Housing associations are preparing for a funding crisis that will result in a shortfall of newly built social homes from next year.
The Chartered Institute of Housing (CIH) gave warning of a risk that the needs of the poorest will not be met from 2011 as public money dries up, leaving housing associations less able to finance the social rented sector.
In an interview, John Healey, the Housing Minister, refused to rule out cuts. In the past 12 months the Government has brought forward millions of pounds of spending to help to kickstart a housing market recovery. However, the Conservatives have accused the Government of leaving nothing in the pot for future years.
Even at current funding levels, housing associations — the main providers of UK social housing — said that, to stay afloat, they had been forced to switch away from provision of social rented homes and towards more lucrative home ownership schemes geared towards renters on higher incomes.
The Tenant Services Authority (TSA) said that it expected the number of homes built by housing associations to fall from 50,000 a year last year to 40,000 a year after 2011.
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The associations have previously relied on a cross-subsidy from the part-sale of shared-ownership homes to provide the social housing sector with property. However, the downturn, together with reluctance among mortgage lenders to lend on such schemes, has meant that the amount of revenue from these sales has fallen.
As a result, the TSA said, housing associations are also reducing by half their construction of shared ownership houses, which are designed for low-income workers. A TSA spokesman said: “If you are a housing association and you can’t sell what you have built, you become more risk-averse to building those homes.”
Abigail Davies, of the CIH, said: “The future of government funding for affordable housing is pretty bleak. This will push providers to look for new funding models and many already are. There may be a shift to mid-market products, such as intermediate rent, because they are affordable to the provider. This may mean less social rent is delivered and that the needs of the poorest aren’t met.”
The Homes and Communities Agency (HCA), which distributes public money to developers and housing associations, admitted that funding had only been agreed to the end of the next financial year and would be subject to the next Comprehensive Spending Review by the Treasury.
Sir Bob Kerslake, the HCA’s chief executive, said: “We have done a lot in the last year, and the year before, that has enabled new schemes to go ahead. However, after the next financial year, the amount of funding will depend on the next Comprehensive Spending Review; it has not yet been decided. But the underlying need is so strong that any government would want to maintain supply — the consequences of not doing so are too great.”
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Stephen Howlett, chief executive of the Peabody Trust, a housing association, said that difficulties in obtaining mortgages from lenders were behind the fall in sales of shared ownership property, also known as part-buy, part rent. As a result, he said, Peabody had seen more would-be buyers opting for rent-to-buy schemes, which let them rent a housing association property and then use a portion of the rent paid as a deposit to buy it at a later date.
Jen Riley, of Catalyst, a housing association, said: “Everybody has found it a bit of a struggle — it’s a difficult time. But building costs have been very low, so I wouldn’t have thought that building numbers for last year would be dramatically different. That said, the HCA is a big source of funding and we do expect that some of that funding will be cut. We are planning for that.”
The CIH said that social housing investment reached a high in the financial year 2008-09, with more than £8.9 billion invested across the UK. Private finance rose last year to £7 billion, from £4 billion to £5 billion in 2007-08. About 45 per cent of housing association funding comes from the public purse; the rest comes from private funding, retail lenders and bond markets.
Peter Marsh, of the TSA, said: “It’s been a remarkably positive year. Not one housing association has gone bankrupt or had to merge because of the impact of the recession ... There have been writedowns — some associations bought property at the top of the market and now it is not worth what they spent on it. But the writedown figure was less than expected, at £125 billion in 2009.”