Subsidy Advice Unit Report on Social and Affordable Homes Programme 2026-36 to Homes England
Introduction
The Subsidy Advice Unit Report on Social and Affordable Homes Programme 2026-36 to Homes England represents a critical evaluation of one of the United Kingdom’s most ambitious state aid initiatives in the housing sector. Published on 19 December 2025, this report was prepared by the Subsidy Advice Unit (SAU) following a referral from Homes England on 7 November 2025.
The document assesses Homes England’s own compliance assessment (referred to as “the Assessment”) of the proposed Social and Affordable Homes Programme 2026-2036 (the Scheme) against the requirements of the Subsidy Control Act 2022. While the SAU’s advice is non-binding, it provides a rigorous, evidence-based critique that highlights both strengths and areas for improvement. This summary captures the essential elements of the report, including the Scheme’s objectives, the SAU’s evaluation across the four-step framework, and the specific recommendations made to Homes England.
Overview of the Referred Scheme
The Social and Affordable Homes Programme 2026-36 is designed to address a pressing equity concern: the inability of many households to afford market-rate housing. Homes England, which operates outside London, has been allocated up to £31.2 billion of the Programme’s total £39 billion budget, with the remainder managed by the Greater London Authority. The overarching public target is to deliver around 300,000 social and affordable homes over ten years (2026–2036), with completion of housing permitted until 31 March 2039.
The Scheme provides grant funding for the development of social rent, affordable rent, shared ownership, and rent-to-buy homes – collectively referred to as “Affordable Housing”. It also covers acquisition of land or property for such purposes. Funding is accessible via two routes: Continuous Market Engagement (project‑by‑project or portfolio basis) and Strategic Partnerships (long‑term, programme‑level delivery). Eligible beneficiaries include registered providers (both non‑profit and for‑profit), local authorities, housebuilders, and developers.
A key feature noted in the *Subsidy Advice Unit Report on Social and Affordable Homes Programme 2026-36 to Homes England* is that the Scheme operates without a cap on the total grant a single recipient may receive. There is also no maximum grant intensity, although Strategic Partnerships have a rolling limit of £250 million to £700 million at any one time. The Scheme is classified as a Scheme of Particular Interest because individual subsidies are expected to exceed £25 million, based on experience from previous programmes.
General Observations from the SAU
The SAU acknowledges several strengths in Homes England’s Assessment. First, the Assessment clearly demonstrates that Homes England considered alternative policy instruments (e.g., demand‑side subsidies, loans, equity, planning obligations, regulation) and provided strong evidence why a subsidy scheme was the most appropriate option – satisfying Principle E of the Subsidy Control Act. Second, the Assessment vividly describes the counterfactual: without the Scheme, none of the planned 300,000 affordable homes would be delivered as Affordable Housing. This shows compliance with Principles C and D (change of economic behaviour and additionality). Third, the Assessment systematically addresses the Service in the Public Economic Interest (SPEI) requirements under Section 29 of the Act.
However, the SAU also identifies four main areas for improvement. These relate to proportionality (Principle B), subsidy design to mitigate competition risks (Principle F), a more systematic evaluation of market characteristics and effects on competition and investment (also Principle F), and a fuller balancing exercise (Principle G). The remainder of this summary elaborates on each of these points as they appear in the *Subsidy Advice Unit Report on Social and Affordable Homes Programme 2026-36 to Homes England*.
Step 1 Evaluation: Policy Objective, Market Failure or Equity, and Appropriateness
Under Step 1, the SAU examined whether the Scheme pursues a specific policy objective to remedy an identified market failure or equity concern (Principle A) and whether a subsidy is the right tool (Principle E). The Assessment clearly states the policy objective: increase access to housing for those who cannot afford to buy or rent at market price by increasing the supply of Affordable Housing in England. At least 60% of homes supported must be for social rent.
The SAU finds that the Assessment convincingly evidences the equity rationale. Homes England provides data on rising numbers of households on local housing waiting lists, record levels of temporary accommodation, lower average incomes of tenants in Affordable Housing, and the role of social housing for vulnerable groups (disabled, long‑term ill). While market failure is not the primary rationale, the Assessment notes positive externalities such as removal of disamenities from brownfield land development and creation of community spaces.
