Scrapped housing schemes could be revived after the government announced a reversal of its 2015 decision to force councils to reduce social rents by 1% a year.
Prime minister Theresa May’s promise during her Tory conference speech to pour £2bn extra into affordable housing met with a lukewarm reaction from the sector.
But in an announcement alongside the speech, the government said that councils and housing associations will be allowed to raise rents by CPI plus 1% for five years from 2020.
The announcement said: “This will give social tenants, councils and housing associations the security and certainty they need.”
When, in 2015, George Osborne announced the current mandatory annual reduction in social rents, development plans were significantly affected.
The Office for Budget Responsibility, in its July 2015 outlook, predicted that the move would lead to 14,000 fewer affordable homes being built, with the National Federation putting the figure at least twice as high.
Speaking to Room151, Melanie Rees, head of policy at the Chartered Institute of Housing, said: “Some people are saying that the rent announcement will have more of an effect on supply than the extra £2bn.
“The announcement gives social housing providers some assurance, and more money to build new homes.
“Many of them drew up plans for investment after they bought themselves out of their housing revenue account debt, but had to shelve them after the rent reduction announcement. We could see some of those plans being revived.”
Jonathan Bunt, director of consultancy JB Financial Consulting, and former strategic director of finance and investment at London Borough of Barking and Dagenham, said: “Certainty on rent levels for 2020 to 2025 is positive. It looks like an acknowledgement of the impact that had on HRA business plans when the government only appeared to target the housing benefit bill.
“How many more new council homes could have been built if hundreds of millions had not been wiped out of the 30-year HRA business plans?”
The government also announced £2bn extra towards affordable housing up to 2021. A press release from the government said that the cash would be able to fund 25,000 new homes at social rents at a “typical” subsidy of £80,000.
However, the money will also be available to councils and housing associations bidding to provide other forms of affordable housing such as shared ownership.
Rees said: “It is a little bit disappointing from the announcement that people will have to make the case for social rent in their areas.
“It is hard to see social housing bids being successful outside London and South East, despite the fact that affordability is a problem countrywide.”
Bunt said that an estimate that each new social home would require £80,000 of grant per unit was optimistic in some areas of the country.
He said: “In London, land acquisition and construction costs are higher than the rest of the country, and £80,000 per unit is not going to be enough.”
In the run-up to the speech, ministers had briefed national newspapers that May was about to unleash the biggest wave of council house building since the 1970s.
This had led some commentators to speculate that the government was about to release councils from the current borrowing cap on their HRAs.
Bunt said: “It is disappointing that this didn’t feature anywhere. Even a statement that the situation would be reviewed would have been positive.”
And Rees warned that councils could be reluctant to bid for any money to build new homes without changes to the current rules on Right to Buy sales.
“It is not only the Right to Buy, but also the higher asset value sales that councils could be required to make to fund the scheme’s extension to housing associations.
“Potentially that could be a real flaw. We would call for some assurances that these homes would not quickly move out of council ownership.”
Lord Porter, chairman of the Local Government Association, welcomed the extra cash but called on councils to be given more powers to control their own housing levels.
He said: “Every housing market is different and the only way councils will be able to significantly deliver the new homes we need is if they are given genuine powers to invest in housing that meets the needs of communities in every town and city across the country.
“This means the ability to borrow to invest in new council housing, to keep 100% of Right to Buy receipts to replace sold homes, certainty over future rents, powers to make sure developers build approved homes in a timely fashion, and adequately funded planning departments so that they can cover the cost of processing applications.”