Removing barriers to attracting significantly more private investment into affordable homes will be essential to make London’s stretching housing target a reality and reduce the amount of money that boroughs are forced to spend on temporary accommodation.
That’s according to a new report published today by the city’s leading business campaign group BusinessLDN and real estate services and investment specialists CBRE.
The new report, which marks an update to ‘The case for private investment into affordable housing’ published in 2022, recommends streamlining the process through which investors can establish registered providers of affordable housing and addressing a mismatch in treatment between for-profit and non-profit providers when it comes to requirements around the repayment of grant funding.
It also highlights the case for introducing new financial support to make investment in affordable homes more viable, adopting a US-style tax credits model to raise funds for delivery, and promoting public-private collaboration.
The call to action comes as London recorded fewer than 4,000 affordable housing starts in the year to March 2025 against a total new homes target of 88,000.
Muniya Barua, Deputy Chief Executive, at BusinessLDN, said: “With housing starts at rock bottom, channelling more private investment into affordable housing is a necessity if we’re going to make London’s ambitious new homes target a reality. Housing associations are doing what they can to deliver the affordable homes the capital needs in extremely challenging circumstances, but they can’t do it alone. Greater private investment in affordable housing will accelerate delivery of urgently needed homes, take pressure off already stretched local authorities and unlock stalled developments.”
The report highlights how the need for private investment in affordable homes has grown in recent years as housing associations have focused constrained financial resources on addressing fire safety and environmental requirements across existing portfolios, limiting their capacity to acquire and develop new homes.
At the same time, latest London Councils figures indicate that collective borough spending on temporary accommodation has spiralled to £5.5 million a day, or more than £2 billion a year.
The financial strain faced by housing associations has significantly reduced their ability to take on new homes through Section 106 agreements, which set out how many affordable homes a developer will deliver as part of a project. Close to half of England’s affordable homes are delivered through these agreements.
Against this backdrop, pension funds and other types of long-term private investors have begun to invest in affordable homes through the establishment of for-profit registered providers (FPRPs) of housing. The number of homes owned by these providers has risen to more than 45,000 across England, up from under 15,000 in 2021, though only around 3,000 of these properties are in London.
The report profiles how the housebuilder Ballymore is working towards the establishment of a for-profit registered provider. It also includes commentary from the housing association Notting Hill Genesis, which highlights the importance of a flexible approach to grant funding and the return of rent convergence – which is designed to ensure tenants across all types of affordable homes pay similar rents – in helping to attract investment into affordable housing.
The report underscores the opportunity that exists to attract more investment from for-profit providers into the capital through partnerships that can bolster the city’s affordable homes pipeline.
Rim Adem, Director at CBRE, said: “London’s development landscape is in unprecedented territory and what is required now is a forward-thinking and innovative approach to unlock the delivery and funding of affordable homes. The current paradigm demands a new response and our recommendations focus on addressing today’s challenges by thinking creatively, levelling the playing field and fostering further collaboration between the public and private sector, rather than prioritising any single group. We recognise that all parties, private investors, not-for-profit RPs and funding bodies, share the same ultimate goal.”
James Agar, Head of Real Estate Origination at Pension Insurance Corporation, said: “The need to deliver high-quality homes where they are needed most has never been greater. With local authorities facing rising costs for temporary accommodation, partnerships like Habiko, our joint venture with development partners Muse and Homes England, are great solutions for increasing overall housing supply and making a tangible contribution towards the Government’s targets.
“By committing to deliver affordable and sustainable homes for rent over the next decade, we are helping to build new communities and meet the long-term needs of individuals and families, offering an attractive proposition for local authorities looking to provide genuinely affordable and social rent housing. This collaborative approach allows us to best serve those seeking secure, quality, sustainable places to live, that help to provide security, as well as deliver cost efficiencies on bills to residents.”
Stevan Tennant, Managing Director at Ballymore, said: “The recommendations within this report seek to address a very real challenge facing large-scale housing delivery in London. The inability to secure a registered provider for Section 106 homes represents a significant risk to bringing forward much-needed housing. Establishing our FPRP is a proactive response to that challenge, so that we can unlock delivery while creating more integrated communities.
“The sector needs continued support. It will take time for established registered providers to regain capacity, and in the meantime new entrants should be encouraged and incentivised. There is no magic wand, but a more flexible environment is essential and urgent.”
Since coming to power last year, the Government has made planning reform a priority, and recently worked with the Mayor of London to deliver a package of emergency measures designed to accelerate homebuilding across the capital. The recommendations set out in BusinessLDN and CBRE’s new report build on those reforms by detailing measures specifically designed to channel more private investment into urgently needed affordable homes. The organisations propose:
- Streamlining the process through which investors can set up registered providers of affordable homes and ensuring these organisations receive fair treatment when it comes to grant funding. Establishing a for-profit registered provider can currently take years. Whilst the process must remain rigorous, opportunities exist to ensure these much-needed entities can be established in a timelier manner. It’s also key that for-profit providers receive fair treatment with regard to grant funding. As things stand, they face different requirements around the repayment of grants as compared to non-profit providers, making it significantly harder for them to invest for the long-term.
- Creating new forms of subsidy for those building affordable homes to make projects more viable in a challenging environment. For example, interest-free loans could help bridge the gap between the amount that developers can afford to sell affordable homes for and the price that investors are willing to pay for them. The Government could establish this kind of support through a framework which ensures it is a recoverable investment rather than a liability.
- Creating a tax credit scheme which can be used to fund the delivery of new affordable homes. This model, as proposed by Grainger, would see profitable corporations paying future corporation tax liabilities up front in return for a discount on total sums paid, with funds raised by the Treasury used to support the building of new housing. The model has already seen significant success in the US.
- A more proactive approach by government at all levels to promoting partnerships between the public and private sectors which can drive new investment in affordable homes. The Greater London Authority is well placed to bring different delivery partners together given its management of various funding streams and existing expertise in land management. Positive examples of existing partnerships in the sector include Habiko – a joint venture between Pension Insurance Corporation, Muse and Homes England which is set to deliver thousands of new affordable homes over the decade ahead.
The recommendations set out in BusinessLDN and CBRE’s new report today build on those they published in 2022. The previously released case for private investment into affordable housing in London also proposes ringfencing a proportion of Greater London Authority grant funding for making projects with a large proportion of affordable homes more viable and giving affordable housing providers greater freedom to raise private investment against their rental income.