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News Release

London

Jones Lang LaSalle survey reveals industry fears that Government reforms will reduce the number of new affordable homes


London, 15th September 2011 - Most affordable housing providers believe that Government reforms will deliver fewer new houses, according to a survey carried out by Jones Lang LaSalle (JLL).

Under the Government’s Affordable Rent programme, some affordable housing providers will be able to charge higher rents of up to 80% of market value and hopefully therefore be able to increase the amount they borrow. The reform is intended to provide financing to increase the rate of new builds – offsetting the effects of a cut in Government grant.

However a survey by JLL has revealed that Registered Providers (RPs) of affordable housing fear the reforms will have the opposite effect:

  • Of the 41 RPs surveyed, 63% said that the Affordable Rent programme would lead to lower new build levels. Just 12% suggested a “slight increase” with none expecting a “major increase”.
  • Over half (54%) of RPs expect the cost of their funding to increase, potentially leading to financial problems and stalled new build schemes in some cases

Jon Neale, Director of Residential Research at Jones Lang LaSalle, who compiled the report, said: “Many in the affordable housing sector believe that they are facing an uncertain future, with further reform and even lower Government grant rates expected from 2015.

“A number of affordable housing providers are reluctant to build more houses as they fear being exposed financially by the state of the economy and the impact of Government reforms.”

Providers of finance for affordable housing projects have also raised concerns. Caps on benefit levels, the introduction of new limited life tenancies and concerns over affordability threaten the long term security of RPs’ income.  Historically this security has allowed RPs to borrow easily and at low interest rates.

Neale added: “It seems that lenders have concerns about the implications of recent changes in policy. An increase in borrowing costs could negate any ability to increase new build levels.

“This could threaten the government’s aspiration of building 170,000 new affordable homes by 2015.”

The survey also revealed concern that financial problems over the next few years, could lead to smaller RPs being forced to merge with larger, more financially secure operators in the sector. Together with an expectation that larger RPs are more likely to attempt to maintain activity levels in reaction to new policies, this could lead to greater consolidation within the sector.

This consolidation could be intensified if providers of finance and rating agencies start to scrutinise individual operators more closely.

Richard Petty, Director and Head of Affordable Housing at Jones Lang LaSalle, said: “The greater reliance on private finance, combined with the need for efficiencies of scale, suggest that the larger RPs will become even bigger and account for a greater proportion of overall affordable housing delivery.

“They will engage in more market-facing activities and use more inventive forms of accessing finance – although this does not mean there will not still be a place for smaller RPs catering for the specific needs of local communities.”

The report also suggests that development activity will become even more concentrated in London and the South East, where rents and values are higher and greater capacity could be unlocked.

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