Wednesday, 01 July 2015

Ensuring benefit is paid to landlords not tenants would attract investment

Investors scared off by direct payment plan

Institutional investors are turning their backs on the housing sector because of concerns about plans to pay housing benefit directly to tenants.

The government should rethink one of the main pillars of the Welfare Reform Act as a result warned Mick Kent, chief executive of Bromford Group, on Tuesday.

Mr Kent claimed fears over increased arrears as a result of tenants receiving benefit directly was the main risk factor that prevented institutional investors, such as pension funds and insurance companies, from reducing their expected returns from housing associations.

During a session at the Chartered Institute of Housing’s annual conference on how housing could be used to boost the UK’s ailing economy, Mr Kent challenged Peter Schofield, director general for neighbourhoods at the Communities and Local Government department, to end direct payments.

‘That in itself could go a long way to getting market expectations of yields [for lending to social housing providers] to match what we can deliver.’

Mr Kent said new investors to the sector are demanding returns of at least 7 per cent, as opposed to the 4 per cent to 5 per cent that he believed could be delivered by housing associations.

He later told Inside Housing that the imposition of direct payments was ‘a philosophical argument’ and would not save money.

‘I just think it’s potty,’ added Mr Kent. ‘At a time when everybody is saying that the cupboard is bare why would we want to risk the potential to bring in other sources [of funding].

Bromford Group, which owns and manages 26,000 homes in central England, is involved in running one of five pilot projects to test the impact of direct payments.

Mr Kent said most tenants affected by the change ‘had not yet understood’ that it would apply to them.

Earlier, Mr Schofield had called on social landlords to make themselves more attractive to new investors, having warned that grant funding could no longer be relied on.

Institutional investors are ready and willing to lend to the UK,’ he told delegates. ‘Investors are hungry for exposure to UK infrastructure and we need to encourage them to see housing as a part of that.’

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