On appropriateness, the Assessment explains that providers of Affordable Housing already borrow maximally from private markets; any remaining viability gap requires grant funding. Alternatives such as demand‑side benefits, government loans, equity investment, planning obligations (Section 106), and regulatory changes are all insufficient on their own. The SAU concludes that Homes England “clearly explains and evidences why a subsidy scheme was the most appropriate option.”
Step 2: Change of Economic Behaviour and Additionality
Step 2 focuses on Principles C and D the subsidy must bring about a change in the beneficiary’s economic behaviour that would not happen without it, and the subsidy should not normally compensate for costs the beneficiary would have funded anyway. The *Subsidy Advice Unit Report on Social and Affordable Homes Programme 2026-36 to Homes England* praises the Assessment for its detailed counterfactual analysis.
In the absence of the Scheme, homes delivered as Affordable Housing would be zero for the 300,000 target. Sub‑market rental income cannot service the debt required for full capital costs. Existing complementary methods (e.g., Registered Providers using operational surpluses, Section 106 agreements) would continue but yield only around 21,000 affordable homes per year far below the Scheme’s target. Therefore, the Scheme induces additionality: without grant funding, the planned homes would not exist.
To ensure the Scheme does not fund costs that beneficiaries could bear themselves, Homes England uses a viability gap analysis. For Continuous Market Engagement, individual project bids are assessed against full capital costs, revenue assumptions, and benchmarks. For Strategic Partnerships, similar checks occur at programme level, including benefit‑cost ratio assessments and challenge panel reviews involving HM Treasury. The SAU accepts that the Assessment clearly explains the change in behaviour, but later (under Step 3) it asks for more detail on how the viability gap exercise will be implemented in practice.
Step 3: Proportionality and Minimising Negative Effects on Competition and Investment
Step 3 involves Principles B (proportionality) and F (minimising negative effects on competition and investment). This is where the *Subsidy Advice Unit Report on Social and Affordable Homes Programme 2026-36 to Homes England offers its most critical feedback.
Proportionality (Principle B)
Homes England states that grants will be limited to the minimum necessary by addressing the viability gap. The SAU acknowledges that the Assessment describes monitoring, clawback mechanisms, and post‑completion audits. For example, if outturn costs result in higher grant intensity than planned, Homes England can reduce final grant amounts or recover money. If a home ceases to be affordable, grant repayment is triggered.
However, the SAU identifies a need for greater practical detail. Specifically, the Assessment should:
Explain the comparative exercise Homes England will undertake when allocating funding to beneficiaries.
Describe how this will incentivise firms to control their costs so that only the minimum necessary is funded.
Clarify how sampling of recipients under Continuous Market Engagement ensures accurate cost and revenue reporting.
Set out Homes England’s options when a project’s viability gap becomes larger than forecasted, especially beyond what Homes England is willing to fund.
Explain how Homes England will respond if overlapping subsidies are identified (e.g., from the Recycled Capital Grant Fund) to ensure proportionality.
Minimising Negative Effects on Competition and Investment (Principle F)
The SAU praises some design features: the Scheme is open to any Affordable Housing developer (including for‑profit, unregistered housebuilders); grants are ringfenced for capital costs; and new entrants can access Continuous Market Engagement throughout the Scheme. However, the SAU raises significant concerns regarding concentration risk and lack of caps.
The Assessment notes that the stock of homes owned by housing associations has become increasingly concentrated, with a small number of providers owning substantial shares (over 10,000 homes each). Yet the Scheme has no caps on total grant per recipient and no maximum grant intensity. The SAU warns that this could lead to a small number of organisations supplying a large share of new affordable homes nationally or regionally, reducing competition, choice, and quality in the long run.
The SAU recommends that the Assessment should:
Explain why there are no caps on total amount a recipient could receive and why there is no maximum grant intensity.
Describe how the Scheme’s appraisal criteria and processes will take into account the effects of subsidies on competition, and how outcomes will be monitored.
Additionally, the SAU suggests that Homes England should explain how disadvantages to new entrants are minimised under both funding routes – for instance, how deliverability criteria are applied to new entrants, and whether awarding “strategic partner” status may affect competition.
Market Characteristics and Competitive Effects
The SAU finds the Assessment’s market analysis somewhat incomplete. The Assessment identifies the relevant market as organisations that build and/or own Affordable Housing long‑term, with a geographic scope of England (excluding London). It acknowledges that Affordable Housing subsidies may crowd out some private homes (i.e., homes that would otherwise be sold at market rates). However, the SAU calls for a more systematic evaluation of:
Market size, participants, concentration, and geographic scope of competition.
