What a fantastic thread - I mean that sincerely. It has brought in many of the arguements that the housing sector argues about on a daily basis, but some of them have been conflated in the thead.
So to clear up how Affordable housing finance works in England - outside London (London, Wales, Scotland and NI all have different ways of working).
Terms first -
Provider = HA, RSL, Stock owning councils, ALMOs, developers, community land trusts ect. If they are also managing the tenancies they will need to be registered with the Homes & Communities Agency (HCA) - (Registered Provider or RP)
Affordable Rent = up to 80% of market rent based on a RICS valuation, inclusive of service charges
Social rent= capped rent set using the formula set out in the HCA regulatory framework. AKA Target rent
New Affordable housing is paid for by using a mix of Provider finance (rent surplus, own resources, borrowing against future rental income streams and cross subsidy from open market sales), other public subsidy (sometimes a local authority will sell their land at a reduced receipt) and the remainder is made up using capital grant funding. The capital grant funding is treated as a debt on the balance sheets and is repayable if the property is sold on.
The reason for the capital grant is that it makes up the financial viability gap between the borrowing capacity generated by the difference in income between market and Affordable Rents.
This is further complicaetd by section 106 provision, where planners grant planning to a developer on the proviso that a proportion of the new houses are sold onto a RP at a reduced amount so that a sub market rent can be charged to the tenant. Additional grant cannot be used to subsidise these units.
Some new build affordable provision is also self financing - it may be that they have a high proportion of flats, the local authority has put the land in free. These units are known as nil grant units and are also offered at AR.
Grant can only be paid to units (except in exceptional circumstances) that are let on Affordable Rent
To increase the amount of new build finance availiable to a provider they can convert an agreed amount of properties from Social rent to AR. This is monitored and strictly enforced or otherwise the housing benefit costs would spiral.
Because the majority of the finance comes from borrowing against rental income in it is easier to build new properties in areas where the rents are higher. However this may need to be balanced against this is the higher land cost.
On another note all providers who recieve capital grant must undergo annual financial tests so that the grant can be protected - it was said earlier up thread that "cowboy HAs" are given grant funding. This is not the case.
Most RPs are not for profit organisations and will have a company structure that protects this, such as charitable status, co-op, or an industrial provident company. Many came into being when the stock was transfered from council ownership after tenant ballots. This was to access funding to bring the properties up to habital standards.
So in effect social / Affordable housing rent is subsidised, but from a variety of sources and the older the stock the less of a liability on the balance sheet, therefore the more available income to borrow against to build more Affordable housing. The tenants of today are subsidising the building of new Affordable housing in the future, as are the people buying new build properties with s106 provision on site, as are the general taxpayer through HB payments.
As to the argument as to why we provide social Affordable housing - is it for those most in need or to create stable communities I will leave to you ladies to decide.