Affordable housing at crossroads as costs rise
Housing associations are slashing their building programmes because of rising costs, higher interest rates, rent caps and regulatory pressures.
Nearly half (47%) of associations do not expect to maintain affordable housing levels this year which will lead to a 22% drop in homes being built, according to research by Octopus Real Estate.
Its analysis found the affordable sector is at a crossroads, faced with the choice of investing in improving existing homes and decarbonising – or building new ones.
As it becomes harder to make affordable housing development projects financially viable, Octopus’s research found housing associations have mostly chosen to focus on improving their current housing stock at the expense of uncommitted projects.
The report found that increased build and finance costs have led to a third of housing associations reporting a deficit of 11-25% on individual development scheme. Fewer affordable homes will be built using traditional financing methods.
On the upside, overall spend on repairs and maintenance has jumped from £5bn in 2018 to £6.5bn in 2022.
Jack Burnham, head of affordable housing, Octopus Real Estate, said: “Registered providers have historically relied on private finance to support their development ambitions.
“But changing economic conditions mean that the cost of debt has soared and social landlords must now pay more to access the finance they need to build new homes. This pressure has been compounded by the enormous investment required for landlords to hit net zero targets as well as addressing issues of disrepair in the sector.
“In producing this report, we’ve had many conversations with key figures in the social housing sector. This has provided valuable and reliable insight into the position that many registered providers find themselves in today.
“When considering the competing pressures in the affordable housing sector, it’s clear that a crucial decision needs to be made.”
The report, Closing the gap: Unlocking investment to address the UK’s affordable housing challenge, is the culmination of six months of research, and includes interviews with providers of social housing.
Dundas Street development
Office buildings at Dundas Street, Edinburgh, will be demolished and replaced by a new mixed use development which has been approved by Edinburgh Council.
The new development comprises 49 flats and three commercial units, along with amenity space, landscaping, basement level car and cycle parking and other associated infrastructure.
Joint venture partners Mactaggart & Mickel Group, Mactaggart Family & Partners, Millard Estates and Rennick said 25% of the new homes will be affordable and should hit council targets for 20-minute neighbourhoods, being within walking distance of many offices, shops, bars and restaurants.