UK: The Future of Housing Association Development

In this paper, Alison Haigh looks at Housing Associations in the UK, and their ability to invest in building new homes in the future.

UK Housing Associations are at a tipping point. They face difficulties both in fulfilling their charitable mission and in their means of achieving their goals. Since ex-Chancellor George Osborne announced in 2015 that rent paid by social housing tenants should be reduced by 1% a year for the next four years, they have been trying to determine how to absorb this loss and achieve a successful financial model. Chapman Taylor’s Alison Haigh looks at how UK Housing Associations might adapt to, and survive, this change by developing more housing, rather than opting out of house building altogether.


In the UK, Housing Associations (HAs) are independent, non-profit-making organisations which provide low-cost "social housing" for people in need of a home. They are a major developer of new housing for rent in the UK. Any trading surplus they make is used to maintain their existing housing stock or to help finance new homes.

Recent legislation has made it more difficult for Housing Associations to develop new housing. Government grants have been cut, and a series of new measures introduced to help social housing tenants. These include the right-to-buy scheme, which will force HAs to sell their housing stock to tenants at huge discounts.

In addition, HAs will be forced to reduce the rent they collect from tenants by 1% per year for the next four years. This will reduce the already tight financial margins that they make as, by their very nature, HAs don’t seek to actively make significant financial gain from their tenants.

So what does the future hold for the Housing Association Development?


Historically, investment in new affordable housing has been funded primarily from central government grants, but also by debt secured on existing stock and future rental income streams, ‘planning gain’ negotiated by local authorities from private property developers and proceeds from the sale of existing housing stock.

In the early 1990s, social housing grants provided about 75% of the total cost of developing new affordable homes. Grants had fallen to 39% of the overall cost of development by 2010, and, under the current affordable homes programme for 2011-15, they provided only 14% of development costs.

In the present political climate, a return to higher capital subsidies seems unlikely. A zero grant model, where the government invests generous levels of repayable equity in HA homes instead of providing grants, seems more likely.

Housing Associations wanting to develop or acquire new affordable homes by using their balance sheets and assets are restricted by existing regulations to protect £45.4bn of historical grants. It restrains their ability to borrow and can hamper, sometimes even prevent, them from selling expensive social homes. If they were able to sell some of their housing stock, they would have the freedom to build new homes on a more than one-for-one replacement basis, thus increasing the number of affordable homes overall. 


Currently, for every pound of public money, HAs are levering in an extra six pounds of private finance. For instance, HAs have used their strong credit ratings to access long-term funding from the capital markets.

In 2014, Notting Hill Housing Trust (NHHT) borrowed £250 million on the bond market - £175 million to fund the development of around 1,400 homes each year until 2020, and £75 million to refinance existing debts.

There continues to be strong institutional appetite for HA bonds from the current investor base, with many bond issuances being over-subscribed.

Potential other sources of funding for new affordable housing include contributions through ‘Section 106’ agreements and government departments. Local authorities and other agencies could also sell or lease their surplus or under-deployed land to HAs at below-market rates.


The Homes and Communities Agency (HCA) regulates social housing providers in England. It has been suggested that moving the responsibility for allocating funding away from the HCA (to the Department for Communities and Local Government) will allow it to be re-tasked as a national delivery agency with the core functions of:

• Disposal of government land for housing and assets, with a focus on investing land as equity through local development partnerships.

• Bringing skills and expertise, private funding, land and guarantees to support development.

• Coordinating and expanding training and professional development across local and central government.


Earlier this year when Channel 4 News asked Housing Associations how much it costs them to deliver a new home, they said £150,000. Yet when they asked the Home Builders Federation (which represents private housebuilders) the same question, they quoted an average of £90,000 for a three-bed, land included.

Until this year, Housing Associations have been burdened with a raft of regulations (Housing Quality Indicators, Code for Sustainable Homes, Secured by Design and Lifetime Homes to name but a few) that the private sector has not always had to meet, and HAs also have the additional costs of OJEU compliance.

Analysis by the HCA shows there is a large variation in the cost-per-unit of managing and maintaining HA stock. It is a varied sector, but there is still evidence that savings could be made. Housing Minister Brandon Lewis highlighted this at the Policy Exchange 'Future of Housing' debate in March:

"This year’s global accounts gave the sector’s overall operating costs as £11 billion, so if the sector wants to be able to reduce its costs by just 1% through genuine efficiencies, that gives us a saving of £110 million per annum. That’s enough to service an additional £1.8 billion of borrowing and deliver up to 12,000 homes over the next parliament."


The tough financial climate has sparked a flurry of Housing Association mergers, and this trend will become increasingly evident in the future. Investors view larger organisations as a much lower credit risk and, as a result, larger providers will have access to more funding sources and investors than smaller ones. A larger group can potentially benefit from increased investment in communities and help customers manage the impact of welfare benefit reform.

Market Homes

Building more market homes would improve affordability and reduce the pressure on the social sector. If all 71 of the very large housing associations replicated the market building levels of the top 12 cited, they would build around 17,000 market homes in an average year, 22,500 across the whole sector.

Product development and diversification

In the face of fiscal austerity, Housing Associations will increasingly look to develop new products to different customer groups and through new types of partnerships and community services. This can also provide new development opportunities, or additional income streams, such as:

• Partnerships with the NHS Trusts and GPs to provide outreach healthcare.

• Developing new tenure models, to address the needs of first time buyers and our aging population. 

• Investment in schools.

• Rehabilitation and resettlement of offenders.

• Innovative designs, differentiating their offering, presenting added value to their tenants and instigating a sense of community.

De-Registering - are the organisations that were set up to house the poor now turning their backs on them?

In August 2015, one of the largest Housing Associations in the UK, Genesis, announced it would no longer build social housing. Providing homes for London’s most deprived people was part of its original mission. Now they have announced "Genesis will only build homes for sale, for rent at full market rates or for shared ownership". Furthermore, Genesis will consider selling or raising the rents on its existing social homes once they become vacant.

There is already talk of a number of Housing Associations considering de-registering as a social housing provider, paying back their grants and becoming private companies.

If HAs lose their charitable status then they are open to market forces. They may find themselves in a similar position to the demutualised building societies and face being taken over, not by banks, but by private house developers or hedge funds.

Where does this leave Housing Associations ?

What is certain is that in the future they will need to diversify and identify different means of generating income. Perhaps they will operate differently in other markets with new hybrid models of private, public and voluntary, yet connected by a common history. The need for social housing is undeniable, and by reinventing themselves it could even spark a Housing Association revival.   

About the author

Alison Haigh 


Architect, Manchester

Alison has 20 years’ experience specialising predominantly in the residential sector. She has led multi-disciplinary teams on all stages in the design and development of housing for RSL, Constructor, Housebuilder and Local Authority clients. She has worked on large-scale masterplans, housing for older people, community-based regeneration projects, high-density housing in central London and post-planning construction projects for constructor-developers.

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