A ‘perfect storm’ of financial, regulatory, and economic challenges is jeopardising the UK’s affordable housing sector, warns a new report by Octopus Real Estate.
The research highlights that Housing Associations anticipate a 22% reduction in new affordable homes in the near term, due to rising costs and increasingly restrictive financial conditions.
Titled “Closing the gap: Unlocking investment to address the UK’s affordable housing challenge,” the report is a comprehensive study encompassing interviews with industry leaders, Housing Association financial analyses, Government statistics, and more.
The publication presents a grim picture for the future of affordable housing in the UK, underlining that a third of Housing Associations are reporting a deficit of 11-25% on individual development projects.
This marks an alarming uptick in financial viability issues, mainly driven by soaring build and finance costs.
The report crystallises recent anecdotal evidence about the challenges besieging the affordable housing sector. In a survey commissioned by Octopus, 47% of respondents declared that they were ‘not confident’ in maintaining their rate of development from the previous year.
This growing uncertainty is attributed to a multitude of pressures the sector is currently grappling with—namely inflation, elevated construction costs, and higher interest rates, among other factors.
Further aggravating the issue is the recently imposed 7% rent cap, which is estimated to result in a staggering £3.2bn loss in rental income for registered providers. The grim financial landscape is compelling some Housing Associations to cut back development by as much as 40%.
The Octopus report also brings to light that more financial resources are being diverted to manage, repair, and maintain existing homes rather than developing new ones. Expenditure on repairs and maintenance across the sector has escalated by over £1.5bn within the last four years.
Professor Alex Lord, Lever Chair of Town and Regional Planning at the University of Liverpool, endorsed the report, emphasising that it presents essential evidence for the need for new development. He said: “The findings suggest that registered providers are unable to fulfil their purpose. There is a considerable gap between aspirations and what registered providers expect to materialise over the coming years.”
Jack Burnham, head of affordable housing at Octopus Real Estate, reiterated that the cost of debt has soared, and this has put a significant strain on social landlords. He added: “When considering the competing pressures in the affordable housing sector, it’s clear that a crucial decision needs to be made. Registered providers can continue business as usual and hope for increased grant rates from the government, or they can look for innovative solutions.”
In a climate where traditional financing methods are becoming increasingly untenable, the report suggests that Housing Associations are now looking towards equity partnerships as a viable alternative.
