Social and Affordable Housing Programme 2026 – 2036 – why delivery might be challenging

1.0 Government commitment to more housebuilding

1.1 A key ingredient of the government’s manifesto is to tackle the housing crisis with the aim of providing 1.5 million new homes by the end of its current term in office. This has widespread support considering the difficulties experienced by first time buyers and those in need of social and other low-cost housing options. Hence, the announcement of a £39 billion programme for the latter and plans to ease planning and other obstacles that slow down market housing can only be welcomed. However, delivery is another matter.

1.2 This briefing note reviews the operating environment for delivering new supply in both the market and affordable sectors and the actions that government might have to take to realise its ambitions. From desk top analysis and non-attributable discussions with key, senior level industry executives, it’s clear that there are several seriously difficult obstacles to tackle if the government’s ambitions are to be met. Some of these will fall on the providers themselves while others can only be addressed by changes in policy that require even more investment by government and/ or a re-assessment of its targets. Neither are easy options politically.

2.0 Delivering 1.5 million homes by 2029

2.1 The rationale for this policy is to take steps to solve the housing crisis and boost economic growth. This is, of course, a good thing but there are doubts whether government and its advisers really understand how hard delivery of its ambitions will prove. The English housing system is hugely reliant on private housebuilders to deliver most of the average 300,000 homes needed each year to reach the 1.5 million target. However, the Office for Budget Responsibility has already cast doubt whether this is achievable. In 2024/25, 152,100 new homes were built in England, a 5% decrease on the previous year and just half the number needed to meet the annual target. Reduced planning permissions, weak market demand, industry skills shortages and increased costs in the supply chain all place huge doubts on the capacity to accelerate supply to the levels needed. Similar and other more nuanced obstacles stand in the way of delivering the affordable and social housing ambitions of 30,000 homes pa from the £39 billion programme.

2.2 The delivery challenges are seen with the sharpest focus in London. New homes delivery in the capital has been in steady decline over the last 3 years, from a high of 40,000 in 2021/22 to a 15-year low of 33,000 in 2024/25. But the situation in the current year is even more stark – GLA data shows just 3,447 homes have been started so far and likely to be the lowest in a single year on record, going back to 1990.

2.3 London development specialist Molior reports that one in six residential schemes in the Capital are on hold with viability and weak demand cited as the reasons. It contends that the pipeline of homes under construction has dropped to 40,000 from a typical level of 60-65,000. Decades of relatively flat prices combined with a raft of increased regulatory requirements such as new building safety standards, Community Infrastructure Levy payments combined with significant building cost inflation and suppressed demand have created something of a perfect storm that has made too many schemes simply unviable.

2.4 Government has already acknowledged delays in the planning system and building safety approvals process and is taking steps to address these. Both impact on the build rate but not all industry sources believe that these are the real obstacles to a big ramp up in production. The reality is that developers will only build what they can sell. Currently, in many areas, demand is weak, due in large part to uncertainties about the content of the November 2025 budget, affordability, the price of mortgages and transaction costs. Speculation about new property taxes is certainly another unhelpful factor.

2.5 For the reasons set out later in this paper, unlike during the 2008 global financial crisis, the social housing sector can no longer step in. Clearly, some form of intervention is needed and on 24 October 2025, Housing Secretary Steve Reed and London Mayor Sir Sadiq Khan announced a temporary change to the London affordable housing quota for new developments from 35% to 20%. In addition, a £322 million City Hall Developer Investment Fund will be available to support new schemes. It’s worth remembering that back in 2016, the Mayor said that London needs to build 66,000 new homes each year, with half of those being affordable. We are a long, long way from achieving that.

2.6 Delivery is not just a London problem. A further factor is the reduced appetite among housing associations (HA) nationally for S106 obligation homes in private housing schemes. This is delaying progress on a significant number of sites, both awaiting start or in progress because housebuilders cannot find housing associations willing to commit to buying these homes. Despite setting up a clearing house arrangement within Homes England to help developers find HA buyers, progress is slow. However, senior housing association sources claim that around 50% of their pipeline supply will continue to come from S106 and most of those will be through well established relationships with preferred housebuilders. They say there would be even more enthusiasm for these homes if housebuilders were to show more willingness to be flexible over design, specification and deliver a better quality product. There are many accounts of high levels of defects in S106 homes and particular problems in larger and flatted schemes where estate management is outsourced to inexperienced managers.

2.7 The Home Builders Federation has welcomed the London intervention, but it and other key players are calling on government for more support to get the market moving. Proposals include the return of Help to Buy (HTB) or ‘Do it Yourself Shared Ownership’ where developers would offer first-time buyers the opportunity to buy homes built for sale on shared equity terms (probably through a Registered Provider (RP)). Changes to Stamp Duty Land Tax for first time buyers and mortgage support initiatives have also been mooted. It appears unlikely that any of these will find support, especially HTB which whilst very helpful to developers, especially in maintaining higher prices, it was demonstrably expensive in the longer run for buyers and government.

