How can private capital aid the Government's housebuilding expansion?
The Government has committed to delivering 1.5 million homes in England by the end of the parliament. If this is to be achieved, affordable housing delivery needs to form a large share of total delivery. The Housing Association (HA) sector and to a lesser extent local authorities, must rebuild long-term financial capacity before looking to lead a housebuilding expansion. Within this context, FPRPs could provide an important source of funding, subject to the policy environment being conducive to investment, both to develop and acquire new homes and to acquire existing stock to release capacity.
The challenge for Government
The delivery of 1.5 million homes over five years relies on there being demand to take on those homes, and in the absence of a major demand stimulus like Help to Buy, a large share of that demand must come from RPs, according to our research. This is incompatible with the drop in demand for new homes from HAs.
Encouraging FPRPs to continue growing and drawing more equity investment into the sector could also offer a route to increased housebuilding. With HAs less active in the market for Section 106 homes, schemes have experienced delays in the completion and sale of market homes, because the affordable homes in the scheme remain unsold. While FPRPs still account for a relatively small share of new affordable homes, they could offer an outlet for some of these schemes, with 83% of our FPRP survey respondents saying they would consider acquiring Section 106 stock.
Are the ambitions of FPRPs achievable?
There is clear appetite for investment into affordable housing, but is the growth which FPRPs are targeting feasible in the current environment? Currently, existing FPRPs have ambitions to grow their portfolios to 150,000 homes by 2030. This represents an increase of 106,800 homes on their March 2025 level, according to our estimates using survey data.
The annual growth rate required to achieve this increase in homes appears to be well within the realms of possibility. FPRPs would have to grow their portfolios by 28% per year over the next five years to reach 150,000 homes. This is lower than the 36% growth per year seen over the last five years to 2025. In fact, if growth were to continue at 36% per year, the sector would reach 200,000 homes in five years time, allowing plenty of room for new entrants into the sector to scale up as well.
Another reference point is the share of new homes which this ambition represents, and on this basis, an additional 106,800 homes looks challenging but not impossible. FPRPs would have had to acquire 40% of all affordable homes delivered in the five years to March 2024 to reach this level. If affordable housing delivery remains steady or falls, then despite the challenges facing HAs, competition for new homes may be too fierce for this ambition to be achieved.
But a large increase in affordable housing delivery is required to meet the Government’s 1.5 million homes target. This provides an opportunity for FPRPs to provide additionality and scale up, their 106,800 homes amounting to just 7% of this target. Of course, this would need to be supported by a sizeable increase in grant funding.
How can policy encourage investment?
Alongside the availability of grant funding, there are a number of barriers to entry for investors into affordable housing. Some are unavoidable: the higher cost of debt and the regulatory burden were rated the largest barrier by 45% and 27% of our survey respondents respectively.
But other barriers can be influenced by Government. Our survey and interviews showed that investors are primarily driven by the low risk, regular, index-linked income on offer, but various rent caps over the last decade have eroded confidence in the link between rents and inflation. A long-term rent settlement would give them more confidence in financial planning. HAs also mentioned that this is key for rebuilding their financial capacity.
Similarly, policy risk is cited as a key barrier to further investment, with investors looking for greater assurance that their efforts in creating long term income streams now will not be undone by future policy changes. Creating a level playing field in terms of policy between FPRPs and HAs would be beneficial to the sector. For example, rules currently vary around Stamp Duty depending on the status of the Registered Provider and the use of grant funding, which makes investment more costly for FPRPs and reduces confidence in their long-term footing within the sector. More generally, providing certainty around future standards, whether fire, building safety or core decent homes standards, would also be beneficial to FPRPs and HAs alike.
Both FPRPs and HAs emphasised a need for the Government to treat investment in affordable housing like they would any other form of social infrastructure. The more certainty investors and HAs have around their future income, the more likely they are to make significant investments into the sector.