A report from the Department for Levelling Up Housing & Communities (DLUHC) has warned that soaring inflation presents a “major risk” to the Government’s affordable housing programme, as grant rates remain static while costs rise dramatically. The housing organisation sees it as inevitable that development will be impacted if the Government does not act on current grant levels, which fail to reflect the “sudden and unforeseen” increases in inflation and interest rates.
The report on the progress of the £11.5billion affordable homes programme (AHP) said: “The pressures could have a serious impact on the financial viability of individual schemes and also on the overall financial health of providers. This could limit the appetite for grant funding and significantly affect the success of the programme”.
The programme, administered by Homes England and the Greater London Authority in the capital, set out to deliver 162,000 homes over five years, including 35,000 in London.
There is growing concern in the affordable housing sector that rising inflation may result in housing associations handing back their development grant unless it can be increased or index-linked. Many associations’ income could be further impacted if they choose not to impose the full consumer price index-linked (CPI) maximum rent increase for existing residents next year because of cost of living concerns.
With CPI hitting 8.2% in June and rising, housing associations will have to decide between increasing rents by large amounts for 2022/23 or risk taking a financial hit to protect tenants’ incomes.
John Perry, policy advisor at the Chartered Institute of Housing, said the potential impact of inflation on investment in new homes “is very worrying”.
Perry said: “Given rising costs of labour and materials, an impact on investment looks inevitable. The only way to address this is by raising grant levels”.
Fiona Fletcher-Smith, chief executive of L&Q, said it was “inevitable” the AHP will be in danger if nothing changes.
She said: “In inflationary times, grant is completely eroded, so we do need to have proper conversations with the Greater London Authority and Homes England.”
Fletcher-Smith said: “If the subsidy just isn’t cutting it, we’re not going to take the money away from our residents to subsidise new builds, and you’ll see that for most associations now.”
A DLUHC spokesperson said: “Our AHP is boosting housing supply across the country and helping hard-working people on to the housing ladder.
“We keep all our programmes under regular review, and work with Homes England and the GLA as well as housing associations and other providers to understand any risks to delivery, including the effects of inflation.”
