Funding affordable housing: the role of the private sector
“Private finance must find a role in future affordable housing programmes.” – Julian Ashby, HCA
As we’ve discussed before, the definition of “affordable” in today’s property market is unforgivingly fluid. Currently, affordable housing, in the eyes of the government at least, encompasses a somewhat broad spectrum, with everything from social rented housing to any owned property whose mortgage repayments sit below average market levels but above the rent paid in rent on council houses. In short, the affordable sector is something of a mystery to many. But, within broad spectrums, comes great opportunity. This is how many private sector investors are seeing the current situation, anyway.
Private sector investment has been steadily growing since 2007, with total bond issuance increasing from £0.1bn to £2.97bn by 2013, according to JLL’s affordable housing report of 2014.
With many feeling the strain of a turbulent economy and troubled markets. For hedge funds and insurance companies, in particular, affordable housing offers a safer haven for investment. The thinking for many is that councils and local authorities offer greater stability and therefore a secure investment – in the words of Canada Life’s Michael White, “we are looking for long term secure income cash flow investments that leave the Registered Provider in direct control of the assets”.
This comes as good news to many cities, such as Luton, whose pressing housing crises may be alleviated by investment from companies and funds such as these. Private sector investment into affordable housing allows homes to be rented at a much lower rate, making sure more people have a roof over their heads. With councils’ support to maintain and manage housing, this could prove a step in the right direction to providing more, genuinely attainable, homes.
What’s more, this change, as well as Sajid Javid’s promise to write-off housing associations’ debt to the state, should alleviate some of the pressure on these organisations and create a stable environment for investment in new housing.
- Where does the Private Rented Sector fit?
- The HCA Infrastructure Fund - What is available & how are they looking to get involved when it comes to funding & investment?
What are the opportunities?
The time is ripe for private sector investment in affordable housing. Diversification of any investment portfolio is key, and whilst the county is crying out for more genuinely affordable housing, returns will be high for investors in the sector. In the eyes of the investor, the opportunities somewhat outweigh the challenges. Whilst winning over Registered Providers and navigating political interference remain the greatest challenges, long-term stability, low risk and transparency make affordable housing an ideal opportunity for investment.
JLL’s report uncovered the ideal investment situation for funds and the like entering into the affordable housing sector. Private investors are looking for a yield of 4%, on average, with a deal size of around £40m per investment; across the portfolio, the majority of investors are looking to spend around £100-200m.
- Does devolution create an environment where it is easier to deliver & easier to invest?
- Which tenures are the real opportunity areas & how do they work for investment?
- What are the long-term opportunities and how do housing associations see the investor role?
Where will this take the sector?
Whilst housing is very much on the agenda for both the PM and the Mayor of London, a simple lack of funds, coupled with recent political developments, such as Brexit, have only worked against any plans to tackle the UK’s current crisis.
Housing associations have proved their worth time and again in keeping output up, even in difficult times, and their recent privatisation should help to steady the ground for further investment and construction. With high demand for this kind of property, partnerships between the public and private sectors will help to increase housebuilding output, keeping organisations on both sides afloat.
As investors continue to seek out long-term partners and investments, focus will largely fall on Registered Providers with proven covenant strength. Simultaneously, RPs will be forced to contemplate asset management and development programmes with a lower grant environment front and centre in their minds. With private involvement forever growing, RPs and investors must find a way to work together to provide new homes that meet their needs and the needs of the British homeowner.
- Are the various Joint Venture and Investment Models between the Public & Private Sectors now the future of UK Housing Delivery?
- The role of the housing association in the national residential development market in 2018 and the future – what role can they play in delivering the housing that is needed?
- How the future housing market is a real economic opportunity for both market participants and the country as a whole.
We’ll be discussing the role of private sector funding at Affordable Housing 2018. Returning for its 12th year, the must-attend event will provide delegates with a full update on current market activity as well as offer the opportunity to network with some of the property industry’s leading players. Book your place to gain valuable insight into the current state of the market.