Delivering a step-change in affordable housing supply: a discussion

Last week Legal & General and the British Property Federation (BPF) published their joint report which analysed the funding gap in the UK social housing sector. The report estimated that the sector will need an additional £34bn annually to increase affordable housing delivery to 145,000 each year.

The report recommended that this £34bn should comprise £14bn from government grant, £10bn from the debt capital markets and £10bn of equity from investors. This would represent a step change for affordable housing, both in terms of funding mix and scale. Social was delighted to be invited to chair the L&G and BPF launch webinar in which key sector figures discussed the report. Below we run through some of the key themes that were explored at the event.

Harnessing investor appetite

Currently housing associations rely primarily on grant funding from central government and the debt capital markets to finance their development programmes, along with rental income. As noted in the report, housing associations are not able to raise new equity capital because of their not-for-profit structure. These restrictions have contributed to the proliferation of for-profit social landlords who act as a conduit between private capital and affordable homes.

According to the Regulator of Social Housing, between 2019 and 2020 the number of social homes owned by for-profit providers rose by 75%, yet the total number remains relatively small at just 9,313.

L&G and BPF highlighted for-profit landlords as a key route into addressing the £34bn funding gap. Simon Century, managing director of housing at L&G, said at the webinar: “equity is there and ready to deployed.

“Housing associations have got a wonderful opportunity at the moment – some will feel nervous about that [forming partnership with institutional investors] but I think there will be some who think it is a great idea.”

Changing the conversation

Panelists at the event were in agreement that for-profit providers should be considered as an option to deliver the affordable homes the country needs. However, for-profit providers have often been viewed with a certain level of skepticism by parts of the social housing sector.

According to Rob Beiley, Partner at Trowers & Hamlins, the conversation around for-profits must become more nuanced. He said the report is “hugely important in putting to bed the ‘us and them’ narrative”.

He added: “There’s enough of a housing crisis to go around so I do think we need to move the discussion on from this rather binary discussion that not-for-profits are good and for-profits are bad.”

The webinar also heard from Catherine Raynsford, Director at The Hyde Group, who worked closely with M&G Investments on a partnership between the two organisations which was established in 2021.

She urged providers to “look beyond the funding and look at the benefits.

“Our learnings from that time are that there is a huge amount that the sector can learn by working with responsible, well aligned institutional capital.”

The regulation question

The Regulator of Social Housing (RSH) has been monitoring the rise of for-profit social housing providers in recent years. The regulator previously said it saw more than 50 applications for organisations looking to register a for-profit.

Given the relatively new nature of the for-profit movement, questions were raised at the webinar about the role of the regulator in adapting to the surge in new entrants to the sector.

Dr Peter Williams, from the Department of Land Economy at the University of Cambridge and editor of the L&G report, suggested the RSH has a key role to play.

He said: “There’s always the risk of an investor feeding frenzy. I think setting down some parameters and being clear about the requirements is really important – the RSH cannot avoid stepping forward to think about this.”

Analysis published last year by Savills suggested for-profits have the potential to deliver as many as 130,000 homes over the next five years. With this in mind a strong regulatory framework will be a necessity.