UK Spending Review – Social Housing Boost

In a statement yesterday, the Chancellor outlined the government’s spending plans for the coming years. Whilst the total spend itself was already determined in the Autumn budget, the breakdown by department was yet to be decided. The biggest boost for the Social Housing sector was the announcement of an additional £39bn to be spent on the sector over the next 10 years via the Affordable Homes Programme (AHP), as well as the announcement of a 10-year CPI+1% rent settlement and a consultation on rent convergence. This takes the average affordable homes grant rate per annum from c.£2.5bn to c.£4bn, a significant uplift that will help alleviate the pressures of inflation and a higher interest cost burden currently stifling development ambition.

Also announced:

• £2.5 billion of low-interest loans available for social housing providers
• Additional private investment to further boost house building by confirming £4.8 billion in financial transactions from 26-27. This additional capacity will be managed by Homes England.
• £950 million of investment to support local authorities in England to increase the supply of good-quality temporary accommodation and reduce the spend on hotels and bed and breakfasts.
• There was also mention of additional funding to support 350 communities in the most deprived areas, along with infrastructure projects.

Outside of this, the government announced a 3% rise in NHS spending per year and followed through on its defence pledges, whilst policing and prisons received a smaller than desired spending package.

The markets, whilst keeping a keen eye, remained almost unmoved by the statement. Gilts rose across the morning, mostly owing to the 10Y gilt auctions this morning seeing low demand and possibly as some more cautious investors unwind positions in case yields reacted as they did following the Autumn Statement. The main drivers in markets across the day also look to be independent of the Chancellor’s statement, with yields following global trends being pushed back flat on the day by US CPI being announced as cooler than expected.

Whilst a muted reaction from markets and huge spend in much needed areas seems like the best possible outcome for the government; a number of questions remain unanswered. The National Institute of Economic and Social Research (NIESR) have already warned that Autumn tax rises are near certain for the government to remain within its own fiscal rules. Additionally, the government remain under pressure from elevated yields on long-dated gilts as well as current struggles to stimulate productivity and growth.

Market Reaction:

• Swap rates remain almost unchanged on the day, moving a fraction of a basis point form where they were following the employment data release, and the 5Y rate sits at 3.767%.
• Gilts, despite being close to 5bps up on the day at points, currently looks relatively flat compared to the open and the 10Y yield is currently 4.946%.
• Sterling has slid to $1.35 against the Dollar, following gains across the week, leaving it in the middle of the pack relative to its G10 contemporaries.
• Immediate positive moves in the share prices of housebuilders, especially those with strong affordable housing programmes.

What this means for Social Housing

The announcement is initially positive because it gives greater certainty and financial stability to enable housing providers to plan development programmes although we don’t know how far in reality the money will reach. Historically the AHP operated over 5 years so there wasn’t any guarantee of grant levels for the future, this led more cautious smaller housing providers to slow down and even stall development programmes whilst they waited for grant announcements. The sector has also never had long term certainty on rent levels, so this is welcome.

It could potentially unlock significant amounts of long term private capital such as pensions funds by giving them the confidence to invest in affordable homes.

The consultation on rent convergence is a positive move that could also assist in the creation of additional rent to be able to reinvest in housing development.

AHP funding is generous compared to recent years but the number, type and tenure of homes delivered under the programme is not yet clear – given the government’s commitment to social rent then this will have an impact on the number of homes that can be delivered. There are also really pressing needs around existing homes, so it’s great to see there’s an additional £1bn of investment between 2026/27 to 2029/30 to accelerate remediation, with social housing providers gaining equal access to the Building Safety Fund, and a recommitment to the Warm Homes Plan.

Altair look forward to seeing the detail in following weeks.

How can Altair help

We can assist in offering services to deliver  development strategies, assessing development viability and development management resource.

We can help you stay informed and understand the operational and governance opportunities and risks. If you are interested in receiving our quarterly sector insights or would like to explore how else we can help get the insight you need, please click here, and we will be in touch.