The new Affordable Homes Programme – what are the potential impacts on financial planning?

The new Affordable Homes programme for 2021-2026 was announced by the government in September – with some potentially very significant changes. David Armstrong of Flagship Group and Phil Elvy of Great Places assess the detail and the finance implications for housing associations.

Here is a summary of the main elements in the programme:

• Half the homes must be for social rent and half for shared ownership (or rent to buy).
• Funding for social rent will be available in areas where there is a high affordability challenge.
• A new shared ownership model has been proposed:
  • The minimum initial share reduced from 25% to 10%
  • Additional shares can be bought in 1% instalments (staircasing)
  • Repairs and maintenance to be paid for by the landlord for the first 10 years)
• Right to Shared Ownership on all grant funded homes.
• 25% of the programme must be built using modern methods of construction.
• 10% of programme must be supported housing – we think we could build them, but there’s no local authority revenue funding for the ongoing support.
• 10% of the programme must be rural (i.e. housing delivered in settlements with a 3,000 population or under).

As before, there are two main routes to grant:

1. Continuous Market Engagement (CME) – this is open to bids for grants that will be funding specific schemes and applications will stay open while funding remains available. The applications are assessed on their individual merits related to the cost and the deliverability of properties (benchmarked locally and nationally). Housing associations are already able to apply for CME.
   
   
2. Strategic Partnerships – these are programme driven and long-term grant allocations to provide the certainty and the ability to embark on more strategic and land-led developments. Homes England still monitor the Strategic Partnership closely but the regime is more outcome-based than historic programmes were and delivery remains key.
   
   Grant rates will be fixed from the start of a Strategic Partnership, so there is the need to reflect build cost inflation over the life of the partnership period and an evolving mix (it is likely that the Modern Methods of Construction (MMC) proportion will grow from a low base over the period). The details on this point are still emerging however (for instance it is unknown if there will be a minimum volume to qualify for Strategic Partnership status). The key programme mix headlined above may be achievable/deliverable by each individual Strategic Partnership, but that mix is required across the portfolio of submissions, so if some housing associations are >50% rent, there would need to be others <50% rent to balance it out.

There is also a third option – delivery partner status. In this route it’s possible to sign up with an existing strategic partner and access their fixed rate grant. This provides grant certainty and extends the completion window for schemes. It can also help the strategic partner by providing a greater pool of opportunities to complete the committed volumes. This option can be accessed alongside CME.

The requirements of a delivery partner could depend on how the strategic partner operates their specific arrangements; however strategic partners may require their delivery partners to commit to an agreed delivery volume as part of the overall partnership. One additional challenge is the promise of grant certainty under a delivery partner route versus potential higher grant rates under CME – with a risk of getting nothing.

Alongside the proposals for First Homes (see the Planning for the Future White Paper) the programme introduced a number of risks and uncertainties many of which will require careful consideration in financial models:

• Increased sales risk through greater % of shared ownership and Rent to Buy homes and First Homes.
• Potential for smaller first tranche receipts (and reduced sales risk?)
• Impact on funding/charging/security – funders are already cautious and restrict the security pool.
• Increased cost as a result of the shared ownership maintenance proposals.
• Increased grant requirement.
• Increased costs of staircasing if a larger volume of smaller % transactions are executed.
• Loss of rented homes to Right to Shared Ownership plus uncertain take-up (and if the property is more than10 years old, does the 10 year repairs and maintenance liability remain with the housing association? Unlike with new build this will not be a minimal cost once we move into component replacement timescales).
• MMC requirement – how are you positioned to deliver 25% of the programme via this route and what is the cost impact? Will there be more grant?
• Supported/specialist requirement – is there local authority/commissioner support and available revenue funding available?

Until some of the details are clearer, and we see changes in customer demand, it’s probably safe to continue with your financial modelling as planned – but it would be a good idea to look again at the stress testing and run some new scenarios.