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Affordable housing review – financing

The focus of the review was to ‘recommend changes to increase supply and improve delivery from the scarce resources available’. The gap between housing needs and supply means that it is ‘incumbent on all partners to draw on every available source of land and funding to optimise supply’.

Key recommendations:

  • Welsh Government should reform grant funding to introduce a new flexible long term five-year Affordable Housing Supply Partnerships model which combines grant funding certainty and flexibility whilst testing grant value for money (VfM). The new funding model should be based on principles of fairness, quality, and grant VfM transparency.
  • A number of current funding pots should be consolidated to focus capital and revenue funding on core tenures determined nationally reflecting needs assessments at national, regional and local levels.
  • The new model should test the contribution of private finance and alternative finance models to stretch grant resources to maximise output and demonstrate grant VfM.
  • The design of the new grant system should consider the use of both grant and equity funding interchangeably within the overall capital investment pot, in order to facilitate both new and existing financing models which are capable of demonstrating the necessary regulatory oversight required for public investment.
  • Further consideration should be given to the need for a housing infrastructure and regeneration fund to sit alongside the main grant programme to unlock larger more complex sites.
  • Access to grant and equity funding should be made available to Local Authorities able to contribute low cost finance to deliver grant VfM.


The current system for Social Housing Grant dates back to 1989. Since 2011, Welsh Government has distributed grant to individual local authorities on a formula basis and they then award grant to schemes brought forward by zoned local authority partners. Grant is paid on a fixed percentage of eligible build costs (currently 58% for social rent and 25% for low cost home ownership).

The report goes on:

‘It was clear to the Panel that grant VfM is not tested effectively by the current system, with widespread acknowledgement that fixed rates can sometimes result in over generous allocations. There is a need, and the potential, to put in place a system which embeds a value for money culture, maintains high standards of delivery and delivers more affordable new homes from the same level of scarce resources.’


Evidence from 60 organisations included some support for mainiting the current system as familiar and simple and caution that change could lead to a ‘race to the botttom’ on affordability, standards and needs-led delivery.

However, they also identified problems with the current system including its inflexibilty (some schemes needing less and some more grant than is permitted), the absence of testing of value for money and lack of incentive to seek less than the fixed grant permissible and the uncertainty created by short-term annualised funding. The panel notes that there was ‘ support for flexible grant awards to allow lower (or higher) levels of funding to improve transparency of grant requirements and evidence value for mone’.

Within the work stream there was a general acceptance that fixed grant rates can sometimes be over-generous and support for a longer-term funding model. However, ‘there was less consensus of how the system might change, underpinned by anxiety around possible changes to the grant distribution model which might disadvantage individual local authorities, and any change which might erode standards and quality of supply, and exclude smaller and specialist housing associations.

A new framework

Key weaknesses of the current system were seen as lack of transparency over grant value for money, short-term fragmented funding pots preventing long-term investment and missed opportunities to share skills, capacity and resources at a regional level.

The panel recognised that moving away from a fixed grant rate regime would require a new evaluation process to determine the level of grant but that it is not possible for any government to predict the financial variables and appetite for risk of individual associations with their own business plans. It concludes that: ‘The new grant model should therefore allow prospective partners to make their own judgement of the grant required to support new homes development. This judgement should then be challenged as part of the grant determination and award process.

In 2017/18 Wales supported construction of 1,641 affordable homes with £125.9m of grant – an average grant of £76,739 per home. The panel concludes that Wales could make ‘a significant potential gain’ if the average level of grant per home could be reduced. Reducing the current average by around 15% or £11,500 to £65,200 would equate to an increase in supply from 130 to 150 homes for every £10m of grant funding. The report goes on:

‘The panel is of the view that a new model of innovative outcomes focused five-year Affordable Housing Supply Partnerships (AHSPs) can be designed which responds to the sector ask for longer term, more flexible funding whilst delivering better grant value for money, maintains and enhances effective partnership working, preserves the LA strategic housing role, and avoids a ‘race to the bottom’ and pitfalls of other grant systems.’

This outcomes-focused model of affordable housing supply would be ‘unique to Wales’ and combine funding certainty and flexibility with principles of fairness, quality and value for money. It would be open to all ambitious housing associations (large, small and specialist, urban and rural) and local authorities. Partners would put forward proposals for specific sites for grant support and ‘the onus would be on the partner to deliver agreed outcomes, creating the opportunity for a lighter touch monitoring and oversight regime by the Welsh Government’.

Adding a regional element would allow Welsh Government to work with local authorities to flex grant for deliverable schemes to smooth spend profiles whilst ensuring individual councils get a fair share of grant over the life of the partnership. ‘The regional dimension would enable a bottom up needs based grant system which avoids a one size fits all national approach.

The prospectus for the programme would set out criteria that partners would have to meet on:

  • Standards
  • Sustainable communities – eg tenure mix
  • Specialists and new entrants – explicitly encouraging their participation
  • Diversity – across regional areas
  • Housing need – directing grant to schemes that meet local need and have local authority support
  • Affordability – having a clear rent policy
  • Grant valiue for money
  • Skills, capacity and track record
  • Partnerships and collaboration
  • Innovation in the supply chain

On evaluation and oversight, the panel argues that the new approach would ‘help embed a grant VFM culture’. As grant would be open to local authorities, the new model would require Welsh Government to carry out VfM evaluation to respect commercial sensitivities of partners. A two-stage evaluation, with Welsh Government sharing an overview of aggregated delivery proposals with regional local authorities could ‘embed the role of individual LAs within both the design and evaluation of a new model whilst giving the Welsh Government an enhanced role in stewardship of national grant programme’.

The report recognises that previous recommendations to reform the grant model have not been implemented, in part due to resource constraints within Welsh Government. The panel recommends additional investment in the Welsh Government housing department to implement the new model. The report also has extensive discussion on options for consolidating and reforming individual current funding programmes.

Additional recommendations

  • Welsh Government should change the current ‘zoning’ system to apply regional zoning, thus recognising delivery across LA boundaries.
  • The minister should support the investment in sufficient resources in the Welsh Government housing department to work up and implement the new grant framework, whilst continuing to resource the current framework.
  • Help to Buy – Wales should continue but with improvements in targeting via a lower price cap and a focus on first time buyers so that it is more evidently part of the affordable housing supply mix.
  • Welsh Government should consider whether any changes should be made to the regulatory regime in the light of the recommendations made in this report, particularly around the new grant approach.

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