2.8 The social sector is facing an even greater set of challenges that is preventing a significant step up in delivery. The will is there among local authorities (LAs) and RPs, but financial capacity is another matter. The poorly considered implications of a range of government policy decisions over the last few years have severely impacted their capacity and appetite. These are described in more detail in Section 3 below.

3.0 Obstacles to delivery of more Affordable and Social Housing supply

3.1 A raft of spending obligations on their existing stock has dramatically reduced HA capacity. LAs have similar obligations but since it is many years since they were significant providers of new affordable homes, the reality is government is largely dependent on HAs to deliver their social and affordable housing ambitions. For-profit RPs are largely unaffected by the historic factors that have led to the problems HAs now face and while they are able to make an important and growing contribution to new supply, they are mostly reliant on equity investment which is not easy to raise in current economic conditions. Only the biggest players – L&G, M&G and Sage are able currently to operate at significant scale.

3.2 The diminished financial condition of some of the previously most active developing HAs is resulting in reduced activity in new home delivery which will be difficult to correct. There are six key factors:

i. Rent controls: to counter the cost-of-living crisis, social and affordable rent increases were capped for an extended period at a rate below CPI when costs were rising significantly faster. This created a re-based rental income stream across the sector and took out significant capacity to meet current costs and borrowing for future investment. Disposal of existing assets to make the books balance is now commonplace: the Regulator of Social Housing (RSH) reports that £4.9 billion of fixed asset sales are forecast in the next 12 months;

ii. Building safety remediation: post Grenfell Tower, government rightly committed that all dangerous buildings would be remediated. Initially HAs were not afforded access to the Building Safety Fund and so were left to cover most of the substantial costs involved. This has created a significant liability for those HAs, especially in London and other major cities that have many tall buildings in their stock;

iii. Decarbonisation: arbitrary targets and timeframes for reaching net zero in existing homes created an uncalculated liability with limited government support secured only through a competitive bidding process. Net zero through a ‘fabric first’ approach has merit but the cost of improving some buildings to this standard is simply uneconomic even in an extended timeframe and will likely lead to their disposal. A more holistic analysis of the right solution is needed; for example, one major HA has set a cap of £40k on expenditure on any one property– if it cannot be decarbonised within this cost, it will be sold;

iv. Increased operating costs in response to service improvement demands: the RSH reports that budgeted expenditure on social housing lettings increased by 9% in the last year and repairs and maintenance spend has increased every quarter since June 2022, reaching £9.1 billion in the 12 months to June 2025. This is in response to new factors such as the sharply increased focus on customer service by the RSH and Housing Ombudsman, the shorter timeframes for dealing with damp and mould (now formalised in ‘Awaab’s Law’) and other safety repairs as well as general cost inflation.

One HA source reports that investment in their current properties is up by 90% in the last 5 years and the number of repairs per property per year has gone up by 30% over the same period. Some may say that this level of expenditure shows what should be spent but it’s worth remembering the pressure placed on HAs by government previously to reduce these costs to free up borrowing capacity to develop new homes;

v. Loan covenant compliance and borrowing capacity: the impact of the factors above has impacted balance sheet strength, loan covenant compliance and future borrowing capacity significantly. The RSH has reported that forecast interest cover over the next 12 months remains low, with a projected sector cover ratio of 67%, and c.60% of PRPs forecasting interest cover below 100%. Interest cover is a key ratio found in many loan agreements so consequently, many HAs are in breach of loan covenants, requiring wavers and sometimes facing increased interest costs to reflect the higher risks of default. Those HAs are focussed understandably on survival rather than development;

vi. Risk appetite: the combination of the 5 factors above has made many HAs far more risk averse. Some speak of the RSH’s unrealistic expectation that as far as possible, all risk should be eliminated. But no business can operate in an environment free of risk. Even so, when HAs are being criticised publicly and repeatedly over their core service delivery – which in some cases at least is fair and justified – it’s unsurprising that many are spending whatever is needed to get services right. For some, building new homes has become an optional activity which is now too risky and unaffordable in the current environment. For them, dropping out of or scaling back development is a logical choice.

4.0 What does all this mean?

4.1 Not every HA is in difficulty, and some are strongly committed to carrying on with their development programmes. Most of those contacted felt their programmes would be smaller but saw it as a part of their mission to build more homes. They pointed out also that those with newer stock especially those who own mostly houses outside cities should have capacity that can be utilised. There has never really been any great pressure on the less active HAs to build more and perhaps that will now change. But there are some significant players that may now be largely out of the game due to viability and future liabilities that might take many years to recover from. London appears to be facing particular problems in both the private and social sectors due to high land and building costs, affordability and the predominance of flatted schemes which carry significant sales risk and long-term running costs.

