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Affordable housing funding: a long-term solution to a long-term problem

Brexit uncertainty is permeating every part of the country and housing is no exception, writes Paul Hackett, chair of the G15 group of London’s largest housing associations and chief executive of Optivo. With no clear outcome in sight, Sadiq Khan’s recent commitment to provide £200m of additional funding for affordable homebuilding in London is a welcome step and will help us weather the Brexit storm.

However, this is a short-term fix. The fundamental problem driving our country’s enduring housing crisis is the lack of a long-term solution to the supply of genuinely affordable homes.

The private sector alone cannot hit the Government’s target of 300,000 new homes per year. Market capacity will – to a greater or lesser extent – always be limited. This fact is made more acute by slowing market sales, Brexit uncertainty and the potential retirement of Help to Buy.

Looking purely at affordable housing, the shortfall is now at least 60,000 units per year. Despite this, government grant for affordable housing has fallen dramatically since 2011 – it now covers only about 12% of the cost of building each affordable home. This compares with at least 50% under Conservative and Labour governments for three decades up to 2011.

Housing associations have the will and the know-how to make up the shortfall, but to do so we need to be properly supported.

A short-term approach to housing has stunted confidence and our ability to build. Cuts to rental income and a stop-start approach to funding make it challenging for us to plan a long-term development pipeline.

In recent years, we have been building private housing and using the sales income to cross-subsidise affordable homes. However, the pressures of uncontrolled land costs, funding uncertainties and a slowing private market have highlighted the inability of this model to deliver more homes in the long term – it has been stretched to breaking point and requires urgent attention.

We need to reduce our reliance on the cross-subsidy model and operate within a model that is more resilient to market fluctuations. Only then will government bridge the gap to its housing target and deliver the genuinely affordable homes the country so desperately needs.

To do this, the government must commit to a long-term plan of investment in affordable housing that recognises the importance of providing future generations with a stable and secure home as the platform for a healthy and productive life. And – crucially – this investment must be based on higher grant rates that cover more of the cost of building a home.

A long-term funding deal with higher grant rates would give us the confidence to unlock capacity and develop a pipeline of new homes into the next decade. It would help us build through market downturns and provide the security of contra-cyclical delivery that the UK needs now more than ever. And working closely with private developers and local authority partners, we can use grant funding more efficiently to maximise the delivery of homes of varied tenures in the areas they are needed most.

Recent joint venture successes have shown us that housing associations and private developers both have an integral part to play in boosting the numbers of affordable homes being built. A sustainable funding model would allow us to mitigate further the risks associated with large new projects, growing the appetite of investors to partner up and get building.

The housing crisis has been decades in the making – the result of dwindling funding, Right to Buy sell-offs and a lack of long-term planning. Only by thinking about housing delivery in terms of decades, not years, can we properly address the issue.

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