Navigating the funding challenges for affordable housing

Soho Housing Association’s CEO, Barbara Brownlee, spoke to Housing Digital about navigating the funding challenges faced by housing associations to provide affordable housing to those who need it. She discussed the Association’s creative ways in which they have utilised their existing commercial property assets – such as Great Pulteney Street gallery – to generate additional revenue to fund the provision and maintenance of homes.  

The piece, originally published in Housing Digital, can also be read in-full below.

Navigating funding challenges for affordable housing

A recent government report demonstrated a fall in social homes to rent from 4m in March 2013 to around 3.8m in March 2023. In the last year alone, there has been a net loss of 11,700 social homes according to Shelter.

This, in tandem with increasing demand for social housing, and challenges such as the increased cost of living, has placed particular emphasis on the requirement for increased delivery of social housing.

In fact, Shelter has called for 90,000 social rent homes to be delivered every year for the next decade to meet the chronic shortage of social housing in the UK.

The recent King’s Speech and the announcement of the Planning and Infrastructure Bill demonstrates some commitment to unlocking development sites for affordable housing across the country. However, finding a solution to the housing crisis will require a combination of both policy changes, and a significant boost in funding to unlock current supply challenges.

While the drop in inflation is welcomed by all our tenants, it does mean rental income will not rise in line with the rises in maintenance and development costs, adding further stress to all associations’ business plans.

The new Labour government now needs to ensure it has the policy and funding to deliver on its pledge of 1.5m new homes, and Angela Rayner’s promise of the “biggest boost to affordable housing for a generation”.

In the absence of immediate government action, and the funding to back it up, housing associations have been adopting innovative solutions and can – and are – using creative methods to fund the maintenance and delivery of affordable housing.

Harnessing diverse portfolios

For housing associations with diverse portfolios, commercial assets can be utilised as a tool to provide additional income for investment into new properties and refurbishing existing stock.

These assets provide a sustainable source of income and offer leverage to ensure continuous improvement of properties. At Soho Housing, utilising our commercial asset portfolio and embracing a mixed-use approach has been a core pillar of the association’s strategy since its inception over 50 years ago.

The launch of our Great Pulteney Street gallery demonstrates this in its entirety. The association acquired the derelict building in the 1970s and refurbished it to become one of our very first homes.

The space now provides five affordable homes above three beautiful gallery/exhibition spaces available to hire in the lower part of the building. Not only have we reinvented what was a pretty dowdy office space to maximise our income, we are also adapting to the rise of short-term rentals in the commercial real estate space.

The gallery provides an opportunity for artists to hire the exhibition space, and for the association to make income. This approach ensures that we are capitalising on our existing commercial assets and using these to continue to deliver affordable housing in the heart of London. We also feel that providing exhibition space in Soho contributes to the creativity of this area.

This is only one example, completed very recently, but we are also leveraging other, previously underused, commercial assets, such as storage spaces, garages and basements to provide further investment into our homes.

The anchor of community in London

A mixed-use approach has also been key to meeting local needs and ensuring community is at the centre of what we do. With over 2,500 residents, celebrating the residential community of Soho is of increasing importance.

Without this, central London risks becoming merely a tourist destination and loses the character that a settled, mixed community brings. This remains the core of our mission – to provide affordable housing in the heart of London.

Connectivity is key

For housing associations, building and maintaining effective partnerships within the housing industry is another important element in the funding toolbox.

Working with both private registered providers and using the tried and tested joint venture route can prove effective. In addition to this, working closely with local authority partners where there is a unanimous desire to develop new homes remains important.

Soho Housing is committed to working with our core boroughs of Westminster and Camden. As Westminster commits to providing more social housing stock within the borough, we are looking at some joint working, which will hopefully increase the number of homes on some of our sites.

Innovation through connectivity and collaboration is critical to delivering our mission.

For smaller housing associations particularly, there remain large advantages of working alongside other smaller providers to provide housing. This can be done as part of a development consortium, which can aid in improving access to grant funding and strengthen development expertise.

This, in turn, will ensure that housing associations continue to deliver smaller development programmes to benefit local communities – at the lower costs associated with the larger housing providers.

New rules required

Demand for both housing and affordable housing in London remains high. The competition for space builds year on year, which continues to drive up prices.

New rules – such as changes to the Permitted Development Rights – which aim to simplify the conversion of office space into residential property, offer the potential to rescue stranded assets and bolster housing supply. However, these opportunities must be executed with care to ensure high-grade housing quality throughout for these developments.

The question of whether to reinvest in upgrading existing assets or to offload remains a pertinent one. The current tax treatment for refurbishing properties may make it financially unfeasible to refurbish them instead of selling; potentially reducing the availability of affordable housing.

Many housing associations are urging for a change in the VAT treatment of property refurbishment by registered providers. This change could stimulate increased investment in existing homes and the development of new ones.

A clean slate

There is never going to be a one-size-fits-all approach to battling the housing crisis in the UK. However, seeking and providing innovative methods to combat the current lack of tangible governmental support will help housing associations continue to deliver services to tenants.

Collectively, housing associations using sales, market rents and some form of internal subsidy provides a way in which they can support development. However, demand for these limited resources remains high and therefore the requirement for innovative solutions remains paramount.

The newly elected government provides a clean slate to combat these evolving challenges, and therefore there is hope the sector will secure the support it needs to move closer to hitting housing targets.

Housing remains a pressing and sensitive issue across the UK and needs to be at the forefront of the new government’s agenda.

With 45,800 children homeless and living in temporary accommodation with their families in the UK, it remains unacceptable to be missing targets.

It is important to continue to use our voices to demand government led solutions – but in tandem with this, we need to work to ensure we play our part in continuing to apply innovative solutions to diversify portfolios, and provide high-quality affordable housing to those who need it.

NEWS