A report by one of the UK’s leading social landlords suggests that property investors with an interest in landlord insurance are better off sticking to the private sector rather than providing homes that qualify for affordable rent status.
London and Quadrant own well over 60,000 homes in the South East of England that provide shelter for social tenants but it is warning the Government that many housing associations and other social housing providers are in a precarious situation because of affordable rent agreements.
The report says in many areas of the UK the risks for developers building homes aimed at achieving a local market rate rent are much lower than for those working on an affordable rent model. It goes on to say: “Housing associations have to fund around 85% of the cost of each affordable rent home upfront, with rents under the new system averaging around 60-80% of market levels, depending on local factors. In the majority of cases, local authority partners have as much say over how the property is used and by whom as the providing housing association. Essentially, housing associations are receiving a low level of grant to deliver an inflexible asset and with limited influence or control over the customer profile. With further welfare reforms in the offing, affordable rent development will become riskier still. Housing associations will be much more heavily debt-laden, but dependent on less certain income streams to service the debt. In comparison, for market rent, while the full price of provision must be funded, rent levels, usage and tenancy terms are fully flexible, offering stronger opportunities to build capacity and flex use. The ability to quickly mitigate risk as circumstances change is a key advantage.”
In fact according to statistics released this week affordable rent levels are averaging 68% of the local market rate, showing a weekly rate of £110 compared to £163. It is a problem new Housing Minister Mark Prisk will have to address quickly to keep housing associations onside.