the final year of the Programme, and half do not yet have confirmed sites or planning permission. The Department will need to maintain a tight grip on progress and act promptly to address any delay.

The Affordable Homes Programme addresses only 2 per cent of the unmet housing need in England and its future after 2015 remains uncertain. With 4.5 million people in England still waiting for an affordable home, the Department urgently needs to make clear how it will fund the growing demand for social housing."

Margaret Hodge was speaking as the Committee published its 13^th Report of this Session which, on the basis of evidence from the Department for Communities and Local Government and the Homes and Communities Agency, examined the financial viability of the social housing sector and the Affordable Homes Programme.

In December 2010, the government announced the Affordable Homes Programme (the Programme), under which there is £1.8 billion capital funding in government grants to social housing providers. The Department for Communities and Local Government (the Department) has overall responsibility for the Programme, which is delivered by the Homes and Communities Agency (the Agency) through contracts with housing providers.

Construction started on 13,800 homes

The Department expects the Programme to support the provision of approximately 80,000 homes in the four years from April 2011 to March 2015. The Agency secured commitments from providers to build 24,000 more homes than its initial target of 56,000. Through negotiation the Agency reduced the average grant per home to £20,000; a third of that under the previous programme. At the time of our hearing in July 2012, construction had started on 13,800 homes.

It is not yet clear whether the Programme will deliver better value for money in the long term. The reduction in the grant paid to providers for each home will be funded in part by housing providers being able to charge higher rents to tenants, leading to an estimated £1.4 billion increase in housing benefit payments over 30 years. The Programme therefore shifts cost from one department to another.

The Department needs to do more work to understand the impact of the Programme on tenants and its interaction with wider welfare reforms. On the one hand more of the new housing, both for rent and for sale, may be taken up by people on higher incomes so that the programme fails to meet the most pressing housing need. At the same time, the poorest tenants may be unable to afford the higher rents. Those who receive higher benefits may in turn find it even harder to find employment that pays enough and so there will be more people who are more likely to be locked into benefit dependency. We are also concerned that the allocation of funding does not fully target people and areas of greatest need.

Agency needs to maintain "tight grip"

Delivery of the new homes is heavily skewed towards the end of the Programme, with many due to be built in the final year on sites which are not yet confirmed, or have not received planning permission. This leaves very little room for slippage. The Agency will need to maintain a tight grip on progress and act promptly to address any delay if the Programme is to deliver all that is promised.

The Programme has taken advantage of housing providers' current ability to borrow and so finance a greater proportion of the cost of building social housing themselves. This has been based on balance sheets strengthened by the rise in property values. However, this is a one-off opportunity and it is far from clear whether providers will have the financial capacity to take part in another round of the Programme after 2015. The Department will need to give the sector more certainty about its future plans as soon as possible. We welcome the prospect of 80,000 new homes, but with 4.5 million people waiting to be allocated an affordable home in England, it will not solve the shortage of social housing alone, and wider action is needed.

Further Information

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• Topics: Housing