Move towards amortised grant could help London’s housing associations develop while limiting increases in government balance sheet debt
A new amortised grant funding model could help London’s housing associations commit to development while making it easier for the cash-strapped government to invest in affordable housing.
The idea is one of several outlined in a new report published this morning by Housing Today and the G15 group of housing associations in London.
The inaugural State of the Capital report outlines several key recommendations for government to boost affordable housing delivery in London in the face of rising costs and balance sheet constraints.
Under an amortising grant model, associations would receive a higher amount of grant per unit upfront.
This would mean the housing association initially needs to borrow much less money privately to make up the development costs, meaning net rent could more easily cover the interest costs without worsening interest cover metrics.
Over time, the association would pay back some or all of the grant interest-free to government. The advantage of this for the Treasury is that the grant paid back can be classified as an investment instead of as straightforward debt or expense to the taxpayer.
The report said: “The model would address the problem that submarket rental housing makes losses for years but comes good in the long term. It is therefore a mechanism for overcoming lack of capacity in the current parliament.
“Ministers should consider the case for exploring the viability of an amortising grant funding model, or equivalent interest-free loan structure.”
Interest cover, which measures interest to earnings, is restricted in housing association lending covenants. A need to get rising interest cover levels back down has led some landlords to scale back their development.
In London, housing associations currently provide 289,000 social rented homes. Research carried out for the G15 as part of its Room to Grow campaign has found these homes each contribute an average of £23,777 or more in value annually, totalling over £6.86bn every year.
Providing new social tenancies for the 323,800 households on London’s waiting lists would inject at least an additional £7.7bn a year into London and the UK’s economy.
Today’s report also calls for affordable housing to be reclassified as national infrastructure, rent convergence to be re-introduced and for social landlords to have easier access to the Building Safety Fund. It calls for government to take a holistic view of funding and rent policy, implement a joint funding pot for grant to improve existing homes and calls for national policies to take into account regional costs and skills shortages.
The report State of the Capital: Shaping a new model for affordable housing in London was informed by a behind-closed-doors roundtable, featuring G15 leaders, along with local authority and third sector representatives, at the Housing Today Live conference in London last September.
The publication of the report will become an annual event and the G15 leaders will again convene at Housing Today’s Building the Future Conference event in October to discuss the state of the London affordable housing market.
Housing Today and G15’s State of the Capital report
Providing new social tenancies for the 323,800 households on London’s waiting lists would inject at least an additional £7.7bn a year into London and the UK’s economy.
However, while social housing providers and ministers are both aware of the need for more affordable housing, both housing associations and the government have balance sheets constraints.
This inaugural State of the Capital report, produced by Housing Today in partnership with G15, looks at several ideas that could be adopted to help the sector build much-needed affordable housing in London during these difficult times.
The report is written by Carl Brown of Housing Today, in collaboration with the G15.
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