Correspondence

Letter from Housing Minister to registered providers of social housing: Spending Review 2025

Published 12 June 2025

Applies to England

From: Matthew Pennycook MP, Minister of State for Housing and Planning

To: All Registered Providers of Social Housing

Re. Spending Review 2025: Social and affordable housing

Date: 11 June 2025

Following the conclusion of the Spending Review, I am writing to you to set out today’s announcements and how they will enable us to work in partnership to deliver the government’s commitment to the biggest increase in social and affordable housing in a generation.

The announcements made today cover the main elements of our social and affordable housing investment strategy in this Parliament. We will announce further details about other aspects of our reform programme, including in respect of future regulation on quality and safety and Right to Buy, shortly, so that you have the clarity and certainty you need to quickly ramp up investment in existing and new stock.

Over the past 11 months, we have taken decisive steps to prioritise investment in social and affordable housing. As you know, at Spring Statement we announced an immediate injection of £2 billion as a downpayment to support delivery of the new Affordable Homes Programme. That investment followed the £800 million in new in-year funding which has been made available for the 2021-26 Affordable Homes Programme and that will support the delivery of up to 7,800 new homes, with more than half of them being Social Rent homes.

Since coming into office, this government has prioritised working in close partnership with the sector. Having listened carefully to your views and concerns and engaged closely with your future plans, we were determined to provide you with the grant funding support and regulatory stability you need to deliver.

Grant Funding

Providing the biggest boost to social and affordable housing investment in a generation, we are confirming £39 billion for a successor to the Affordable Homes Programme over 10 years of starts from 2026-27 to 2035-36. For the first time in living memory we are giving providers a decade of certainty over the capital funding they will have available to build new, more ambitious housing development projects. This includes the ability to make contractual commitments over the full 10 years where providers want that long term certainty. For the avoidance of doubt, I want to make clear that the £39 billion announced yesterday is all new money for this Spending Review and beyond, over and above the £12.3 billion budget for the AHP between 2021-2026. The £39 billion includes the £2 billion ‘Bridge’ funding in 2026-27, which, as we said at the time, was a downpayment on the investment to be announced at the spending review. It does not, however, include the tail of funding already committed to individual social landlords under the previous programme. That will be an additional circa £2 billion for payments from 2026-30, linked to completions of homes under the current 2021-26 AHP. The programme will prioritise homes for social rent but will also fund a mix of tenures including affordable rent and shared ownership. We will publish further details shortly including on the kinds of homes and schemes it will fund and the timeline for opening bids.

The Spending Review also sets out that there will be £2.5 billion in low-interest loans to support new development, to complement commercial lending. We will be working closely with the sector and with lenders to design this and will set out more detail in the coming weeks.

Rent Settlement

The government is committed to setting a rent policy for social housing that enables providers to borrow and invest in new and existing homes, while also ensuring that existing and future social housing tenants are appropriately protected.

With those objectives in mind, we are today confirming that we will permit social housing rents to increase by CPI+1% each year from April 2026.

In order to give Registered Providers, lenders, and investors greater long-term certainty, and in light of the responses to the consultation we carried out last Autumn, we are doubling the length of the settlement from five to ten years.

In response to the consultation carried out last autumn, providers were clear that the level of investment in new and existing social housing that is needed to deliver on the government’s ambitions would not be unlocked unless a rent convergence mechanism is reinstated. Such a mechanism would allow rents on social rent properties that are currently ‘below formula’ (i.e. lower than the usual maximum that may be charged when a property is let to a new tenant) to increase by an additional amount, over and above the CPI+1% limit, up to formula level. This would be far fairer than a higher across the board rent increase, as it would only ask those who currently pay lower rents to pay a bit more.

The government is therefore today announcing that it will implement a convergence mechanism as part of the new rent settlement. The details of precisely how, and at what level, this mechanism will be implemented will be confirmed at Autumn Budget later this year, taking account of the benefits to the supply and quality of social housing, the impact on rent payers and the impact on the government’s fiscal rules. To inform this, we will shortly be publishing a focused consultation on how convergence will be implemented, with options for this being capped at £1 or £2 per week. The final decision will be announced at Autumn Budget.

Building Safety

The government is clear that the first and foremost priority for all Registered Providers must be to ensure their existing stock is safe. But we have heard how high the costs of remediation are for some providers; and that these liabilities are holding back new supply projects.

We will therefore for the first time give social landlords equal access to government remediation funding (the Building Safety Fund and Cladding Safety Scheme). We will invest over £1 billion in social housing remediation and make it significantly easier for social landlords to secure upfront capital for remediation through government schemes.

We have already identified many buildings that would benefit. Social tenants expect and deserve to feel safe in their homes - this investment will mean that remedial works can be completed much sooner, and that at the same time social landlords will be able to supply more of the new affordable homes that the country needs.

Warm Homes

DESNZ will communicate details on how future funding for the Warm Homes Plan will be allocated in due course.

Homelessness

Alongside protecting spending on homelessness and rough sleeping, the government is providing £100 million through the Transformation Fund for early interventions to prevent homelessness. We are also providing £950m capital for the fourth round of the Local Authority Housing Fund (LAHF), to support local authorities in England increase the supply of better quality temporary accommodation and drive down the use of Bed and Breakfasts for families with children. The fund will also provide safe and suitable housing for those on the Afghan Resettlement Programme (ARP). LAHF investment will provide local authorities with a lasting affordable housing asset for the future.

Housing Quality

As you will know, alongside our commitment to delivering the biggest increase in social and affordable housebuilding in a generation, the government is determined to drive a transformational and lasting change in the safety and quality of social housing.

I recognise that alongside confirmation of the funding packages detailed above, providers need certainty on the regulatory environment they are operating in, to manage their finances and increase ambitions on new supply. We will enable long-term investment in the sector with regulatory clarity by consulting soon on the Decent Homes Standard, Minimum Energy Efficiency Standard, and how we will implement convergence and will set out detail on Awaab’s Law.

Next steps

The Deputy Prime Minister and I are determined to tackle the fundamental causes of England’s acute and entrenched housing crisis with sustained focus, energy, and determination.

The package announced today, building on the progress we have made over the past 11 months, demonstrates that we are playing our part in realising that objective. We now need you to play yours, to rededicate yourselves to realising your core purpose and to gear up to maximise delivery and build the high quality social and affordable homes our people so desperately need.

Over the coming weeks, my officials and I will continue to engage closely with you in the lead up to announcing our comprehensive plans for social and affordable housing. I hope you will warmly welcome the announcements made today and I very much look forward to continuing to work with you at this exciting time.

Best wishes,

Matthew Pennycook MP
Minister of State for Housing and Planning