Homes England will be able to fund replacement affordable homes for the first time amid deepening delivery challenges

The government has announced an overhaul of the way it funds affordable housing in regeneration projects.

Homes England said grant funding provided through the Government’s current affordable homes programme, for 2021-26, will be able to be used to fund replacement homes for the first time as part of wider estate regeneration plans.

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New build housing

However, the announcement came as Homes England revealed it had missed its build target for the 2016-21 affordable homes programme, which was extended to March 23, as delivery fell back in the last year amid rising construction costs and economic turbulence.

The government said the change in the funding rules was a “turbo boost” for estate regeneration which meant its housing agency could better support its partners to replace housing that is outdated and no longer fit-for-purpose

The National Housing Federation (NHF), which represents UK housing associations, said the move was a “hugely welcome” step that would enable the replacement of homes that were no longer “fit for purpose.”

The move has come amid increasing financial pressures on the housing association sector which are causing many to rein in build plans, with the latest Homes England data showing the impact of the situation.

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It said that just 126,800 affordable homes had been started under the 2016-21 affordable homes programme (AHP) by the end of March this year, next to a target of 130,000. Homes England said it had a further 5,000 starts to deliver under the programme in the current financial year, and that a decision had been made to extend the deadline last year for the second time “to safeguard the sector against turbulent market conditions”.

In total Homes England achieved 36,478 starts in the 2022/23 financial year, 5.6% down on the previous year, with market housing starts dropping by 27%. Completions dropped more steeply to 32,990 homes built in the year, down 11.6%.

Housing Today understands that Homes England agreed a further contract extension with a few of its partners under the 2016-21 AHP in October last year, beyond the initial extension to March 2023 agreed under covid, in order to protect delivery in difficult market conditions, with the extension approved by the government.

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Homes England chief executive Peter Denton

Despite missing the March 2023 deadline, Peter Denton, chief executive of Homes England, said the 2016-21 programme had been a success “in the face of unprecedented barriers”, but admitted the stats reflected “delivery challenges” faced by the housebuilding sector over the past year.

He said: “Affordable housing providers experienced a perfect storm of build cost inflation, rising labour costs, material availability, building remediation issues and the duty to support tenants through a cost-of-living crisis, all of which hindered investment in new homes, leading to stalled or stopped schemes.

Justifying the change to the funding rules, he said that the current environment had made the balance housing providers make between investing in existing homes and investing in building new homes had become “even more difficult to manage.”

“This change is something the sector has been calling for, and with it there is a real opportunity to accelerate the regeneration of social housing and help level up communities across the country,” he said.

He said Homes England will work quickly to make this funding available, and was prepared to use “all of the tools, capacity and capability we have available to us to support delivery”. Providers wanting to use Homes England funding for replacement affordable homes will have to meet certain criteria, set out below.

Kate Henderson, chief executive of the NHF, said the announcement was “hugely welcome”.

“The National Housing Federation has been making the case for years that grant funding rules must be amended to allow housing associations to replace existing homes,” she said.

“For too long housing associations have simply not had access to the funding needed to replace social homes that are no longer fit for purpose. This announcement will enable us to work in partnership with the government to do this vital work.

“Ultimately we believe that regeneration, as well as the delivery of much-needed new social housing, should be central to a long-term national plan for housing. We urge all political parties to commit to building far greater numbers of social homes.”

Helen Moore, group director of Orbit Homes, said the change was “significant and important”, describing it as “long overdue but gratefully received”.

She said: “This will unlock the potential to improve our existing stock faster, whilst also enabling us to continue to build new homes to help address the acute housing crisis. It will make the regeneration of larger schemes much more viable, allowing us to tackle more challenging areas. This really is essential to support decarbonisation and, most importantly, improve the quality and energy efficiency of our customers’ homes.”

Fiona Fletcher-Smith, chair of the G15 group of London-based associations, and group chief executive of L&Q, also said she “very much welcomed” the announcement, as “replacing outdated homes as part of wider estate regeneration is a vital part of solving Britain’s housing crisis”.

She said there were many properties across London which were “simply no longer fit-for-purpose and need replacing.” “Regeneration that is done well can transform lives and communities, but it is crucial that residents are fully consulted, buy in to proposals and are engaged throughout the process,” she said. “We look forward to proactive discussions with Homes England to understand the details of this very positive announcement, and how we can work together going forward.” 

Kundan Bhaduri, director of London-based property developer, The Kushman Group, said: “Brexit’s aftermath, including labour shortages and planning delays, along with rising raw material costs, have disrupted the construction sector. As the market slows and interest rates rise, accessing finance also continues to be tricky for SME developers, threatening diversity and innovation.

Criteria for replacement home funding through AHP

To be eligible for grant funding through the AHP, proposals to deliver replacement affordable homes will need to:

  • unlock net additional homes, alongside the replacement homes
  • start on site by 31 March 2025 
  • complete by the relevant contractual longstop date
  • minimise the amount of grant requested per home
  • demonstrate certainty of delivery
  • align with the priorities of the relevant housing authority
  • align with the existing strategic objectives of the AHP

 Note: This story was edited on June 27 2023 PM to say that schemes will need to start on site by March 31 2025 to be eligible for the funding, after Homes England said its initial information, stating schemes needed to start by 30 September, was published in error. It was also amended to make clear the proposal affects the current affordable homes programme