Housing associations up and down the country are facing a funding dilemma. But the challenges for social landlords run much deeper than finance. Beehive co-founder Jonathan Bunt talks through some takeaways from the National Housing Federation Board Excellence Conference
Competing priorities and the need for large-scale investment in both new and existing homes are forcing HA boards to ask some serious questions about the future shape of their organisations.
Some would go as far to suggest that the sector that can no longer function the way it has for the last few decades, with a number of social landlords now thinking of, and pursuing, new ways to address the funding shortages in the sector.
So how should boards be approaching this? How can these challenges be quantified and factored into business plans over the next decade? Are there opportunities to release capacity through asset management? And is it time to think differently about sector partnerships and players?
These were some of the (significant) discussion points at a session I chaired at the recent National Housing Federation (NHF) Board Excellence event, which yielded a number of interesting ideas.
Joining me on the panel were Alison Thain, Chair of Sage Housing, Rob Beiley partner at Trowers & Hamlins and Catherine Raynsford, Director of Stakeholder and Investment Management at Hyde.
A turning point
The feeling amongst the panel was that the sector has now reached a turning point where the aforementioned funding challenges mean a combination of grant funding and access to the debt capital markets will no longer suffice.
This perspective was articulated in a recent white paper by L&G and the British Property Federation (BPF) ‘Delivering a Step Change in Affordable Housing Supply’ which recommended that as much as £10bn of equity from investors is needed to reach a target of 145,000 affordable homes each year.
The panel suggested that traditional ways of working, government support, and consolidation and merger will only go so far – it’s time to embrace new partners.
Shared purpose between investor and HA
While there is no good time to be short of funding, the UK affordable housing sector’s financial constraints coincide with the rising demand for quality Environmental, Social and Governance (ESG) options within the investment community.
The sector is well placed to become a major beneficiary of this type of investment given its shared purpose and commitment to providing housing for those most in need of it.
The creation of the Sustainability Reporting Standard for Social Housing (SRS) is a positive development and sets the tone for ESG in the sector. Prospective investors can see from the outset how their investment will be used and the outcomes it leads to. This will in turn weed out the investors who are simply looking to turn a quick profit.
Panelists highlighted the risk of greenwashing within the sector and suggested housing associations should be aware of this. To prevent the sector being seen as an opportunity for investor greenwashing there is a need to articulate what ESG means in the context of affordable housing. For example, defining early on tangible parameters such as genuinely affordable rent levels, energy performance and social impact targets.
Rob Beiley, who also chairs the BPF’s Affordable Housing Committee, said it is crucial that new entrants get their message right from the outset, to assuage the negative connotations some have of for-profits.
Questions on tenure
This also leads to a logical question around the types of homes new entrants can and would like to invest in. As Alison Thain highlighted, Sage has a mix of 60% affordable rent (including a number at social rent ) and 40% shared ownership with the former going to households in need nominated by the local authority.
It is important that a wave of new entrants to the sector does not undermine the current emphasis on affordability. We believe there should be a mix of all tenures with homes available at both social and affordable rent as well as shared ownership.
At Beehive we operate on an initial lease payment of 70-75% of the Local Housing Allowance to ensure they can be let by councils at genuinely affordable rent levels whilst maintaining adequate cash flow. Crucially, these properties are let to households on local authority waiting lists who would otherwise be faced with the prospect of moving into temporary accommodation or enables them to move out of it.
Involving smaller HAs
As a board member on a smaller housing association, I was particularly interested in this part of the discussion.
Understandably it has been the larger organisations in the sector, such as Hyde and Sage, who have lead the way on partnerships deals. However, new partnerships and innovative ways of working should not be limited to a select few.
Panelists agreed that smaller registered providers can club together to manage large set up costs and in other cases work with larger associations to get started.
Naturally the question of who owns and manages the property will be a primary concern for any housing association. The feeling amongst the speakers was that direct ownership of the properties is not essential so long as you work with a partner that you trust and that the association can exercise significant control over the homes.
Knowing the risks
As with any new operating model, there will be risks that must be managed on both sides.
It is important that in any agreement the housing association must maintain some level of control while ensuring its long term goals align with the institutional investor.
Key to the risk considerations will be the housing association’s board. Boards need to ask themselves fundamental questions when considering partnerships such as: what happens if demand falls? What happens if there is another four-year rent reduction? What happens if the homes suddenly require a large amount of investment?
There should also be early conversation around who shoulders the risk: the investor, the association or a mixture of both?
There is little doubt across the social housing sector that the current way of operating, including the current level of funding that is available, is unsustainable. This means housing providers need to be thinking about other solutions but these decisions should not be taken lightly and conversations should begin as soon as possible.
If you’d like to discuss any of the above, or hear more about Beehive Affordable Homes, please contact Jonathan Bunt via jonathan@beehiveaffordablehomes.co.uk
