The Autumn Budget 2026 reiterated that housing remains among the government's priorities, with additional funding for social housing, support for first-time buyers and measures designed to make housebuilding easier. For housing associations, there are some welcome announcements, particularly around land costs.
However, the Office for Budget Responsibility's (OBR) latest forecasts paint a more challenging picture as higher borrowing costs, weaker housing market activity and rising development costs continue to weigh on the sector. The Budget provides additional opportunities, but housing associations still need to balance their development ambitions against financial pressures.
More money for social housing
The headline announcement is an additional £1.5 billion for the Social and Affordable Homes Programme, taking the government's total commitment to more than £40 billion over ten years.
While the additional funding is expected to support around 10,000 homes in England, it is prioritised for council housing rather than general social housing provision, but extra grant provision is welcome across the social homes sector. Funding will be distributed between 2027-28 and 2030-31, increasing over that period to help councils build capacity.
For housing associations, this may provide further opportunities to expand development programmes and work alongside local authorities. The emphasis on council housebuilding (the Prime Minister has previously committed to delivering the biggest boost to council house building since the post-war period) suggests that housing associations may increasingly need to consider partnerships and joint delivery arrangements to maximise opportunities.
In relation to existing grants, housing associations will still need to demonstrate that schemes are financially viable, particularly where rental income must support substantial long-term debt.
Lower development costs and fewer obstacles
One potentially valuable announcement is the introduction of a zero rate of VAT on land sold to relevant registered social housing providers from April 2027. Depending on the VAT treatment of individual transactions, this could reduce acquisition costs and improve development viability. The benefit will be particularly welcome where expensive land and construction costs have made schemes difficult to progress.
The government also announced an exemption from Biodiversity Net Gain requirements for residential brownfield developments on sites up to 1.5 hectares, alongside commitments to simplify planning and avoid major changes to building regulations for the remainder of Parliament, except for building safety improvements.
These measures should provide greater certainty for developers, although their practical impact will depend on implementation and whether they meaningfully reduce development timescales.
A more difficult housing market
Despite the government's ambitions, the OBR has significantly downgraded its housing forecasts. It now expects 190,000 fewer net additions to the UK housing stock over its forecast period compared with its March projections. Annual net additions are expected to remain around 220,000 in 2026-27 and 2027-28, before increasing to 260,000 by 2030-31.
The OBR also expects residential investment in 2030 to be approximately 6.75% lower than previously forecast. These revisions reflect persistent challenges, including higher financing costs, weaker demand and regulatory pressures.
The focus is often on new development, but for housing associations depending partly on market sales or shared ownership receipts to fund affordable housing delivery, the weaker housing market delays sales, reduces cash receipts and increases borrowing requirements.
The government's new £4.7 billion Your First Home equity-loan scheme, supporting around 70,000 first-time buyers, may provide some support. Unfortunately, the OBR expects its overall impact on house prices and new housing supply to be marginal given the small size of the scheme, but every little helps.
What about borrowing costs?
For housing associations, the cost of debt remains one of the most important considerations. The Budget did extend preferential PWLB Lending Facility borrowing rates for council housebuilding into 2027-28, but housing associations do not directly benefit from this arrangement.
Housing associations remain dependent on bank lending, capital markets and other funding sources, where pricing continues to reflect wider economic conditions and individual creditworthiness.
The OBR expects higher interest rates to continue weighing on economic activity, while borrowing costs remain elevated relative to recent years.
This makes funding strategy particularly important. Housing associations approaching refinancing dates, considering new development borrowing or managing significant floating-rate exposure should carefully assess the implications for interest costs, liquidity and covenant headroom.
Existing homes remain a major priority
Housing associations also face significant expenditure on maintaining existing properties, improving energy efficiency and meeting building safety requirements.
The Budget reduces capital grant funding for the Warm Homes Plan by £1 billion, although the government states that most funding for low-income households and social housing is protected.
Meanwhile, measures to reduce household energy bills, including an extended electricity VAT reduction and a £100 payment for eligible households, should provide some relief for tenants.
Lower household costs may help rental affordability and collection performance. Nevertheless, housing associations will need to continue funding substantial investment in their existing housing stock, potentially competing with resources available for new development.
Looking ahead
The Budget demonstrates a clear political commitment to increasing housing supply, with additional grant funding and measures intended to improve development viability. However, the OBR's forecasts highlight the considerable gap between the government's ambitions and the conditions currently facing developers.
For housing associations, the challenge is therefore not simply identifying opportunities for growth, but determining how much additional investment can be supported sustainably. With development costs elevated, borrowing relatively expensive and existing stock requiring substantial investment, robust financial planning will remain essential.
Housing associations should review development assumptions, assess refinancing exposure and consider the balance between fixed and floating-rate borrowing, alongside maintaining sufficient liquidity to manage unexpected expenditure or delays.
Arlingclose can assist in these areas, as we already do for around 175 public, private and third sector organisations. For a brief discussion, please get in touch with nkeeling@arlingclose.com.