4.2 Interestingly, among the HAs that appear to be faring best under these difficult operating conditions are those larger players formed by merger. For example, Clarion and Sovereign Network are both planning to continue significant new programmes. The recent announcement that Bromford Flagship and LiveWest are entering merger talks with a view to running a substantial future programme to deliver 50,000 homes over 15 years does appear to show recognition of the value of consolidation to create capacity.

4.3 A further consideration is that government expects at least 60% of new affordable homes to be social rent. In many ways, this is welcome but does come at a cost. One member of the g15 group of London’s largest HAs reports that every new social rent home built in the capital requires an internal subsidy of £9k pa at current Social Housing Grant (SHG) levels. If grant rates remain unchanged, few HAs will be able to afford the level of cross subsidy this requires. This will result in fewer homes being built – the era of HAs building homes for market sale and using the profits to cross subsidise their affordable housing activity is largely over. Moreover, with building trades workforce shortages and materials costs pushing up costs, an average of 300,000 a year homes with c.18,000 of those at social rent looks a tall order.

5.0 Conclusions and measures that might be needed

5.1 While the government’s ambitions are well intentioned and to be applauded, the issues highlighted in this briefing suggest there is insufficient understanding of the way the private housebuilding market works or the constraints that previous government directives have created for HAs to deliver affordable and social housing at the scale and pace envisaged. In essence, it appears very unlikely that 1.5 million homes will be delivered by 2029.

5.2 The NHF, HBF, Savills and other expert bodies have all warned that around 1 million homes is the best that might be achieved. On the current run rate this might be just about possible although in terms of private housebuilding, much depends on whether the Budget in November creates the growth and confidence needed to stimulate the market. Equally, the number of affordable homes deliverable by HAs could fall short if the additional costs of providing 60% of the new homes for social rent aren’t addressed. The broad view amongst those contacted when preparing this paper is that government plans are a “triumph of hope over expectation”. Without firm intervention to tackle the highlighted issues, delivery will fall disappointingly short. A good outcome might be to increase delivery to 300,000 pa by the end of this parliament and use that as a launchpad for the future.

5.3 So what steps could government take to help? In the private market, the biggest stimulus will be confidence, affordable transaction costs and mortgages. The recent intervention in London shows government recognises the need to act. Other measures might include;

i. Become less reliant on such a small number of large housebuilders and make it easier for smaller firms to play their part.;

ii. Understand the impact on supply of imposing ever more obligations and taxes on the industry – it won’t build if it can’t make a profit;

iii. A period of stability to enable such obligations to be fully reflected in land values;

iv. Take a fresh look at how to capture a fair share of value uplift from greenfield and change of use sites. Land comprises far too much of the total cost of new homes and encourages viability battles where the losers are too often local communities that miss out on vital infrastructure. This is a major reason for local objections to planning applications and often extends the determination process.
v. The constant speculation during the long run-up to the Budget about the tax changes that might be coming has been deeply unhelpful. Don’t repeat this approach;

vi. Consider short term incentives to rebuild confidence among buyers and investors. Challenge the industry’s profit expectations – is there a trade-off with a short-term support package like Help to Buy?

5.4 For the affordable sector, there are some clear asks although some of these will be equally unpalatable for government. These include:

i. The agreed 10-year future rent increase settlement is helpful but some recovery of lost income from rent suppression is needed. Support convergence for older tenancies that sit well below current rent levels at a rate of £3 per week;

ii. Speed up decisions – why did the Social and Affordable Housing Programme details take so long?

iii. Acknowledge and agree that higher Social Housing Grant rates will be needed if 60% of the new programme is to be for social rent;

iv. Don’t abandon shared ownership – it remains an attractive tenure for first time buyers with good prospects for rising incomes and over time, it creates surpluses for HAs that help subsidise rental tenures;

v. Review the timescale for net zero – a more realistic approach to what is affordable is necessary. A slavish approach to ‘fabric first’ zero-carbon is too simplistic and expensive when buildings take many forms – emerging technologies and a focus on affordable heat will offer alternative approaches over time;

vi. The Future Homes Standard has much merit but understand how the increased costs will impact on capacity;

vii. Think very carefully about the scope and impact of Decent Homes 2, which will likely further diminish capacity for new build;

viii. Engage in and support efforts to attract institutional equity into housing;

ix. Challenge providers over efficiency to drive down the rate of operating cost growth.

Written by Non-Executive Director Keith Exford