Budget 2015: George Osborne’s new housing policy will cut affordable house building by 14,000

Housing associations won't be able to afford to build more homes

Housebuilding will suffer from the policy (GETTY IMAGES)

A new housing policy announced in George Osborne’s budget will reduce affordable house building by around 14,000, the Government’s spending watchdog has said.

The Office For Budget Responsibility, set up by the Chancellor in 2010, said restrictions on housing association rents would have a knock-on effect on building.

Housing associations build homes by borrowing against their future rents and forcing them to reduce rents by 1 per cent a year will make it more difficult for them to build.

“The Government’s decision to impose 1 per cent annual rent reductions in the social rented sector for four years from April 2016 will directly reduce social landlords’ rental income, and therefore their financing for, and returns to, investing in new housebuilding,” the OBR said.

“The adjustment would be broadly consistent with reducing housebuilding by housing associations by around 4,000 in 2019-20, when the full effect of the policy on their rental income has been reached.

“Over the forecast period, our assumptions suggest around 14,000 fewer ‘affordable homes’ will be built.”

The OBR estimates roughly a 10 per cent reduction in total homes output, or a fall in 4,000 a year out of 37,000 affordable homes built annually by housing associations.

Mr Osborne also plans to force housing associations and councils to charge tenants earning more than £30,000 or £40,000 in London market rents rather than social.

The spending watchdog also warned that the measure could add £60bn to the national debt because forcing new policies on housing associations could make them count as part of the public sector.

“There is a risk that Government policies – including the social rent measure in this Budget and the Right-to-Buy proposals that are not yet firm enough to be included in this forecast – could prompt the ONS to reconsider ... classification,” the economists warned.

“If housing associations were to be classified as part of the public sector, their approximately £60bn of debt would be added to the [public sector net debt].”

Housing associations are not-for-profit private landlords that manage a large part of Britain’s social housing stock.

The Conservatives also say they will extend the powers of Right To Buy to association tenants, which will allow them to buy their homes at discounts.

Housing sector figures have warned that that policy could significantly undermine associations’ finances, with others suggesting a legal challenge could be brought against ministers.