Inside Housing – Commentary – Reclaimable VAT for HAs could create thousands of new homes

Small changes are important for results in times of crisis, he writes Geeta Nanda

Share lines


Small changes matter in a time of crisis for delivery, writes Geeta Nanda #UKhousing


It’s May 2024 and a general election is on the horizon. If there are only two inevitabilities about the upcoming elections, they are the following: (a) both major political parties will warn about the poor state of public finances and the need for prudence in public spending; and (b) the housing crisis will still be present on Election Day, with the need for a safe, affordable home on the minds of millions of people as they head to the polls.

So with budgets tight, how to address voters’ concerns and tackle the housing crisis will likely play a key role as the campaign moves into action. We heard how we can increase revenue with land value capture, gray belts, urban expansion and renewed partnerships.

Housing associations also continue to call for a long-term housing strategy and have spoken out about a review of rents and rent convergence to ensure we can continue to invest in our existing homes and build new ones. As costs and investment needs increase, the reality of the decline in the number of new homes being built is dawning on us.

It is wrong to assume that we should just sit back and wait for politics to develop when there are quick wins that can at least help now. Currently, housing associations must pay VAT on these works in addition to the costs of construction safety works. For MTVH alone, our irrecoverable VAT for 2022-2023 was £27 million, with a sector VAT bill of around £1 billion to £2 billion for essential building safety work.

This is certainly not an inevitability. Local authorities are able to reclaim the VAT they pay for essential safety work on buildings, creating an unnecessary inequity and the absurd situation where former social housing, which is now part of housing associations’ property stock, is liable for VAT when safety work is carried out carried out, despite the same residents paying the costs. the same rent if you live in the building.

While this inequality may not exactly scream out for an election issue, given its impact on development it is still another factor that is very much at the heart of the housing crisis. At MTVH, the additional cost of that £27 million for 2022-2023 consists of greater restrictions on our ability to borrow to the tune of approximately £360 million. This is a resource that, if we could access it, could help build approximately 1,500 to 2,500 much-needed affordable homes.

Our deepening housing crisis continues to blight the prospects of millions of people in the UK and the prosperity of the country generally. That housing associations are treated differently to local authorities when it comes to such a crucial funding issue such as VAT is not only inexplicable, it also creates further barriers to tackling the housing crisis by sucking away much-needed capital from some of the most effective housing associations. builders in the country.

Across the spectrum of ambitions and aspirations, the dire state of the UK housing crisis is there for all to see. From otherwise affluent young people trapped in rent due to a lack of affordable options, to the increasing number of poor sleeping conditions and the highest ever number of children in temporary accommodation, the fact that we simply do not have enough affordable housing for all rental periods cannot be overstated. enough.

Regardless of who forms the next government, they will need housebuilders. Despite these difficult times for housing associations, our potential in tackling today’s challenges is clear: the sector will build one in five new homes in the five years to 2021, despite declining subsidy funding.

“The fact that we simply do not have enough affordable housing for all rental periods cannot be overstated.”

While we will always need new money, the ability to do more with existing resources will also be critical to tackling the housing crisis. By treating housing associations as local authorities do and allowing us to reclaim VAT on our building safety costs, the government can help keep billions of pounds in the sector that can be invested in building the homes that so many across the country need.

Reclaimable VAT on construction safety works for housing associations may seem like a small, niche issue – far from the electoral success our political parties are looking for. Yet it is a small change that could make a difference to thousands of lives and demonstrate the seriousness with which Westminster’s housing crisis is being viewed. It is a policy from which we can all reap the benefits.

Geeta Nanda, managing director of Metropolitan Thames Valley Housing

Subscribe to our development and finance newsletter

Subscribe to our development and finance newsletter