Top 50 developers 2011
This year we kick off our construction and development special by turning the sod on an all new, exclusive survey of the top 50 developing housing associations. Nick Duxbury and Gene Robertson report
Welcome to the year of new starts. Well, not necessarily in the strictest house building sense of the word - but certainly from a housing policy perspective.
For developing housing associations all the assumptions they have traditionally relied upon have changed. Grant funding for the building of social homes has been scrapped and in its place affordable rents at 80 per cent of market levels has been introduced, exposing landlords to commercial risk and market volatility. Also to take into account in the context of a torrid housing market and constrained lending climate is the overhaul of the planning and benefits systems. In short, associations that want to develop must now do so in an entirely new policy landscape.
To reflect this, Inside Housing decided to overhaul our annual top 50 developers survey. Together with the rest of the sector, we have opened our sails to the winds of change and taken a fresh tack.
Every year to date, our survey has focused on a development pipeline of three to four years. The introduction of the coalition government’s four-year affordable rents programme has complicated this approach. The results we would have obtained from end of year reports would not have painted an accurate picture of the massive changes facing the sector. And by the time it did, the rankings on the table would barely change for the four-year life cycle of the programme.
So instead of comparing pipelines, we have asked what organisations have actually built in the past financial year. We elected to rank the top 50 associations based on completions because it seemed the best, most concrete way to measure change on a year-to-year basis. But, we know it’s not the only one so we have also produced several break-downs including by new starts and tenure, as well as a separate table for what associations plan to build next year, and in total over the next four years.
The latter gives us a tantalising first peek of which organisations are set to become the sector’s leading developers over the coming years and which will take a back seat.
Despite all the policy change and challenging market conditions, looking at the number of completions in 2010/11 it is impressive just how much continuity has been maintained from the previous year.
‘I think development has been quite strong through out 2010/11,’ says Richard Hill, deputy chief executive of the Homes and Communities Agency. ‘Reflecting on the past two or three years the sector has kept development going throughout a very difficult time in the market. If you look at the volume of affordable housing compared to overall housing supply it is doing very, very well.’
According to HCA figures published last week, the number of affordable housing completions in England actually increased by 8,088 homes last year to 64,242. Our survey shows that the top 50 developing housing associations were responsible for 31,125 of these new homes - just under half - with the number of starts at a similar level (31,246).
‘Our starts are a bit down from where we were in 2009/10 when we were on 64,811,’ explains Mr Hill. ‘But our completions last year were much higher at 64,242 compared with 56,118 in 2009/10. And essentially what is happening there for us is that 2010/11 was the final year of the [national affordable housing] programme so we were ramping up completions.
‘We were expecting stock to fall off, but actually because we did well in efficiency on grant rate in particular, we didn’t see a drop off in delivery last year as we might have seen. Your top 50 survey does bear out that organisations kept delivering through out 2010/11.’
A positive result for the number of homes completed in 2010/11, then, but can this continue?
Our survey reveals that, based on bids to the HCA under the affordable rent programme, there is a pipeline of almost 122,300 homes being developed over the next four years by our top 50 associations. Averaged over four years, this means that our top 50 developing associations will build around 30,565 homes a year - just 2 per cent less than last year.
While the 122,300 homes in the four-year pipeline include some rolling over from grant-funded schemes and development on organisations’ own balance sheets, the figure suggests the affordable rent programme has garnered enough support to meet the government’s aim of 150,000 new homes from the £1.8 billion available. Indeed, only one respondent, 22,000-home Flagship Housing, said it had not bid for affordable rent funding.
‘Moving from last year to this year is quite hard because although we have a committed programme that moves forward, associations are having to take a view about what they expect to do on the affordable rent programme,’ says Mr Hill. ‘The risk profile is very different. We have moved away from a situation where pretty much all the larger associations were interested in development at a reasonable scale to a different market.’
Already we are seeing a picture of just how different this market is. Our results seem to reflect a significant change in attitude towards development risk. The ambitions of some organisations that have never been top-of-the-table contenders previously is as interesting as the risk-averse approach from others which have traditionally been top 50 big guns. Testament to this is the arrival of seven new entrants in the top 50 developers by completions, and 11 newcomers in the top 50 developers by four-year pipeline.
