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Osborne's Budget could cut affordable housebuilding by 14,000

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A government watchdog has warned thousands of affordable homes may be shelved and building programmes scaled back after changes to social rents were set out in today’s budget

The Office of Budget Responsibility (OBR) has joined housing industry experts in stating that the move, announced by chancellor George Osborne earlier today (8 July), could see the number of homes built drop by up to 10 per cent as funding for new schemes shrinks.

In a statement the OBR said: ‘The government’s decision to impose one per cent annual rent reductions in the social rented sector for four years from April 2016 will directly reduce social landlords’ rental income, and therefore their financing for, and returns to, investing in new housebuilding.

‘To reflect this we have reduced our forecast for residential investment, proportionate to the expected reduction in rental income. This reduces private residential investment by around 0.7 per cent by the end of the forecast period.’

The OBR stateed that 37,000 ‘affordable homes’ were built by housing associations in England in 2013-14. The adjustment would be broadly consistent with a fall in housebuilding by housing associations of around 4,000 a year in 2019-20.

National Housing Federation chief David Orr has put the figure higher, saying that the lacking of funding could threaten the viability of more than 27,000 proposed new homes.

Orr said: ‘Given changes to working age benefits, a cut in rents over the next four years will be a real help for some tenants, but will massively constrain housing associations’ ability to meet the shared ambition of themselves and government to drive housing growth and new jobs.

‘At the very least 27,000 new homes will not now be built, though that figure could be much higher. The right to buy for housing association tenants further compounds this.’

The Chancellor surprised the sector when he revealed that the current ten-year plan introduced in 2013 to increase social housing rents by one per cent above the consumer price index would be scrapped, and social rents instead cut by one per cent each year for the next four years.

Housing Associations, which base their borrowing expectations on the level of income they are estimated to recieve, have said that up to 14,000 affordable homes may not be built due to the changes.

Shares in housebuilders fell almost immediately after Osborne announced the plans in the budget, where he claimed to be clamping down on ever-higher housing benefit costs.

In the budget Osborne said: ‘We are going to end the ratchet of ever higher housing benefit chasing up ever higher rents in the social housing sector,’ he said.

‘These rents have increased by a staggering 20 per cent since 2010… This will be a welcome cut in rents for those tenants who pay it and I’m confident housing associations and other landlords who operate in the social housing sector will be able to play their part and find the efficiencies needed.’

BNP Paribas Real Estate senior director Anthony Lee said: ‘The government’s plans to reduce rents paid by tenants will have an adverse impact on both housing associations and developers.

‘Social housing rents have - until now - increased annually by RPI plus 0.5 per cent per annum, underpinning housing associations’ business plans and making social housing an attractive investment proposition.’

He added that the reduction would have an adverse impact on the viability of new developments.

‘The rent reduction will reduce the amount housing associations can pay developers for the affordable housing element in their schemes.’

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