Landlord’s launch of for-profit subsidiary to fund 10,000 affordable homes
RCT Homes seeks £1bn investment
A landlord is launching an ambitious pan-Wales development company to build up to 10,000 affordable homes using £1 billion of institutional investment.
RCT Homes in Pontypridd has set up a for-profit subsidiary company, which it is inviting housing associations and local authorities across Wales and south west England to join. It will give them equity stakes in the company in exchange for development land.
The 10,000-home stock transfer association said the company, called Devco Wales No 1, intends to raise a first tranche of £25 million of development finance to start around 250 homes this year.
It has put out a tender for an organisation, or a consortium of builders and financers to approach institutional investors, such as pension funds, later in the year.
RCT Homes hopes the consortium will raise £1 billion over the next seven years, and carry out the construction work. It aims to attract investors as 75 per cent of the rent raised from the homes built will service the investment, and 25 per cent will go to the local authority or housing association for management costs.
The building consortium will enter into joint ventures with housing providers wishing to be involved. It will borrow against land value and rental and sale income. Landlords will provide some of the land and manage the homes.
All the properties would be let at intermediate rents based on local housing allowance rates so the schemes would generate enough income to give investors an attractive return but still fall below benefit caps.
‘With less grant available, landlords in Wales are having to be more innovative,’ said Malcom Wilson, commercial director of RCT Homes.
The framework would protect housing associations from construction cost risk because management would not be handed over until they were built, and in future the organisations would be able to benefit from any increase in land value.
Judy Wayne, director at consultancy Altair, said where local housing allowance is very low rental income might not be enough to support the investment. ‘Because of the variations in local housing allowance there will be parts of the country where it will be viable and others where it will be less so,’ she added.
money to be raised by the consortium over seven years
council areas targeted by the project
homes could be built
homes to be started by the end of 2012