Listed housebuilders saw share prices slide today after chancellor George Osborne announced rents paid in the social housing sector will be reduced by 1 per cent a year for the next four years.
Critics have warned the move could hamper the construction of tens of thousands of affordable homes.
Housebuilder share prices at the mo: T Wimpey -4.2%; Persimmon -4%; Galliford Try -3.4%; Barratt -5%; Bellway -5.3%;
— Tom Fitzpatrick (@CNTomFitz) July 8, 2015
The Office for Budget Responsibility estimates that 14,000 fewer affordable homes will be built up to 2020/21.
It said the move will directly reduce social landlords’ income and, consequently, their ability to finance new housebuilding.
“To reflect this we have reduced our forecast for residential investment, proportionate to the expected reduction in rental income,” said the OBR in a report published in the wake of Mr Osborne’s Budget speech.
“This reduces private residential investment by around 0.7 per cent by the end of the forecast period.”
OBR statistics show that housing associations built around 37,000 affordable homes in England during 2013-14.
The reduction in social rent means registered providers may have to build more homes for the private sector to cross-subsidise their affordable units.
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.
“This will put pressure on viability and ultimately reduce the overall percentage that schemes can provide.”
JLL head of residential Adam Challis said the move was “damaging”.
“A reduced social rent trajectory will be damaging for registered providers and their ability to build new affordable homes.
“This will impose a larger requirement for RPs to engage in capital markets and to build new homes in the private market that will cross-subsidise affordable housing needs.
“Ultimately, the social housing sector will be worse off as a result.”
National Housing Federation chief executive David Orr said the move would “massively” constrain housing associations, despite being a help to some tenants.
“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.”