Cash raised from pension funds would boost development
Plan for investors to ‘buy’ landlords
Housing associations could be sold to pension funds or to life insurance companies to raise finance for the provision of affordable homes, a report has suggested.
The radical idea is contained in a report published jointly by the Urban Land Institute and the Homes and Communities Agency’s housing finance forum. The report, Exploring the future of housing investment in the United Kingdom, contains suggestions discussed by housing association chief executives - including Mick Kent, group chief executive of Bromford Group - lawyers and investors at an event in Birmingham in June.
The report said: ‘One initiative that could be worthy of further exploration is the sale of housing associations to institutions, such as pension funds.
‘The move would raise finance, which could be reinvested in new and existing social housing stock.’
Institutions such as pension funds and life insurance companies are the main investors in housing association bond deals, but the idea of a fund taking control of a housing association is innovative.
Ian Graham, a partner at law firm Trowers and Hamlins, said housing associations’ charitable status mean they cannot be ‘sold’ in the sense that financial ownership transfers to another company, without new legislation. But he added: ‘Under the new regulatory structure you could have a parent pension fund which could take a degree of corporate control, including appointing board members.’
Ruth Cooke, finance director at Midland Heart, which owns and manages more than 32,000 homes in the midlands, said she failed to see the benefits of the idea. She said: ‘I’m not sure why either party would want to go a step further and have a sale to a pension fund. What pension funds value about investing in the sector is the long-term fixed rental stream.’
The report also suggests using ‘value capture finance’ methods, under which the capital in underused assets, such as land, can be released through a combination of public sector intervention and private sector investment.
It says that the use of special tax efficient vehicles such as real estate investment trusts could attract investors. But it adds that the legislation governing the REIT model, which obliges REITS to distribute 90 per cent of their income to investors, does not fit the social housing sector as it has lower yields and higher management costs.
A spokesperson for ULI acknowledged that new legislation would be required to allow pension funds to take financial ownership of an association, but said it was ‘an idea for the future’.
Report recommendations
- Stamp duty and capital gains tax rules are looked at
- More public land is released for housing
- Institutional investment in housing is encouraged
- That the private rented sector has a key role to play
- Creation of new investment models
Have your say
You must sign in to make a comment
Readers' comments (1)
Harry Houdini | 12/08/2011 1:44 pm
The REIT model works perfectly well as long as the REIt leases the homes to an RSL which ten gets rid of the issue of high management costs (they come out before the rent paid to the REIT) The low yiend is not an issue either as it is in effect index linked trough the rent mechanism. Go look at the yields on index- linked Gilts if you are in any doubt!. Of course rthe same impact could be had by re-financing with index linked bonds. Again a lot of RSL FDs don't like them because they don't let you expand the ballance sheet nearly so quickly as conventional finance and the suprluses are smaller (who cares?)
Leasing deals like that and retail bond issues like the places for people one are the future but RSLs nee to understand that their key feature in the indexed nature of their revenue streams, not just their credit quaility.
For those who have some expertise in developing and managing private rental homes there is a big future in making this into an investment product to attract the same punters who are currently small landlords or would think about this. However, they must be able to run a tight ship in terms of development costs as well as keping housing manangemetn and maintainance costs as low as possible. Sadly RSLs are good at neither with few exceptions. Most Development Directors cannot imagine a world wiout the annual game of "pass the begging bowl" with the HC / HCA or whoever hods the purse strings this week. Oh and Housing management departments are woeful at cost control- not that they improve tenants lives by all their spending..
Time to start treatng this like a business folks! oh thet's spelt B U S I N E S S for those who are waiting for the old days to return- they aren't going to.
Unsuitable or offensive? Report this comment