Report backed by group of major developers also considers new funding models, including a US-style system of tax credits
Section 106 agreements should fix affordable housing values at the planning stage to improve market efficiency, according to a report backed by a cross-sector group.
The paper, titled Making Social Rent Homes Viable, was published under the banner of Homes for People We Need.
The research, led by Grainger and backed by others including L&Q, Vistry, BusinessLDN along with influential figures such Kate Barker and RIBA president Chris Williamson, outlines several recommendations to make it easier to build social rented housing.
The report points out that the section 106 market – under which housing associations forward-buy affordable homes required to be delivered by housebuilders as part of planning permission – is not “operating well”. It said it is a “perversity” that grant-funded housing associations bid against each other for section 106 homes.
It said: “This is simply not value for money for the taxpayer, as HAs in competition may overpay.”
“The government should consider a local planning authority mandating the value of the affordable housing by an agreed formula at the planning application stage, such that the Housebuilder/residential developer knows what it will receive and buys the land on that basis.”
It said this value could be indexed using the consumer price index measure of inflation.
The report calls for £18.8bn of subsidy each year to fund 90,000 social rented homes and explores funding models to enable this. This includes a system of social housing tax credits.
The report’s tax credit system is similar to the United States’ Low Income Housing Tax Credits model, which Housing Today has previously looked at in detail.
Under the report’s model, a company would pay 10 years of corporation tax up front and get a discount. Enabling the government to raise capital upfront without impacting government borrowing.
These tax receipts would be given to Homes England, which would distribute them to social landlords to build social homes.
The corporation tax credits, the paper argued, would be “largely self-funding” in the short-to-medium term, due to savings to Treasury and council budgets and increased tax receipts from the construction sector as it builds the social rent homes.
>>See also: Briefing: How private landlord giant Grainger is preparing to ride the build-to-rent wave
“Social housing tax credits represent a promising approach, enabling private capital deployment now in exchange for future tax relief”, it said.
Low-income housing tax credits (LIHTC) have been used as the primary funding tool for affordable rental housing in the US over the past few decades. The mechanism has funded more than four million homes stateside since 1986.
However, LIHTC homes are not affordable in perpetuity which sector figures have told Housing Today said would be a barrier to widespread adoption for social rented housing if it was replicated in the UK.
The report also calls for ‘flex rents’ linked to household incomes, a recapitalisation of housing association balance sheets and for the reform or abolition of Right to Buy.
Helen Gordon, chief executive of Grainger, said: ”While the delivery of social rent homes is not Grainger core business, we recognise their vital role in addressing the housing crisis and the importance of their delivery to unlock other forms of housing tenures.
”We believe that an effective response requires an all-tenure approach, with social rent housing playing a central part alongside other housing types. Only through this comprehensive understanding can we build sustainable solutions that meet the diverse housing needs of our society.
”This study represents a constructive step towards bridging the knowledge gap and fostering the collaborative, evidence-based approach needed to make social rent homes a practical and achievable part of today’s housing landscape.”
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