Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
London is heading into the worst downturn in affordable housing supply in decades, as inflation, high interest rates and building safety costs hammer the finances of housing associations.
“We had been warning the previous government about a cliff edge coming. We are tumbling down it now,” said Fiona Fletcher-Smith, chair of the G15 group of large London housing associations, the non-profit groups that build and run much of the UK’s affordable housing.
Official data tracking housing starts, the leading indicator of supply, all show a sharp decline in London starting last year, which providers warn is getting worse.
Affordable housing starts dropped 88 per cent in the year to March, from 26,386 to 3,156, according to figures released last month — the lowest since records started in 2015. Different data showed starts by local authorities and housing associations dropped 75 per cent in the year to June, the largest fall since 1990.
Lack of new affordable homes has added to the rise in homelessness and pressure on local councils’ resources. London’s boroughs collectively spent £4mn a day on temporary accommodation for people facing homelessness in the year to March, an increase of 68 per cent from the year before.
The supply of affordable housing — a broad category that includes schemes such as shared ownership as well as social rent properties provided by councils and housing associations at government-controlled rents — has fallen across the country, largely because of high interest rates and rising construction costs.
The lack of these properties has pushed more people into the private rental sector, where rents have risen at a record pace this year. In London, the high cost of housing has been blamed for pushing people on lower incomes out of the city and further from job opportunities.
Scandals around the poor conditions in existing social homes have led to tougher standards for providers, who are pulling back on new building to fund maintenance.
Will Jeffwitz, head of policy at the National Housing Federation, which represents housing associations, said these pressures “are worse in London than elsewhere” because of the older housing stock and higher costs of operating in the capital.
But he said the “main driver” of the crisis in London is the cost of building safety work on tall buildings in the aftermath of the Grenfell Tower fire.
“London is massively disproportionately affected by building safety costs because of the number of buildings and the cost of remediating them. Those two things combined are probably the biggest factors clobbering the finances of housing associations in London,” Jeffwitz said.
Fletcher-Smith, who is chief executive of housing association L&Q, said her organisation alone faces hundreds of millions in costs to fix hundreds of tall buildings.
Housing associations are struggling to find money to buy the affordable homes that private sector builders are required to include within new developments, which has slowed down these projects.
These issues underscore the bind the government is in between its ambition to boost housing supply, particularly social housing, and its promises to speed up building safety work.
The government has promised more help with building safety costs, which it will announce in the spring alongside a new funding programme for affordable housing. It has already topped up the current programme with £500mn, and offered housing associations a five-year rent settlement at 1 per cent above inflation.
Government grants cover 12 per cent of the cost of building new affordable homes in London on average, according to the G15, compared with 75 per cent in 1990. The Conservative-Liberal Democrat coalition government of 2010-15 cut funding by about two-thirds.
“The finances of social landlords have been badly damaged by four years of rent cuts and years of below-inflation rent settlements,” said Andy Hulme, chief executive of housing association Hyde Group.
The Greater London Authority, which oversees most affordable housing funding in the city, said just 582 homes were started within its housing programmes in the six months to September. These figures were up from 142 the year before, but still down 80 per cent compared with the average for this part of the year over the previous four years.
Mayor Sadiq Khan warned last month that London faced “the most difficult period for housebuilding . . . since the global financial crash of 2008”.
A spokesperson for the Mayor of London said: “Turning the tide on 14 years of under-investment will not happen overnight but the mayor is committed to working hand-in-hand with government to help to create a better, fairer London for everyone.”
The falls in starts are expected to feed through into a decline in home completions in the coming years, which will take years to turn around.
“The current crisis is not the consequence of a short-term cause. A crisis of this depth and breadth has been years in the making,” said Ian McDermott, chief executive of Peabody housing association. “In the short term, I think it is probably going to get worse.”
