Council ghettos may return as recession kills mixed estates

Housing associations are to stop building mixed estates of privately owned and social rented homes, prompting fears of a return to Sixties-style council ghettos, The Times has learnt.

For the first time in 20 years, new “affordable” estates of hundreds or even thousands of homes will no longer include houses for private sale because of the credit crunch.

Instead, a £2.5 billion emergency package of measures to bail out the social housing sector will channel funds into building subsidised rented accommodation for the four million people on council waiting lists and those unable to afford market rents.

Grants for housing association developments will rise and the Government will also put more equity into social homes as part of the programme, funded by bringing forward money from 2010-11, Sir Bob Kerslake, head of the Homes and Communities Agency (HCA), told The Times.

Since the 1980s policymakers have backed integrated developments where subsidised rented housing is evenly mixed with shared equity and full-ownership homes. There has been plenty of evidence that mixed housing boosts the prospects of poorer groups, raises employment and cuts crime.

But under the new model a third of the homes on an estate will be social rented homes at very low rates and the rest will be at subsidised “intermediate rents” – about 80 per cent of market rates – for those earning less than £60,000, Sir Bob said.

He disclosed in an interview that housing associations already had 10,000 homes for private sale or shared ownership that they were unable to shift because of the credit crunch.

These will now be turned into rented homes for those on council waiting lists and those on low incomes such as key workers and would-be first-time buyers. In addition, thousands more social homes will be built.

“People are now reluctant to build developments where there is a significant financial risk,” Sir Bob said. “In the past we often had a mix of 30 per cent social housing, 30 per cent private homes, and 30 per cent shared ownership.

“In future we will keep to the same proportion of social rented and provide intermediate or subsidised rents for the rest.”

The move, which is causing huge tensions with housing organisations, is part of Gordon Brown’s fiscal stimulus to keep construction going to save both jobs and skills. But it will also bail out housing associations, many of which are now under threat because of the collapse of the housing market.

David Orr, the director of the National Housing Federation Trust, said that many housing associations would try to resist the move. “We are not going to go back to the mono-tenure estates of the past. Half of our housing developments are small, with ten to twenty homes, which could be scattered next to existing private homes. We are all aware of the dangers of building mono-estates of just social housing.”

Tony Travers, a local government expert, said that the Government and the agency were trapped because of the market collapse and had no option but to build social homes only. “With only social and intermediate rents there is no hope of avoiding relatively low-income areas. There is now a real risk of embedding the problems associated with poverty such as unemployment and poor education, without the benefits of a more affluent owner-occupied community,” he said.

Most of the 85 associations that build estates rely on private sales to subsidise their rented homes. Social housing built by the private sector has also dried up. Until this year 58 per cent of social homes were built by the private sector under so-called Section 106 agreements which, as a condition of planning permission, required developers to ensure that 25 to 50 per cent of the homes were for social rent or shared equity. But developers have now reached deals with councils to cut out the affordable housing which would have been worth £4.5 billion to councils over the next three years.

Sir Bob told The Timesthat once the recession was over many of the homes would ideally move into shared ownership, with the tenant taking out a stake in the house and in the longer term it could be sold completely once the sector picked up.

He made clear that each organisation would be given a different tailored package, with some given much higher grants. At the moment associations are usually given only a 40 per cent grant for developments, having to raise 60 per cent from banks or developers.

Sir Bob said the grants would be higher but would differ between associations depending on need. He also said that the agency would be prepared to buy an equity share in homes. “We are exploring the feasibility of converting existing low-cost ownership funding with the expectation – in the medium term – of a return once the homes are sold.”

The Homes and Communities Agency, which began work last week, is responsible for Gordon Brown’s plan to build three million new homes by 2020, including 70,000 social homes every year.

Construction of social homes fell dramatically under Labour’s first two terms and is only just reviving under Mr Brown, but only about 22,000 homes for social rent were built last year. During the same period there has been a huge increase in the numbers waiting for council homes, a figure predicted to rise from four million to five million by 2010 as the recession bites and more people’s homes are repossessed.