The GLA’s new Accelerated Funding Route

Posted: 1st March 2024 David Howson, Director - Programme & Viability

From 22nd February 2024, the Greater London Authority (GLA) has introduced a new Accelerated Funding Route (AFR) within their 2021-26 Affordable Homes Programme (AHP). The new grant funding route seeks to:

  • Simplify and streamline the approach to what is eligible for GLA grant funding;
  • Give greater certainty over grant levels offered;
  • Respond to the unique economic conditions that apply to developing affordable housing in the capital; and
  • Shore up delivery of estate regeneration projects by confirming that all affordable homes may be eligible for grant funding where the overall quantum of affordable homes is increased.

Programme comparison

GLA grant funding approaches have evolved significantly since the 2016-21 AHP, as the regional authority has sought to respond to fluctuating economic conditions and demands from affordable housing providers.

[You can download our Programme Comparison here]


Altair’s analysis on 2016-21(23) AHP
Tariff grant rates made viability assumptions simple and gave certainty to providers. However, rates were low compared to historical levels, and were blind to the viability needs of each specific site. Developers knew providers could access grant to purchase s106 homes.

Altair’s analysis on 2021-26 AHP
Aligned to the position of Homes England, the GLA took the view that homes defined as affordable in a s106 agreement would have to be delivered even if no grant was available.

The introduction of a negotiated grant saw funding levels increase to better reflect the viability needs of providers.

The added barrier to accessing funding on mixed tenure sites with a market facing element, and the difficulties felt by providers across the capital trying to make Shared Ownership ‘stack up’ in recent times, has significantly impacted the cross-subsidy model.

Altair analysis on 2021-26 AHP (AFR)
As economic challenges have increased, providers have sought more flexibility in relation to grant funding.

The ’reintroduction’ of the developer-led route aims to drive greater cooperation between providers and developers to bring forward affordable delivery.

The publication of indicative grant rates provides much greater certainty for viability modelling and the basis for land and package deal offers.

The removal of the requirement to make a viability case for sites already delivering 40% affordable housing saves time and resources for providers and gives greater funding certainty.

Whilst the position has not changed for sites delivering under 40% affordable housing overall (with the task of proving viability need to secure grant above the first 20% of homes still in place) the overall thrust of the new announcement should be positively received.

Potential impact of AFR on Development Value

We have modelled the potential impact of the AFR on the Gross Development Values (GDV), for each London Borough, based on an example mixed tenure scheme. Our analysis indicates that the policy change could result in increased GDVs of between 3% to 10% for the developer-led (s106 purchase) delivery route when compared to the current 21-26 approach, depending on location. The greatest increases are seen in lower property value areas (Figure 1).[1]

This is positive news in terms of viability. However, in broad terms, providers are still ‘out of pocket’ when compared to the 16-21 AHP as this prioritised London Affordable Rent delivery which generates higher GDVs when compared to Social Rent (the priority of the current 21-26 programme).

This shift in policy has obvious significant benefits to tenants in terms of affordability. The impact of this on providers, as our modelling indicates, is that when compared to the 16-21 programme, GDVs for providers would differ by between -4.4% to 1.4%, depending on location, as a result of the AFR (Figure 2).

Summary

The introduction of the AFR signals the GLA’s desire to help speed up delivery under a programme that has had 5 years of delivery condensed into 3 years after the prolongation of the 2016-21(23) programme during the COVID-19 pandemic. However, given the new rules only apply to schemes yet to start on site, and that there are only two years left to achieve starts in the 2021-26 programme, only time will tell whether this much-needed subsidy boost has come too late.

Altair supports Registered Providers, local authorities, and private entities across London to realise their development ambitions. We provide expert grant funding advice, viability modelling, and GLA development programme management and audit services to ensure our clients understand and capitalise on the opportunities available to them.

For further information about how we can support your development programme please contact:

David Howson, Director – Programme & Viability
david.howson@altairltd.co.uk

Bradley Tollon, Senior Development Consultant
bradley.tollon@altairltd.co.uk

Alexandra Hirst, Senior Development Consultant
alexandra.hirst@altairltd.co.uk

 

[1] We have not modelled the impact on GDV for the provider-led delivery route as grant levels under the current 21-26 AHP framework were negotiable.

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