Government investment in affordable housing creates at least twice as many homes as is currently believed, a major new report has uncovered.
The current economic model applied by Treasury assumes that every pound invested in affordable homes is worth just 50 pence – an average “additionality” of only 50%.
The assumption is that affordable housing simply displaces housing of other tenures, so one out of every two homes funded with public money would have been built anyway by another developer.
Savills were commissioned by the g15 group of London’s largest housing associations to test this hypothesis by analysing current market conditions and carrying out in-depth interviews with developers.
g15 Chair Keith Exford said: “Savills’ independent research found that under current market conditions the Government achieves at least an equal return on investment in affordable housing outside central London. In some cases, affordable housing development can actually provide a supply catalyst and take additionality beyond 100%.
“There is now a strong case for the Government to adjust its additionality assumption so that the value for money of investment in affordable housing is accurately calculated and fairly compared with returns from other possible targets for the use of scarce public funds.”
In particular, Savills looked at market capacity, cash flow and land value, the predominance of large development sites and the move away from Section 106 affordable housing. The focus was solely on volume rather than tenure, and additional social return on investment in affordable housing was not considered.
Key findings are:
- Affordable housing provision provides an early cashflow benefit to developers – guaranteed cash up front, without which the housebuilder model would not work
- Affordable housing unlocks sites which would otherwise not be developed. Often these sites are large, complex, expensive and risky (such as the majority of sites in London).
- With housing associations buying land in their own name and developing mixed tenure schemes, they are delivering much more than just affordable housing, so every pound invested generates a much higher return.
The report, Additionality of Affordable Housing, concludes that currently displacement of market housing occurs in only specific and limited circumstances. The additionality of housing delivered outside central London (broadly “Zone One” and well connected parts of “Zone 2”) is much greater than in the past with the majority either involving no displacement (additionality of 100%) or acting as a supply catalyst (additionality in excess of 100%).
Mr Exford added: “Capital grant for affordable housing has been cut dramatically and although the sector has been successful in levering other funding streams, this report demonstrates how much more the Government could deliver.
“Housing construction puts a roof over people’s heads and a wage in their pockets, today, tomorrow and for generations to come.”
Jim Ward, Savills research director, said: “There is far less displacement of market housing than in the past because policy has shifted away from Section 106 affordable housing, where it is a constraint on viability. Housing associations are moving away from Section 106 sites to developing on their own sites.
“At the same time we are seeing an increasing flow of viable consented land emerge from the new planning system, one year on from the new national planning policy framework.
“In this new world, affordable housing is complementary to private sector development, boosting overall supply, rather than the source of conflict and frustration that we have seen in the past.”