Housing is a key element of regeneration, both as a fundamental necessity and as a driver for wider related activity. In the latest of a regular series of Scotregen columns, the SFHA’s David Stewart shares unease around a new funding stream for affordable housing.

The recently announced Innovation and Investment Fund (IIF) represents a radical change to the funding system for new build affordable rented housing in Scotland. The IIF, effectively a £20 million pot of challenge funding, sets a benchmark of £40,000 per unit for schemes across Scotland. This is cause for major concern as it is a drastic cut to the previous benchmark: last year housing associations were expected to build for £66,500 per unit in urban areas and £70,000 in rural Scotland.

The IIF money is the only available money to fund new housing association schemes in Scotland this year There are two reasons for this drastic reduction – firstly housing fared particularly badly in the Scottish Budget, with a 30% cut. Secondly, the Scottish Government needed to repay money to housing associations that had front funded schemes out of their own resources at the government’s request.

The low level of funding available (£20 million) and the low level of average grant per unit (£40,000) are a real cause for concern at a time when demand for affordable rented housing is at an all time high. Potentially damaging implications of the IIF include:

  • Rents: Housing Associations are rightly proud of the affordability of their rents, but when grant levels are cut the only way to make up the difference is to increase rents to pay for higher loans. Associations can only make grant levels go further by developing housing for sale on a shared equity basis or for mid rent. While important these developments do not replace affordable rented housing.
  • The £40,000 level of grant encourages associations to “sweat their assets”. There are two important points about reserves, however – firstly they are kept for a reason, to fund improvements to existing stock. The 2020 Climate Change Act will make real calls on those reserves, with a successor to the SHQS to set higher and more expensive standards of energy efficiency for social landlords. Secondly, you can only spend your reserves once.
  • Rural housing is more expensive to develop, while in some rural areas there is not the market for mid rent or shared equity that could help keep average grant levels down. The IIF, with its one size fits all approach, poses a real threat to the development of rural housing.
  • While most urban areas do not have the same issue with high development costs, there are many areas of urban Scotland where there is no real market for mid rent or shared equity. It is difficult to see how the IIF fund and its £40,000 benchmark can work in such areas.
  • With an ageing population this is not the time to be putting up barriers to the development of such housing, especially as enabling people to live at home not only enhances their quality of life, but is considerably cheaper.

With no information available on funding beyond 2011/12, this will be impossible and it will be extremely difficult for housing associations to plan. For the reasons above the SFHA is calling for a radical rethink. A survey of SFHA members has found that the budget cuts and changes to grant levels have put over £200 million of schemes under development at risk. The SFHA is calling for:

  • A transitional scheme to allow shovel-ready projects to go ahead in 2011-12, to avoid wasting the time, money and resources already invested while creating and sustaining jobs
  • Reversal of at least part of the 30% cut to the total affordable housing budget
  • Special consideration for remote and rural areas where costs are necessarily higher
  • Clarity on budgets for the next three years, to assist business planning
  • Consultation about future grant rates for 2012-13 and beyond
  • Housing consequentials from the 2011 UK Budget top be directed towards new affordable rented