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Housing associations increasingly looking to partner with for-profits to develop new homes
Traditional housing associations are increasingly looking to develop homes in partnership with for-profit providers in a move that could see associations own fewer of the properties they build, senior sector figures have claimed.
Inside Housing has been told there is an increased trend in for-profit social housing providers seeking to forward fund housing associations’ development programmes.
Under this model, for-profits will then typically own the homes being developed, while the traditional housing association will manage them.
The trend is said to be driven in part by the increased costs facing housing associations, such as for building safety and decarbonisation, meaning they have less money to invest in developing homes themselves.
Helen Collins, head of the affordable housing consultancy team at Savills, said: “We’re starting to see some interest in housing associations using third-party capital for their development programmes.
“The idea is to make the most of really efficient development teams who are very good at building affordable homes.
“Rather than own everything that they build, housing associations could work in partnership where some of the homes that are built are owned by other investors in full or in part, so that the housing association is not tying up all of its capital in the affordable housing that gets built.”
One example of such a deal was recently announced by Hyde, which has partnered with investment giant M&G in a move that will see the latter forward fund a £500m pipeline of around 2,000 shared ownership homes.
Guy Slocombe, chief investment officer at Hyde, said: “The phone hasn’t stopped ringing since the announcement, with organisations asking us to help them identify how they might be able to do something similar, explaining how the model works.”
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While the deal with M&G exclusively funded shared ownership homes, Mr Slocombe said Hyde is “also looking at models which include all affordable tenures” and is “looking at other opportunities to bring further institutional capital into the sector”.
Ben Denton, managing director of L&G Affordable Homes, the for-profit provider owned by investment giant Legal & General (L&G), said the organisation is currently pursuing a number of different development models, including deals similar to the one between Hyde and M&G.
In 2019, L&G Affordable Homes signed a joint venture agreement with Coastline Housing as part of a deal that is expected to see Coastline deliver between 100 and 300 homes per year to be owned by L&G Affordable Homes.
Coastline, which is one of the 14 organisations L&G Affordable Homes has signed management agreements with, manages all the homes built under the deal.
Mr Denton said the for-profit provider is currently having “active conversations” with between a quarter and a third of its partners about deals that involve L&G Affordable Homes either forward funding development or purchasing existing properties from them.
He said L&G was also “creating some collaboration arrangements” as part of housing association’s strategic partnership bids “where hopefully we’ll be working with a [registered provider] to use our additional financial capacity and their development capacity for us to build and fund more than we’d have been able to do otherwise”.
He added: “The marketplace is evolving in that space and I think it’s driven by a number of issues.
“Obviously the regulator wants to know that whoever’s holding the homes in the long term is a reputable and respectable organisation that they can have confidence in and obviously it takes time to build up that reputation and for the regulator to be comfortable.
“So I think as some of the for-profit providers become more established our activity in this space is only likely to grow.”
The increased interest in using third-party capital to fund development programmes comes as the sector faces increased investment costs in its existing properties.
Housing associations have previously warned that these costs will likely impact the number of homes they are able to develop.
Mr Slocombe said: “We have enormous costs facing us for building and fire safety, for Decent Homes Standard, sustainability targets and so on.
“Where all of those elements are either subject to legislation or regulation, development becomes discretionary – it becomes the option.
“We passionately believe that it’s our responsibility to continue building affordable homes and accordingly the deal that we were doing with M&G became far more relevant.”
Ms Collins added: “The theory goes that as housing associations take on more debt over the years to fund development, at some point you can’t just keep taking on debt.
“But if you’ve got a really good development team that’s been built up over a period of time, you don’t want to slow the development team down.
“So finding third-party equity to own some of that stock, or to buy it from you, enables you to keep developing.”
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