London council becomes latest to scrap plans for affordable housing scheme over cost hikes

“While the decision recommended in this paper not to proceed with the proposed scheme at Hathaway Crescent is a difficult one, we believe it is on balance the right decision for us to take. 

“We hope that, in due course, we will be able to bring forward alternative proposals for the site,” it said.

The report put the cost increase down to “exceptional levels of construction inflation”, up by almost 30% between when the contracts were agreed and the start of the work, as well as delays to the work starting in “securing necessary statutory consents, vacant possession and discharges of planning conditions”.

It said some of these challenges were “exceptional” and that “others could have been more effectively foreseen and managed by the project team and other council departments”. 

The council has launched a full audit to establish where internal processes and risk-reporting mechanisms failed to identify or highlight emerging issues.  

In June 2021, Newham approved a four-year housing delivery plan called Homes for People: Newham housing delivery strategy 2021-25.

The delivery plan sets out a pipeline of projects, including the Affordable Homes for Newham (AHfN) programme. The scheme has resulted in 1,012 social rented homes started on site by March 2022 across various sites across Newham.

However, the report described the four-year period as “unfortunately one of the most turbulent in recent history”, including the coronavirus pandemic and the war in Ukraine.

“The Office for National Statistics reports a 27% increase in new build construction costs from June 2020 to June 2023,” it said. 

The council said programme delays and inflation have led to additional costs that have affected three “complex” schemes with “infrastructure challenges” in the programme: John Street, Greenhill, and Hathaway Crescent.

Challenges included requiring approval from statutory bodies to progress, which led to protracted negotiations with those organisations and internal council departments.

The report recommended continuing with the Greenhill and John Street projects, which combined will deliver 126 social rent and 25 intermediate homes, because there is now “reasonable certainty over cost”. 

“Moreover, despite cost increases, the cost per metre squared of John Street at £4,565 and Greenhill at £4,434 is within a reasonable cost bracket for Passivhaus Standard homes on complex sites,” according to the report. 

For Hathaway Crescent, “some key permissions remain unresolved” and “greater cost uncertainty remains, meaning further increases are possible”. 

“Moreover, costs per square metre of £6,886 already significantly exceed programme benchmarks,” the report said. 

The move follows a series of similar decisions taken by other councils. Islington Council recently scrapped seven schemes and a planned block on an estate from its homebuilding programme amid “intense cost pressures and significant risks”.

Earlier this year, Kensington and Chelsea Council revealed in a report it had paused four housing projects to review their viability after inflation led to a hike in construction costs. 

In December, Lewisham Council also revised its development programme amid “challenging” economic conditions.