James Barrett
Head of National Affordable Housing Development
Overview
· Economic and policy challenges remain and threaten the stable foundations required to deliver new affordable housing at the scale required.
· Meanwhile, the gap between supply and demand grows ever wider. In excess of 1.3 million households in England remain on social housing waiting lists with approximately 160,000 children living in temporary accommodation.
· There are numerous factors that require addressing in order to provide a foundation for sustained and impactful affordable housing delivery. The bold political rhetoric we have recently witnessed is a move in the right direction but needs to be swiftly translated in to meaningful action.
The Affordable Housing Crisis
It is worth reiterating the statistics to underline the scale of the crisis.
As of February 2025, over 1.3m households were on the waiting list for social housing in England (this includes 336,500 households in London). This figure has increased 10% in the past 2 years (MHCLG, Feb 2025). There are 123,000 households in temporary accommodation (including 160,000 children) at annual cost to the government of approximately £2bn (MHCLG, Feb 2025).
Average annual affordable housing delivery across England over the last decade has been 52,200. To place this in context, research by the National Housebuilding Federation (HBF), has identified that in order to clear the current backlog 145,000 new affordable homes are required to be delivered every year for the next 10 years (MHCLG, 2022)
The 145,000 figure comprises 90,000 homes for social rent, 30,000 homes for intermediate rent and 25,000 for shared ownership. However, in 2023-24 only 9,866 new homes were delivered for social rent. (MHCLG, 2022)
Market Challenges
The crisis facing us today is the manifestation of decades of underinvestment in the sector but in recent years a ‘perfect storm’ of economic and policy challenges has compounded matters.
Remediation Works
Registered Providers (RP’s) are currently investing heavily in building safety remediation, tackling damp and mould, decarbonising and modernising existing stock. This expenditure is vast and set to continue with over £50bn to be invested over the next 5 years (43% of social housing turnover) (HBF, 2024). The phased introduction of Awaab’s Law later this year, requiring landlords to repair dangerous hazards in social housing within specified timeframes, will only compound this expenditure.
These changes in policy and the requirements placed on landlords are undeniably necessary and long overdue but have- and will continue- to divert resources away from the supply of new affordable housing.
Inflation and Rising Costs
RPs are not immune to economic uncertainty and the high inflation levels of recent years. The cost of debt has increased significantly as have maintenance and insurance costs, all of which places a huge strain on their balance sheets. UK construction costs have increased by as much as 20% since 2020 (UK Finance, 2024) which has had a noticeable impact on tender prices and overall project viability, which in turn has consequences for delivery of new homes.
Rent Reduction
On account of government intervention since 2016, rental income in the social housing sector is sitting 15% lower in real terms that it was in 2015. This equated to a £3bn loss in revenue for the sector in 2023-24 alone (NHF, 2024). Rental income is the lifeblood of the sector, and its reduction directly impacts the ability to invest in existing and new affordable homes.
Faltering S106 Market
The faltering S106 market is also hampering new affordable housing delivery. In the past 5 years 140,000 (44%) new affordable homes have been delivered this way (HBF, 2024). In recent years however, housebuilders have been finding it increasingly difficult to secure interest in the S106 dwellings. A recent HBF survey of 31 developers found that almost 17,500 S106 dwellings with detailed planning permission remain uncontracted. Across the country, this translates as 139 home building sites that are currently delayed. This problem is not only affecting new affordable housing delivery but delivery of new housing period.
This scenario is largely a factor of the challenges already outlined but is also attributable to past and on-going concerns around build quality, a mismatch in terms of specification and reduced control for the RP in terms of delivery timeframe, tenure and dwelling mix.
This problem is affecting all regions but especially London and South East. London developments are particularly at risk on account of the high rise/density nature of the schemes. This is backed up by data from the G15, with S106 starts in London during 2023-24, dropping 76% compared to the previous year, to just 549.
Potential Solutions
Rebuild Financial Capacity of the RP Sector
Action needs to be taken to give RP’s the confidence and capability to invest in delivering new homes. It was announced in the Autumn Budget that the government are consulting on a 5-year rent settlement of CPI+1%. It is widely felt however, that this does not go nearly far enough and that a 10-year settlement plus rent convergence is required. This would help provide certainty and stability and enable RPs to make the long-term financial plans crucial for sustained development.
Calls for a boost to the current Affordable Homes Programme (AHP) have been answered with £500m and then a £300m top-up. This has been welcomed but is a drop in the ocean relative to what’s required. Which is desperately needed and quickly is a new AHP to be announced. Ideally this would be a 10-year programme which could lead to a substantial increase in affordable housing delivery. The current lack of certainty resulting from the 5-year programme has resulted in RP’s being cautious with their development pipelines.
Addressing the S106 Challenge
Where possible, earlier engagement between developers and RPs should be promoted. This will help ensure that the new S106 dwellings meet requirement and secure demand.
There should be a greater acceptance of cascade mechanisms within S106 Agreements to help address the immediate impacts of a faltering S106 market. Cascade mechanisms work by providing reassurance to a developer that if an RP cannot be found, then the affordable homes can be switched to alternative tenures or as a last resort, payment can be made to the Local Planning Authority in lieu of the affordable housing.
Homes England have set up a clearing service for uncontracted S106 units. However, it is too early to gauge whether this has been beneficial or not.
We are increasingly seeing private house builders forming their own For-Profit Registered Provider (FPRP) to mitigate S106 risks.
Address the Skilled Labour Shortage
The UK construction sector is experiencing a significant labour deficit, especially in skilled trades such as bricklaying, plumbing and carpentry. The industry needs at least 225,000 additional workers by 2027 to meet demand (CITB, 2025).
The implications of labour shortages are increased wages and construction costs, resulting in a reduction in the number of viable schemes and therefore, a reduction in affordable housing delivery. This threatens not only the supply of new affordable homes but the Government’s overall target of 1.5m new homes over the next five years.
Encourage Private Sector Investment
Delivery of new affordable homes at the scale required is not going to happen without significant investment from private sector funds. We have witnessed rapid growth over the last eight years with multi-national organisations such as Legal & General, Lloyds and Octopus entering the market. The vast majority of this capital has been deployed through FPRPs created by these organisations and who now account for 18% of new supply in the sector (RSH, 2024).
Investment in to the sector is still small-fry relative to PBSA/BTR sectors and therefore represents a huge growth opportunity. For example, Legal and General Affordable Homes want to expand their portfolio from 6,000 units to 50,000, which would see their investment grow from £1.2bn to £7bn assets under management.
Partnerships are vital for institutional growth within the sector. Partnering with RPs to manage the stock, with Local Authorities on the land side and partnering with housebuilders on the delivery side.
The Government can assist in encouraging private sector investment in the following ways:
· Spread knowledge about the economics, rewards and social purpose of the sector to the wider market.
· Reduce perceived and real risks by adopting a long-term and consistent approach to affordable housing delivery that spans across political parties and government terms.
· Reduce amount of regulation and try to simplify the sector (currently very hard to try and explain the sector to an overseas investor).
· Increase level of subsidy.