Unsurprisingly, it is in this latter table of expected development where the real change in attitude towards risk can be seen. Most notable is 79,011-home Sanctuary Group which has been extremely ambitious in its approach to using affordable rent to develop. Last year it was ranked 22, but based on its four-year pipeline it will top the table, building 1,900 more homes (subject to HCA negotiations) than its nearest rival Affinity Sutton over the next four years.
Similarly, Sovereign Housing Association will rise from 16th place in 2010 to 4th by April 2015. Swan Housing Group is also set to rise up the pecking order 10 places from 19 to nine by 2015.
There are smaller organisations, like 12,775-home Wirral Partnership Homes, which failed to make it into the top 50 this year but which plan to take advantage of the affordable rent programme to step up to the development plate in a big way almost from a standing start. ‘We intend to go from [a development pipeline of] four to 400,’ enthuses Steve Eaves, regeneration and development manager at Wirral Partnership Homes. ‘Our entire programme will hopefully be funded using affordable rent conversions on a small portion of existing stock to create internal subsidy to make this stack up.’
Not every housing association has been so ambitious, however. The development programmes of some top 50 old hands look set to shrink under the affordable rent programme. Places for People, which owns or manages 61,926 homes was ranked six last year but will drop 19 places to 25 based on its four-year pipeline. Meanwhile 63,000-home Circle will fall 23 places to be ranked 26 by 2015 and Genesis Housing Association, this year’s number five, drops off the table.
A more cautious approach to development is set to become the norm according to Rod Cahill, chief executive of Catalyst Housing which is set to build the most homes in 2011/12 but then drop to 16th place by April 2015.
‘We bid [to the HCA] at a level that was about half of what we have been doing over the past few years,’ he says. ‘We are in a relatively strong position because we have quite low gearing [debt to equity ratio] so I would be surprised if other associations weren’t being similarly cautious and that wasn’t the general rule.’
There are also alternative funding sources and opportunities other than affordable rent emerging for developing associations. The HCA’s Mr Hill says associations will start building for the private rented sector too this year. He points out that the bond market is becoming an increasingly popular source of finance, and, as the mortgage market continues to improve (there are now around 20 lenders active where 18 months ago there were just seven) Mr Hill expects increased demand for low-cost ownership properties, which this year make up 23 per cent of completions, and 24 per cent of starts.
There are several other factors that could help or hinder development over the next four years that our survey cannot take into account; the new homes bonus which kicked off in April to incentivise building and the planning system will undergo its own makeover when the Localism Bill becomes law in the Autumn - a move Mr Hill considers broadly positive for housing.
Not everyone is so optimistic about the future, though.
‘The overall supply figure is worrying,’ concludes Catalyst’s Mr Cahill. ‘I think [the government target of] 150,000 homes will be reached, but what then? This model is not sustainable or repeatable. We need to know the plan to replace affordable supply.’
That, of course, is the kind of new start that our survey can’t shed any light on.
number of homes completed last year by the top 50
number of starts last year by the top 50
number of homes expected to be completed in 2011/12 by the top 50
number of homes expected to be completed over the next four years by the top 50
Future development explained
We decided not place the emphasis of our survey on the four-year pipeline projections because the figures are still dependent on the outcome of negotiations with the Homes and Communities Agency and because we want our top 50 to reflect yearly change. However the online version of the article, which you see here, does include a table ranked by four-year pipeline.
How the top 50 developers tables were compiled
Inside Housing asked the 100 biggest housing associations in England and those that were part of last year’s survey, nine questions relating to the number of homes they built in the past financial year and how many they intend to build over the next four years.
The latter figure is indicative of associations’ ambitions rather than the actual number of homes they will build, given this is subject to negotiation with the Homes and Communities Agency.
As is the case with any survey, the top 50 developers is heavily reliant on honesty from the organisations involved - although we will be spot-checking end of year reports. The top 50 tables are, of course, unable to include developing housing associations that declined to take part in the survey.
By including last year’s rankings we are not comparing like for like but decided that it was an interesting addition to the tables if only to demonstrate the different results achieved under the new criteria. And by electing for completions per year as our main criterion for the tables, organisations are hostage to where they are in their development cycles.
However, overall, we felt this approach would produce a far more meaningful picture of what the top 50 developing associations are doing now and what they are set to do in the future.