How the Spending Review affects homebuilders

In the Government’s Spending Review on 11^th June, the Chancellor confirmed a commitment of £39 Billion investment in the Affordable Housing Programme over the next ten years, to be spent with Housing Associations and Councils. The Chancellor also announced that social landlords will be allowed to raise rents by one percentage point above CPI inflation each year for the next ten years.

This assistance for social landlords will be a welcome boost to the housebuilding industry when it takes effect and will go some way to providing funding for the purchase of new homes for rent and shared ownership. It should also give Registered Providers (RP’s) confidence to plan for the longer term and boost their capacity for new developments. However, it will take time before it starts to make a real difference and will not resolve the immediate challenges facing the housebuilding industry.

In recent times, housing associations have had to spend large sums on repair, maintenance, and improvement to their housing stock to bring them up to modern and safe standards. Along with the high interest that they have had to pay on loans this has depleted their finances, and we have seen mergers and takeovers where some housing associations have been in financial difficulty. The restrictions on raising social rents on their properties has also left them with little money to invest in adding to their housing stock.

All of this has had consequences for housebuilders who are required to provide affordable and social housing as part of their Section 106 planning obligations. In most cases, there is a requirement to sell these Section 106 properties to an RP, but the amount that the RPs have been willing or able to pay means that the homebuilder makes a substantial loss on each affordable or social house built. We have little or no choice other than accept the amount offered as there are so few bidders, but even then, it can take many months to get an agreement in place. It can also prevent work on site proceeding if these houses cannot be handed over within the timescale specified in the S106 Agreement.

The profile and nature of the annual Affordable Housing funding announced by the Chancellor is not fully clear at this time, other than that the annual settlement is expected to be £4bn in 2029-30 and rise by inflation thereafter.  Meanwhile, between 2025-26 and 2028-29, resource and capital budgets for the Ministry of Housing, Communities and Local Government (MHCLG) are expected to be broadly flat in real terms. Elsewhere, Affordable Housing providers are expected to benefit from an above inflation 10-year rent settlement and improved access to building safety funding.

The Detail – Affordable Housing

• The Government has called its Affordable Housing plans the ‘biggest boost to investment in social and affordable housing in a generation’, with £39 billion announced for a new 10-year Affordable Homes Programme from 2026-27 to 2035-35. Spending on the Programme will reach £4 billion per year in 2029-30 and rise by inflation thereafter.
• No annual figures have been published for the Affordable Housing allocations other than the projection for 2029-30.
• There will be a 10-year social housing rent settlement from 2026 at Consumer Price Index + 1%, alongside a consultation to follow shortly on how to implement social rent convergence.
• £2.5 billion of low-interest loans will be provided up to 2029-30 for social housing providers to further boost their capacity to invest in new development.
• There will be over £1 billion of new investment between 2026-27 and 2029- 30 to accelerate the remediation of social housing, by giving social housing providers equal access to government funding as private building owners.
• £950 million will be invested for the fourth round of the Local Authority Housing Fund – the largest investment in the fund to date – and £100 million for early interventions to prevent homelessness.

The UK-wide Mortgage Guarantee Scheme will be made permanent in July “to ensure the consistent availability of mortgages for buyers with small deposits”. Whilst this appears a positive element, buyers will still need to make mortgage payments on the higher amount borrowed and this may be too much, or a disincentive, for many.

I do not see the Mortgage Guarantee Scheme as giving any real assistance to first time buyers and it is disappointing that the Government have not re-introduced a successor to the ‘Help to Buy’ scheme, which provided equity linked loans of up to 20% on new homes interest free for the first five years, followed by a low rate of interest on the equity share. This scheme was highly successful in stimulating the housing market and giving first time buyers a breathing space to get established on the housing ladder. It was also a sound investment for the Government as they shared in the uplift in house prices and the amount paid back on the sale of the house.

Some criticised this scheme saying that it allowed developers to increase the new house prices but in reality, house prices are controlled by overall housing market prices and second-hand market comparables.

Homes England

Another announcement made by the Chancellor was that additional private investment will be catalysed to further boost house building through £4.8 billion in financial transactions from 2026-27 to 2029-30m, managed by Homes England, allowing government to invest alongside the private sector, through equity investments, loans and guarantees.

I have to say that I am not excited by this as whenever there is new help from Government it generally comes with so many strings attached and hoops to jump through that it is easier to find funding from other sources. I am sure they mean well but I will wait for the details before passing further comment.

This is a personal blog post.  Any opinions, findings, and conclusion or recommendations expressed in this article are those of the authors and do not necessarily reflect the view of the Centre for the New Midlands or any of our associated organisations/individuals.

ABOUT OUR AUTHOR:

Clive Benfield has been involved in the construction industry his whole life. He began his career serving an apprenticeship as a carpenter and builder, gaining a BSc(Hons) degree in Construction Management. Following this, Clive served as Chair for several influential construction organisations throughout the UK, including the Construction Confederation, the Chartered Building Company and the Consultancy Board of the Chartered Institute of Building.

Clive is committed to lifelong learning and providing all employees with training opportunities to improve their skills. He believes that the construction industry offers a wealth of development opportunities for all.

He is a Fellow of the Chartered Institute of Building, a Member of the Institution of Chartered Surveyors and the Chartered Institute of Marketing, and is a Fellow of the Faculty of Building and the Royal Society of Arts.

Clive is involved in many charities. He is the President of the Enterprise Club for disabled people, President of the City of Coventry Scouts and is a huge supporter of various other charities and boards.