Many of these initiatives, and some more long term commitments, are directed specifically at the delivery of affordable housing. Outlined below is a brief description of a number of initiatives where Jones Lang LaSalle sees opportunities for the private sector to capitalise on the delivery of affordable housing.
Policy Background
Central Government policy is to maintain the target of building 3,000,000 new homes in England by 2020.
The London Mayor has announced that the London wide 50% affordable housing requirement will be scraped. However, the target of delivering 50,000 affordable homes by 2011 will remain. Each London Borough will be given a target number of affordable units that they must deliver.
Government has outlined a number of new measures designed to encourage RSLs to continue developing and acquire new build units.
Initiatives
Rent to Home/Buy – This measure will allow first time buyers to rent a new build property with the option to purchase after five years. A number of RSLs are now looking at this model and it is expected that a number of schemes will come forward soon. This new product will give RSLs an alternative delivery model and it is hoped that this will kick start a number of schemes that would otherwise not have been developed.
Continuous Market Engagement – The Housing Corporation has made it easier and quicker for Housing Associations to bid for grant funding. It has moved away from Housing Associations only being able to bid for grant on a quarterly basis. This will speed up the response from The Housing Corporation and allow Housing Associations to move quicker when assessing the viability of developments.
National Clearing House – The Housing Corporation has ring-fenced £200m for Housing Associations, in partnership with house builders, to bid for a grant to allow private sale units to be purchased and provided for affordable housing.
National Affordable Housing Programme – Central Government has committed to spending £8.4 billion on the delivery of affordable housing from 2008 to 2011. This will deliver over 155,000 new affordable homes, three times more than previous targets. So far only 40% of the £8.4bn has been allocated, meaning there is still in excess of £4.5 billion available to Housing Associations over the next three years.
The Housing and Regeneration Act – This new act of parliament, passed in July, removes the term "Register Social Landlords" and replaces it with two definitions of "Registered Providers". These are "profit" and "not for profit". This change technically allows any organisation to provide and manage affordable housing as long as it is registered with the Home & Communities Agency (see below).
Increased Opportunity
Increased level of grant funding – Housing Associations are now seeing an increase in the level of grant that The Housing Corporation are willing to provide. Although this is not the case in all regions, most RSLs are reporting that grant levels have increased. In some areas grant of up to £100,000 per unit is now forthcoming for rented units.
Homes and Communities Agency – In December, English Partnerships and The Housing Corporation will merge to form the Homes and Communities Agency (HCA). By merging the government’s funding and regeneration bodies it is hoped that the process of providing affordable housing throughout the UK will become more streamlined.
Local Authorities and ALMOs – Grant funding is now open to both Local Authorities and Arms Length Management Organisations (ALMOs) that have secured partnership status with The Housing Corporation. The increase in the number of organisations able to bid for grant and develop affordable housing is seen as a key part of government policy to increase competition, and thus opportunities for the delivery of affordable housing.
Strategic opportunities – Some Housing Associations are looking at long term development opportunities and as such are beginning to work closer with house builders to unlock strategic sites through the formation of joint ventures. Housing Associations are forming closer relationships with house builders to promote strategic sites through the planning process and provide cash injection.
Cheaper debt – Housing Associations, although not immune to the current down turn, still have access to cheaper funding arrangements. Therefore, they are generally able to raise bank finance at a lower rate than private house builders. Housing associations are seeing sites that they have previously been excluded from and some housing associations’ are beginning to capitalise on market conditions.
Market Commentary
Housing Associations are generally taking a cautious approach to the current market conditions. Some have exposure to the private residential market which has hit their confidence and ability to take advantage of current conditions. Equally sales of intermediate housing, (shared ownership) have been effected due to the number of mortgage products reducing and increased lending rates. As a result, Housing Associations are preferring to deliver lower risk social rented units again. However, this has a major impact on the land or unit value that can be achieved without the benefit of cross subsidy from other tenures.
Craig Horn from Jones Lang LaSalle comments: "Housing Associations with the right level of grant funding and government support will be first back in the market to acquire sites. Supporting this view, there are a number of recent deals that demonstrate Housing Associations buying activity and that they are beginning to capitalise on opportunities available to them through current market conditions and the initiatives outlined above. Housing associations have started purchasing homes from house builders, utilizing grant funding from the National Clearing House, sites are being purchased unconditionally and change of use deals are taking place. We are also seeing Local Authorities accept lower levels of affordable housing to stimulated house building."
Advice to House Builders and Developers
Providing Affordable Housing through planning gain in the current market presents challenges to private housebuilders and developers that have not yet been resolved. "The initiatives outlined above will go some way to encourage housing delivery, but do not assist developers meeting affordable housing delivered through Section 106 agreements," says Craig Horn.
"Where sites are stalled due to depreciating land or sales values, we are seeing housebuilders taking the opportunity to improve their planning consents. Applications are being remade or revised and include Economic Viability Appraisals (i.e.: Three Dragons) to argue for a reduction in affordable housing and other Section 106 contributions. A number of Local Authorities are keen to see house building continue and are happy to consider a reduction in affordable housing to stimulate development. Although the current market presents many challenges, the right knowledge and expertise can help developers gain from the initiatives being introduced."
