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Ministers have hailed a “landmark” announcement of £2bn of government funding to build new social and affordable homes in the 2026-27 financial year — despite the figure being lower than the average state spending for the sector over the past five years.
Rachel Reeves, the chancellor, said the announcement would deliver up to 18,000 new homes: “We are fixing the housing crisis in this country with the biggest boost in social and affordable housebuilding in a generation.”
The £2bn is an extension of an existing scheme, which provides grants to councils and social landlords such as housing associations to build new properties.
The current “Affordable Homes Programme” (AHP), launched in 2020 by the then-Conservative government, is worth £12bn for the five financial years up to 2025-26.
This figure implies annual average spending of £2.4bn over the five years. Reeves has announced £2bn for the first year of the next five-year scheme, which would represent a reduction if not increased in the future.
Clare Miller, CEO of Clarion, the UK’s largest housing association, said the new funding “gives us some reassurance but it’s less than we’ve had previously.” She added: “What we need, to go with this, is a long-term rent settlement. That will give us the confidence to unlock our pipeline.”
“This does look on the face of it like a cut. Let’s see what they say in the spending review” said one industry figure.
A Treasury official said the new £2bn did not amount to the total government investment in the sector for 2026-27 and that other, unspecified funds could come from the state.
In June, the Treasury will set out more details of the next AHP as part of the broader spending review that covers the whole of Whitehall spending towards the end of the decade.
“The £2bn investment boost comes as a downpayment from the Treasury ahead of more long-term investment in social and affordable housing planned later this year,” it said.
One official said that by bringing part of the announcement forward by three months it would give “certainty” to investors in the industry, who would be invited to come forward as soon as possible with new bids.
Kate Henderson, chief executive of the National Housing Federation, said the funding “top-up” was welcomed. “The additional £2bn will prevent a cliff edge in delivery of new homes ahead of the next funding programme being announced,” she said.
The Treasury said the announcement was a “significant milestone” on the government’s promise to build 1.5mn new homes during the current five-year Parliament.
Housing associations, which build and run a large proportion of Britain’s affordable housing, are facing a financial crunch because of the need to spend money on maintenance and fire safety work, which has forced them to scale back new construction.
Government grants only cover a fraction of their building costs, leaving the sector to rely on private sector financing that has become more expensive.
Grants cover around 12 per cent of the cost of new affordable homes in London on average, according to the G15 group of large housing associations, compared with 75 per cent in 1990.
The amount of affordable housing built by private sector housebuilders as part of their planning agreements has suffered from the industry-wide contraction in building of new homes since 2022.
Meanwhile, Reeves is set to announce other infrastructure decisions this week in an attempt to demonstrate the government’s pro-growth agenda.
The chancellor will confirm £400mn for an upgrade to the Transpennine rail route between Manchester and York — which she announced in the October Budget — although the work is not expected to be completed for over a decade.
