Why more developers are turning to 100% affordable housing schemes in England’s South West

Demand for grant-funded, land-led affordable housing schemes remains strong, with the latest £39bn Social and Affordable Homes Programme (SAHP) attracting significant interest from Registered Providers (RPs). In fact, it has recently been announced that the programme has been oversubscribed, demonstrating the sector's ambition to deliver new homes.

Across much of the South West, viability remains a key concern for developers as they continue to navigate a combination of higher borrowing costs, slower sales rates, planning delays and rising development costs.

Section 106 affordable housing delivery has been particularly affected. Savills Research shows that demand for S106 packages remains relatively subdued in many parts of the country, with supply outweighing demand.

The attraction of 100% affordable schemes

One of the most notable trends emerging across parts of the South West is the growing viability advantage of delivering sites as 100% affordable schemes.

This trend is becoming increasingly apparent in a number of local authority areas, including parts of Somerset, Devon and Cornwall, where development costs have increased in recent years. For example, Community Infrastructure Levy (CIL) charges have risen through annual indexation, whilst developers in Cornwall must also account for additional costs associated with the Climate Emergency Development Plan Document, known as SEC1. 

When combined with the Building Safety Levy, ongoing build cost inflation and subdued house price growth in some markets, it is becoming challenging to generate acceptable returns from many traditional mixed-tenure residential schemes.

By contrast, affordable housing schemes can benefit from cost and funding advantages. Qualifying affordable housing is generally eligible for CIL relief and qualifying affordable housing is generally exempt from the Building Safety Levy. In addition, RPs are often able to access grant funding through Homes England's Affordable Homes Programme, which can significantly improve scheme viability. This funding enables affordable housing providers to support stronger land values and bring forward developments that may no longer be viable through a traditional open-market approach.

We are also seeing a growing number of developers adopting a contractor-partner model, delivering schemes on behalf of RPs through forward-funded arrangements. The attraction is clear: such schemes can significantly reduce development risk, with many forward-funded arrangements involving staged payments throughout the construction programme. This improves cash flow, reduces financing requirements and removes exposure to open-market sales risk, providing greater certainty of delivery and improving viability.

However, this approach is not universally applicable and is typically most effective in areas surrounding major conurbations, which are subject to higher CIL rates.

Looking ahead

Recent discussions around the reprofiling of affordable housing grant funding have created some uncertainty within the sector, with a number of RPs highlighting concerns that delays to funding allocations could impact delivery programmes in the short term.

That said, the fundamentals remain compelling. The government's £39bn SAHP commitment provides long-term funding certainty for the sector.

Further information

Contact Rhiannon Wicks or Dan Hill

Read more: Affordable Housing Investment Market in Minutes