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Rob BeileyRob has over 20 years' experience advising housing associations, local authorities, developers and institutional investors on a broad ...more
More equity investment can only increase affordable housing supply
As equity investors target the sector, Rob Beiley sees opportunities for joint working between the new players and traditional associations
News of the entry of property investor Blackstone into the affordable housing sector (by its investment in Sage Housing Association) may have raised a few eyebrows, but in reality it is the natural extension of the trend that we have identified for the past year or so of new sources of capital being deployed in the sector.
Whether through the continued success of the housing real estate investment trusts (REITs), or – like Blackstone – through the establishment of new for-profit housing associations, this trend shows no sign of abating, and we are expecting a number of other significant investors to enter the arena this year.
“We are now seeing genuine equity investment rather than models that rely on the covenant strength of traditional housing associations.”
So what is behind this move and what does this mean for the sector more generally?
Investment by real estate funds in affordable housing is, of course, nothing new. But what is different is that we are now seeing genuine equity investment rather than models that rely on the covenant strength of traditional housing associations (for example the sale and leaseback models). This is, I think, a combination of two factors.
First, there has been greater acceptance in the real estate investment industry of housing as an acceptable investment class per se (and affordable housing is now accepted as part of that); and second as ‘traditional’ real estate investment (offices, retail parks and the like) is seen as attracting greater risk and/or lower returns and so the (modest but predictable) investment return offered by affordable housing is now seen as increasingly attractive to these funds.
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From the perspective of tenants, for-profit providers are fully within the scope of full regulation by the Regulator of Social Housing (RSH), and as such, tenants should take comfort in the RSH’s regulatory regime; providers are required to adhere to the same regulatory framework as traditional players in the sector, and are bound by both the RSH’s Rent Standard and – for so long as it is in force – the rent reduction regime set out in the Welfare Reform and Work Act 2016.
The RSH has broadly the same powers of intervention against a for-profit provider if the standards are breached – including the appointment of managers and the ultimate sanction of transferring the property to another provider.
“Providers are required to adhere to the same regulatory framework as traditional players in the sector.”
For-profit providers are also required to sign up to the Housing Ombudsman scheme in the same way as traditional associations.
All of this compares quite favourably to the ‘affordable private rent’ product (an alternative means of delivering affordable housing through the planning system) put forward in last year’s Housing White Paper, which would be outside of the scope of RSH regulation.
For traditional housing associations, the for-profits will inevitably increase competition for both Section 106 properties and in the stock transfer market, and we may well see prices for both increased; ultimately it seems to me that this can only increase affordable housing supply – either by traditional associations having to deploy their surpluses in direct development, or by the recycling of higher receipts for any housing they sell to the for-profits.
Equity investment in the sector offers new opportunities for traditional associations that would like to take new development at significant scale, but that are constrained from doing so because of gearing constraints; we see a real opportunity for joint ventures between the new for-profit providers and the not-for-profit sector to boost supply.
“Equity investment in the sector offers new opportunities for traditional associations that would like to take new development at significant scale.”
The entry of for-profit providers to the sector may also open up new opportunities for smaller (perhaps geographically focused) traditional associations – long priced out of traditional Section 106 acquisitions, they may find a new role for themselves as the ‘expert’ local managers for the new players in the market.
Ultimately, anything that increases the supply of new affordable housing – especially in a regulated environment – can only be a good thing, and the for-profit providers will add to an increasingly diverse landscape of affordable housing provision.
Rob Beiley, partner, Trowers & Hamlins
