Why aren't London’s housing associations building more homes?

A combination of long-term cuts in grants and incomes and newer financial pressures have put key providers of low-cost homes in a fragile position

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The government’s overall housing target for London was, let us recall, set last September at a heroic 81,000 new dwellings a year for the next five years, a figure described by Angela Rayner in her letter to Sadiq Khan as "ambitious but deliverable" and by others as very little less absurd than the 100,000 it was reduced from.

As Rayner herself observed to the Mayor, the London average between 2019 and 2023 was a mere 37,200. The target has since been bumped back up to 88,000. With the construction sector as a whole barely re-pointing a chimney pot of late, who is going to supply the extra 50,000 per annum?

Not, it would appear, the capital’s housing associations, providers of so many of London’s new “affordable” homes in recent times, but these days weighed down by a whole bunch of other demands. On Tuesday, the House of Commons housing, communities and local government committee heard from four sector bosses, including Kate Henderson, chief executive of the National Housing Federation, and Fiona Fletcher-Smith, chief executive of L&Q and chair of the G15 group of London’s largest housing associations.

Fletcher-Smith was asked by committee chair Florence Eshalomi, MP for Vauxhall, what proportion of L&Q’s spending currently goes on building new stock compared with maintaining what already exists. “It has shifted considerably over the past five years,” Fletcher-Smith replied. Most outgoings are “on existing homes” these days, she explained, in the form of day-to-day repairs and planned maintenance, such as replacing windows and doors, bringing dwellings up to the Decent Homes Standard and also “trying to move towards net zero”.

Another factor is the high cost of building things. Like commercial developers, housing associations need to borrow money in order to invest in new properties. Fletcher-Smith said L&Q carries “about £5 billion of borrowing”, mostly for new housing development. That debt, she continued, has resulted from having to make up for less money being provided by national government. Until 20 years ago, 50 per cent of housing associations’ spending on new homes came from the government. Today, in London, it accounts for only 22 per cent.

Henderson, speaking for housing associations across England, then went into more detail. She described the position of the sector as “fragile”, a word that seems apt given the near-halt of construction in the capital last year. She laid out some history, too: “In 2010, the government slashed the capital budget for affordable housing.” This “huge change” has created the need to “borrow against our future income streams from rent,” Henderson continued.

Rent formulas are set by the government. In 2015, a ten-year agreement was reached such that rent levels would rise by the Consumer Price Index (CPI) inflation rate plus one percent a year. But that was overturned in 2016, replaced by a four-year period of rent reduction. Why? As everyone knew at the time, it was Conservative Chancellor George Osborne’s wheeze for reducing the rocketing housing benefit bill, which was becoming an embarrassment for him.

More recently, a rent freeze was imposed amid rocketing energy price inflation. Nice for hard-pressed tenants whose rents aren’t covered by housing benefit, of course. But for housing associations, it was yet another contributor to income from rents being, in Henderson’s words, “15 per cent lower in real terms than it would have been in 2015 – it’s taken a huge amount of capacity out of the system”.

Throw in high interest rates on borrowing, high inflation affecting pretty much everything, and the need for post-Grenfell safety work, and what Henderson called a “necessary shift towards our existing stock” has made increasing sense. Spending on repairs and maintenance has “hit a record high,” she said, which might be right and good of itself, but also means less money for building new stuff.

All housing association spending, given the shrinkage in grant funding, depends heavily on income from rents. No wonder the G15 has written an open letter to Rayner agreeing with her proposed revival of CPI+1 rent increases and asking for the arrangement to last for ten years, providing long-term financial certainty. The letter also urges the government to increase grant funding to build new social homes and to allow social landlords fuller access to special safety funds, which, as Henderson told the committee, is mostly helping private building owners.

Eshalomi, a former London Assembly member and an ex-chair of Lambeth’s housing scrutiny committee when she was a councillor, raised the issue of poor repairs and maintenance by housing associations, saying this was a problem for many of her constituents and those of fellow MPs. It is also one covered in some depth by On London of late. Dissatisfied tenants might ask why housing associations should get more money, given that, in their experience, funds they currently have not being spent effectively.

Henderson cited shortages of good tradespeople and efforts being made in the sector to improve its understanding of the state of its homes and the needs of those who live in them. “But the bigger issue here,” she insisted, “is around having enough money to properly ensure that our homes are fit for purpose. There are huge pressures on organisations in terms of the stretch and particularly in situations where there are big building safety costs. There’s just not enough money in the system”.

The committee session echoed points made at a London Society event last November by Heather Thomas, chief executive of Sapphire Independent Housing, one of London’s smaller housing associations. She, too, cited the profound, cumulative financial impacts of grant cuts and rent reductions and caps, and the high cost of borrowing and of building in the capital. “People keep saying, why aren’t you building? That’s why!”

Unless and until housing associations in London get on a firmer and stronger financial footing, Angela Rayner’s 81,000 homes a year target will keep on looking more ambitious than it is deliverable.

Watch the committee session in full on Parliament TV.