How the award of subsidies may affect competition between suppliers active in particular regions.
Impacts on related markets, such as the management and ownership of Affordable Housing and shared ownership (if a link exists between building and management).
The SAU notes that data on how much different suppliers were awarded under predecessor Schemes (2021-26) could inform this characterisation.
Step 4: The Balancing Exercise (Principle G)
Under Step 4, public authorities must demonstrate that the benefits of the subsidy outweigh its negative effects, particularly on competition, investment, and international trade. The *Subsidy Advice Unit Report on Social and Affordable Homes Programme 2026-36 to Homes England* appreciates that the Assessment clearly sets out positive effects: delivery of 300,000 homes, reduction in temporary accommodation, health benefits, wellbeing gains, labour mobility, and land value uplift.
The Assessment also lists potential negatives: crowding out of private supply, social housing providers acquiring land in preference to market providers, disproportionate use of contractor resources, reduced demand for private rental, and the risk that complex processes may exclude smaller beneficiaries (favouring larger registered social landlords).
Homes England argues that these negative effects are small and outweighed by benefits, because affordable home recipients could not otherwise buy or rent on the open market, land and contractor markets are competitive, and Scheme design mitigates exclusion.
However, the SAU finds that the balancing exercise is limited due to the shortcomings identified under Step 3. Because the Assessment does not fully evaluate market concentration, competition effects, or the risks of unlimited grants to single recipients, it cannot robustly quantify or justify how benefits outweigh those specific negatives. The SAU recommends a more detailed, evidenced explanation of the scale of potential market distortions before concluding the balance is favourable.
Other Requirements of the Act: Section 29 (SPEI)
The Assessment concludes that Section 29 of the Subsidy Control Act 2022 is engaged because the Scheme involves a Service in the Public Economic Interest (SPEI) – namely, the provision of social and affordable housing. The Statutory Guidance explicitly lists social housing as an example of a SPEI.
Homes England then addresses each element of Section 29:
Limited to what is necessary (s29(2)): Each grant is calculated by reference to the project viability gap, ensuring no subsidy exceeds the minimum required.
Transparent manner (s29(3)-(5)): Subsidies are provided under written grant agreements that set out the terms, subsidy calculation, review mechanisms, and recovery provisions.
Regular review and recovery (s29(6)-(7)): Mechanisms exist to review subsidies and recover excess funds.
The SAU finds that the Assessment “clearly considers the application of each of the section 29 requirements” with significant reasoning and evidence. This includes protections where the developer, not the landlord, receives the subsidy – contractual clauses ensure the ultimate beneficiary (tenant or shared owner) still receives the affordable benefit.
Key Recommendations Summary
Drawing together the analysis, the *Subsidy Advice Unit Report on Social and Affordable Homes Programme 2026-36 to Homes England* makes the following actionable recommendations:
Proportionality: Provide practical details on how the viability gap exercise will incentivise cost control; explain comparative allocation exercises; clarify sampling methods and responses to larger‑than‑forecast viability gaps.
Competition and concentration: Evaluate the risk of a small number of organisations dominating supply; explain why no caps on total grant or grant intensity exist; describe how competition effects will be monitored and taken into account in appraisal.
Market analysis: Systematically evaluate product markets, market size, participants, concentration, and geographic scope; consider regional supplier shares and effects on adjacent markets (management, shared ownership).
Balancing exercise: Provide a fuller, more evidenced account of potential negative effects (including scale of distortions) before concluding benefits outweigh negatives.
Conclusion
The *Subsidy Advice Unit Report on Social and Affordable Homes Programme 2026-36 to Homes England* is a model of thorough, constructive scrutiny. While Homes England has produced a largely compliant Assessment particularly on policy rationale, additionality, and SPEI requirements, the SAU identifies critical gaps in proportionality, competition analysis, and the balancing test. If Homes England addresses these areas, the Scheme will be better positioned to deliver its ambitious goal of 300,000 affordable homes without inadvertently undermining competition or wasting public funds. For policymakers, housing associations, and developers, this report underscores the importance of designing subsidies that are not only generous but also smart, proportionate, and market‑aware.
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