New research from Network Homes shows growing cost of affordable homes development
The cost of delivering each new affordable home has increased by 42% in London and the South East in less than ten years, according to new research from Network Homes.
The research was conducted in the light of criticisms that housing associations are not building enough social rented homes despite making higher surpluses than ever before.
The study uses real examples from Network Homes’ grant-funded development programmes in 2008-11 and 2016-21 to assess the impact of changes in the housing association development finance model and the wider land and construction markets on the development of social rented homes.
The results show:
- The average cost to deliver each home has increased 42%, or by £85,000, to £285,000 per home in less than ten years
- Adjusting for RPI inflation between 2010 and 2018, the average cost per home would be £247,210 today. Actual costs per home are 15.3% higher
- Network Homes is receiving on average a third of the grant per home today (taken across all projects and affordable tenures) that we received in 2008-2011: £33,600 per home compared to £102,641 per home
- In percentage terms Network received over 51% of the cost of each home in government grant in 2008-11 compared to less than 12% today
- Based on our sample, each subsidised affordable home today costs Network Homes on average over £250,000 from loans, reserves and income from sales compared to less than £100,000 in 2008-11
- To convert all homes to social rent in just the seven schemes analysed from our current programme would cost Network an additional £81.4m, or a weighted average of £162,820 per home, on top of internal subsidies already provided
- New higher grant rates of £60,000-£80,000 per social rented (or London Affordable Rented) home will still require investment of more than £200,000 per home from Network Homes, money that has to come from borrowing, reserves or cross-subsidy from sales, meaning Network still providing c.75% of the overall costs of each home compared to c.50% just ten years ago.
- Of £251m in surpluses made over the last three years, Network Homes has already reinvested £232m into new homes development, with the remainder invested in maintenance of existing homes, new IT systems and initiatives to improve services for residents, or held for future new homes development
- In 2017/18, 38% of all new homes completed by Network Homes were for ‘genuinely affordable’ rents (social rent, London Affordable Rent, London Living Rent, or local authority restricted rents), and 79% of homes completed were for affordable tenures (‘genuinely affordable’, plus Affordable Rent and shared ownership homes).
We greatly welcome the additional funding the government is putting into social rented housing and the improved grant rates on offer. But the reality is housing associations in London and the South East will generally still need to provide on average over £200,000 in loan finance, internal subsidies and cross-subsidy from sales to deliver each new social rented home.Helen Evans, chief executive of Network Homes
“In the last ten years we’ve seen people’s incomes squeezed by recession, austerity and more insecure work patterns, while there have been big increases in the price of land for housing and in construction costs. This has had a serious impact on what it costs to deliver a home and on what people can afford to pay for housing, exacerbating the affordability crisis from both ends. Government policies on housing grant have also changed substantially.
“It’s too simplistic to suggest that housing associations can just turn on the social rents taps in these circumstances. We certainly want to make the most of new government and regional government policies to build more genuinely affordable homes, but we need to do so in a way which is financially responsible and maintains the financial health and stability of our organisations. We owe this to all the people already living in our existing homes.
“Building the volumes of new social rented housing that we need will take a major concerted effort over many years by government, housing associations, local authorities and private developers all working collaboratively together.”