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Affordable Housing Reading time: 2 mins

The next wave of innovation in the affordable housing sector

5 Oct 2023 By Jack Burnham, Head of Affordable Housing

The UK needs more high-quality housing. This is especially true across the social and affordable rent sectors.

A study by the National Housing Federation (NHF) and homelessness charity Crisis found that England needs to build 340,000 new homes each year, including 145,000 affordable homes.

However, in 2021/22, only 59,175 affordable homes were completed, falling far short of what’s needed.

So why is this?

Providing affordable housing isn’t an easy task. Registered providers face a multitude of challenges that have increased over the past year, including:

  • Sustained inflation.
  • High interest rates and the increasing cost of debt
  • Cost burdens from adopting net zero and complying with evolving safety standards.

Housing Associations are continuing to develop homes, and a new wave of funding for affordable housing development aims to help them do this, with equity partnerships offering a way to accelerate the delivery of more affordable homes.

Sustainable capital is needed to keep the sector growing

The rising costs of construction, combined with a rent cap and a freeze on the Local Housing Allowance, are shrinking the surpluses of registered providers, making it harder for them to build new affordable homes.

Not only are surpluses squeezed in the current climate, but they don’t stretch as far because the price of debt has risen.

For the past decade, affordable housing providers have built new homes using their surplus to service low, fixed-rate debt. With interest payments now much higher, understandably, registered providers are less able to take on debt to fund new development. Affordable housing providers are starting to slow down development programs to avoid taking on more debt.

The impact of all this is stark. Our research found that the number of affordable homes is expected to drop by 22% when record numbers of people need them.

The affordable housing sector is clearly at a crossroads. It can either continue with the traditional model, which is no longer sustainable, or it can evolve and find new ways to finance the construction of new homes.

A new way forward

The affordable housing sector and investors have an opportunity to work together to find new ways to finance the construction of more affordable homes. Together, we have a chance to establish a more sustainable funding solution that can bridge an era of lower grant funding levels and more expensive debt.

On one side, there’s growing demand from the finance community for social impact investments. And on the other, registered providers should be open to new routes to finance their activity as financing growth with debt has become less viable.

As the operator of a registered provider, we understand the importance of fair and long-term partnerships. If approached in the right way, the growth of equity partnerships could be a major turning point for the affordable housing sector, as significant as the Housing Act of 1988.

Read our Closing the Gap report on Affordable Housing in the UK

We’ve thoroughly researched the affordable housing sector and created an illuminating report. It covers the challenges the sector faces and how we might work together as an industry to build the affordable homes that are so desperately needed.



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