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Economic pressures lead to fewer new developments
Economic pressures lead to fewer new developments 伦敦
By   RYAN BEMBRIDGE
  • 都市报
  • Affordable housing
  • UK property
  • UK housing market
Abstract: Research by Octopus has found that nearly half (47 per cent) of housing associations are not confident that affordable housing levels will be maintained this year.

This is due to factors such as inflation, construction costs, rising interest rates, decarbonisation efforts, regulatory and policy-related pressures and the cost of debt.


The net result could be a 22 per cent reduction in new affordable housing.


This is analysed in this analysis titled Closing the Gap: Unlocking Investment to Address the UK's Affordable Housing Challenge.


Professor Alex Lord, Head of the Department of Town and Regional Planning at the University of Liverpool, endorsed the report.


He said How can the housing crisis be tackled without the necessary evidence and analytical tools to proactively plan new developments? The Octopus report, which presents evidence of the impact of current housing policy on Registered Providers of social housing, is an important step in addressing this issue.


It is these Registered Providers, of which there are more than 1,500 in the UK, that are crucial to delivering the new affordable homes that the country so desperately needs.


However, the findings of this study suggest that these providers will not be able to meet their targets; respondents expect their development pipeline to be significantly reduced in the short to medium term.


There is a considerable gap between the aspirations of registered providers and what is expected in the coming years. This timely and important intervention by OCL clearly demonstrates that we need to rethink how we stimulate the delivery of new affordable housing.

Economic pressures lead to fewer new developments

A recent challenge has been the 7 per cent cap on rents in the social housing sector, which has resulted in a loss of £3.2 billion in rental income.


The G15 Association, which represents London's largest housing associations, has confirmed that its members are reducing their development programmes by up to a third.


Octopus spoke to a number of registered providers who have cut their development programmes by over 40% due to the financial situation.


With repairs and maintenance spending having jumped from £5bn in 2018 to £6.5bn by 2022, housing associations are mostly choosing to focus on improving existing housing stock at the expense of uncommitted projects.


With the Government's review of the Decent Homes Standard and increased scrutiny of disrepair in the social housing sector, spending on existing housing will increase further.


Another challenge is the cost of debt. Debt finance has been particularly popular over the last decade as Registered Providers have tried to capitalise on the low interest rate environment.


However, since the mini-budget in September 2022, interest rates have soared, resulting in very few Registered Providers currently active in the debt capital market. In many cases, registered providers are avoiding debt altogether until interest rates return to more favourable levels.


Over the past decade, the industry has built affordable housing by using surpluses to pay off previously low, fixed-rate debt.


As the price of debt has risen, not only have surpluses been squeezed, but they have also been unable to service the debt. This has increased interest payments and ultimately reduced the amount of debt registered providers can - and, to be prudent, want - to take on.


As a result, registered providers of affordable housing are biding their time and looking for alternative financing options. Research suggests that this has led to a significant reduction in the delivery of much-needed new affordable housing.


Jack Burnham, head of affordable housing at Octopus Real Estate, says: Registered providers have historically relied on private finance to support their development ambitions. But changing economic conditions have meant that the cost of debt has soared and social landlords now have to pay higher fees to get the finance they need to build new homes. This pressure is exacerbated by the huge investment landlords need to make to meet net zero targets and to tackle the age of their homes.


In writing this report, we have had a number of conversations with key players in the social housing sector. This has provided us with valuable and reliable insights into the current position of many Registered Providers.


Given the competitive pressures in the affordable housing sector, it is clear that a key decision needs to be made. Registered Providers can continue with business as usual and hope that the Government will increase subsidised rates, or they can do what they have done in the past and look for innovative solutions to help deliver the housing that the country needs. The consensus suggests that Registered Providers are now looking to equity partnerships as a solution.

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