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At the end of June, the UK government and Homes England announced that grant funding provided through the government’s Affordable Homes Programme 2021-26 can be applied to affordable homes on estate regeneration projects, so long as those schemes provide additional affordable homes over and above the existing number. Previously, grant funding could only be applied in the development of brand new affordable homes. This is a welcome move, with a positive response across the affordable development industry.

Development of any kind, new or regeneration, has come under increasing financial pressure in recent months. Construction inflation has been running at levels not seen for decades, and debt finance at the ultra-low rates seen over the last decade are now non-existent. Requirements for second stair cores has seen many projects either abandoned or paused to allow extensive redesign to take place, and resident ballot requirements introduced in recent years can result in higher sunk costs at the outset of a project.

The ability to plug gaps in viability with grant funding is to be welcomed and has the capacity to accelerate existing regeneration and unlock viability in others. Unlike with new developments, regeneration involves existing residents who may have had promises made to them that projects are proceeding in certain timeframes. It is also difficult when there are residents living in alternative accommodation, who may not be able to move back to their neighbourhood when they were told. Managing resident expectations is crucial, and the option of applying funding to such projects will help ensure projects stay on schedule.

Registered Providers will need to show that their regeneration project does not merely deliver replacement homes, but produces net additionality - encouraging delivery of more affordable housing on estates. This is not usually a problem, as developers tend to proceed with larger and taller replacement buildings that provide cross-subsidy for delivery of the affordable homes. Projects with purely replacement homes are still ineligible for grant. Providers will also need to consider any historic grant in these schemes already as that historic funding liability will not be extinguished but will remain vested in the land.

Registered Providers (including local authorities) will need to consider whether to apply grant funding towards new development or regeneration opportunities. It is an extra option, which should help ensure grant funding is all used (and not handed back to HM Treasury).

Critics may argue that regeneration requires certainty of funding over a longer period of time than the five year grant funding cycles can provide. However, it is a clear message from Homes England that it is engaging with the market, and encourages registered providers and developers to come forward with proposals. Expanding the eligibility criteria for funding should plug more viability gaps, unlock capacity and in in turn increase the speed of delivery.