Will Offsite Construction Create More Social Housing?

THE SOCIAL HOUSING newbuild market has grown and shrunk repeatedly over the last decade, according to a new report from AMA Research which identifies some of the causes of these cyclical fluctuations.

The trend of reducing the level of government grants available for social housing development has meant loans and revenue funding is increasingly used instead by social housing landlords. However, getting loans depends on whether landlords can cover interest payments from forecast rental income. This has been a key factor hindering growth in the social housing newbuild market.

In 2010, the coalition government introduced affordable rent – where tenants were paying more than social rent but less than private rent. This was to enable social housing landlords to borrow from private lenders. Since then, there has been a steady increase in new affordable rent housing in England, which has driven overall growth in total output.

Despite this growth, total annual housing newbuild completions are still falling short of the government’s target of 300,000 new homes a year. As a measure to help increase output, in 2018 the debt cap on local authorities housing revenue accounts (HRA) was lifted, enabling them to borrow, without limits, money to fund developments.

70,000 affordable homes

Since the lifting of the HRA debt cap, many stockholding councils have committed to increasing the size their development pipelines over the period 2019-2020 to 2023-2024, with the potential for an additional 70,000 homes.

Whether this is fully realised is in part dependent on the impact of the covid-19 pandemic. The March-May 2020 lockdown led to a large-scale, temporary closing down of building sites. There are indications that affordable housing output will decline during the 2020-2021 fiscal year. These include an increase in the level of unsold shared-ownership homes and lower levels of completions delivered under Section 106 agreements, where a proportion of private housing developments need to be affordable homes.

Lockdown housing construction

During the weeks following the introduction of the lockdown on March 23, around the first peak of the infection rate in mid-April, housebuilding was the most affected of all construction sectors, accounting for 58% of delayed projects and 55% of their value. Approaching £40bn worth of residential projects were put on hold, with around just £2bn worth of projects continuing.

In the affordable housing sector, economic uncertainty brought about by the pandemic has led to a downwards revision of planned development expenditure. According to data in the Regulator of Social Housing’s (RSH) quarterly survey for 1 January- 31 March 2020, spending on newbuild schemes dropped from the forecast £4.2bn to £2.9bn.

Other influences that may constrain growth include the availability of suitable land for housing development, currently in short supply; a chronic shortage of skilled site tradespeople; the impact of Brexit on the supply of materials.

To meet the need for increasing the volume of affordable housing, it is anticipated that there will be increased use of offsite housing systems. This will help achieve faster completions and counter the decline in skilled trades. Some of the larger housing associations have committed to increasing their use of offsite housing systems. They are also looking to obtain more control of affordable housing delivering by moving away from the section 106 model towards self-delivery of homes on their own land.

The Social Housing New Build Market Report – UK 2020-2024 is published by AMA Research.

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