This article is an external press release originally published on the Landlord News website, which has now been migrated to the Just Landlords blog.
A stark warning from one of the U.K’s largest social landlords has poured scorn on the Affordable Rent Model.
London and Quadrant, owner of more than 67,000 properties, has warned the Government that if the Affordable Rent model continues without modification, housing association development programmes will be thwarted.
Tipping point
The social housing giant has suggested that housing associations are at ‘tipping point,’ with the current system, which has seen a switch from a capital to revenue-based subsidy programme , in order to develop additional supply.
As a possible solution, London and Quadrant has called for rent increases for more wealthy tenants. In addition, the organisation wants to see social houses developed for shared ownership, which it estimates could generate 42,500 homes per year.[1]
Report
A recent report, ran jointly with PwC, indicated that higher capital subsidies are generally better value in the long-term. However, the report suggested that the social equity fund (SEF) could raise billions of pounds in new financial capacity every year to assist with higher affordable housing.
Affordable Rent Risk
A small section of the report reads, ‘the reality is housing associations are reaching a tipping point; in many local markets the risks of developing Affordable Rent homes are becoming greater than the risks of developing for market rent.
‘Housing associations have to fund around 85% of the cost of each Affordable Rent home upfront, with rents under the new system averaging around 60-80% of market levels, depending on local factors. In the majority of cases, local authority partners have as much say over how the property is used and by whom as the providing housing association. Essentially, housing associations are receiving a low level of grant to deliver an inflexible asset and with limited influence or control over the customer profile.’
‘With further welfare reforms in the offing, Affordable Rent development will become riskier still. Housing associations will be much more heavily debt-laden, but dependent on less certain income streams to service the debt. In comparison, for market rent, while the full price of provision must be funded, rent levels, usage and tenancy terms are fully flexible, offering stronger opportunities to build capacity and flex use. The ability to quickly mitigate risk as circumstances change is a key advantage.’[1]
[1] http://www.24dash.com/news/housing/2012-09-24-Affordable-Rent-riskier-than-market-rent-warns-housing-giant
