Housing estateA public spending watchdog has warned of "key risks" in the Government's plans for building thousands of new affordable homes.

Housing providers face having to borrow extra cash and are being allowed to ramp up rents after ministers cut funding for building projects by around two-thirds. But shifting the funding burden on to councils, arm's-length organisations and housing associations means they could be overstretched if they are hit by increased borrowing costs, according to the National Audit Office (NAO).

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It warned that nearly a fifth of contracts with providers are yet to be signed and some organisations have raised concerns about the levels of rent they will be able to charge.

More than half of the 80,000 planned homes are not due to be delivered until the final year of the Department for Communities and Local Government's Affordable Homes Programme and there is no room for slippage, according to the NAO report.

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It also found the previous government's funding method offered better value for money over the long term, but cost more than the coalition could afford now. Housing benefit costs will go up by £1.4 billion, it added. Overall, the NAO found the programme was a success with providers committing themselves to building more homes than originally planned.

Labour's Margaret Hodge, who chairs the public accounts committee, said: "My concern is that the department is simply passing the costs of building new homes on to tenants who can ill afford to pay higher rents. The department has scrapped the target rent guidelines for this programme, leaving vulnerable tenants increasingly dependent on housing benefits and increasing the welfare bill by £1.4 billion.

"It is shocking that for every new home built under this programme, the taxpayer will have to pay £17,500 in increased housing benefit costs. The department has refused to be transparent about just how many tenants will be affected and by how much. With many providers considering alternatives to traditional bank funding, including financial instruments such as corporate bonds, the department must be very cautious about providers' increased financial exposure."

Under the plans the Government pays £20,000 per house on average, compared with £60,000 under Labour's version of the scheme. Providers can now charge up to 80% of the market rate on new and existing properties. According to the NAO, average weekly rents will range from around £100 a week in the North East, Yorkshire and the Humber to £182 a week in London.

Amyas Morse, head of the NAO, said: "The Affordable Homes Programme has made a good start, with providers committing themselves to building some 24,000 more homes than originally expected. There are key risks, however, including the fact that more than half of the homes are planned for the final year, with no room for slippage.

"The final judgment on the success of the programme will depend on how well these risks can be managed between now and 2015."

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