Affordable housing investment has double impact, report shows

Property consultancy Savills was commissioned by the group to test the application of the Treasury's current economic model which indicates that every £1 invested in affordable homes is worth just 50 pence, known as 50% "additionality".

The formula used is based on the assumption that affordable housing simply displaces housing of other tenures. The assumption is therefore that one out of every two homes funded with public money would have been built anyway by another developer.

However, the report (29-page / 349KB PDF) found that the Government achieves at least an equal return on investment in affordable housing outside central London. It found that, in some cases, affordable housing development can actually take additionality beyond 100%.

The report found that the return generated by investment was higher than expected because housing associations often buy land in their own name and develop mixed tenure schemes, thereby delivering much more than just affordable housing.

The report also found that affordable housing provision provides an early cashflow benefit to developers and that it unlocks sites which would otherwise not be developed because they are large, complex, expensive and risky.

“There is now a strong case for the Government to adjust its additionality assumption so that the value for money of investment in affordable housing is accurately calculated and fairly compared with returns from other possible targets for the use of scarce public funds,” said g15 chair, Keith Exford.

“Capital grant for affordable housing has been cut dramatically and although the sector has been successful in levering other funding streams, this report demonstrates how much more the Government could deliver," he said.

“There is far less displacement of market housing than in the past because policy has shifted away from Section 106 affordable housing, where it is a constraint on viability," said Savills research director, Jim Ward.

"Housing associations are moving away from Section 106 sites to developing on their own sites. At the same time we are seeing an increasing flow of viable consented land emerge from the new planning system, one year on from the new national planning policy framework," Ward said. 

“In this new world, affordable housing is complementary to private sector development, boosting overall supply, rather than the source of conflict and frustration that we have seen in the past,” he said.