Landlords struggle to shift shared ownership and outright-sale homes
Mixed tenure grounded by credit crunch turbulence
Housing associations were warned last week that they are facing a tsunami- sized financial challenge.
In truth, they are already feeling the force of the credit crunch.
Finance directors were among the first to suffer, with sharp price increases for new loans and some of their biggest lenders closing shop.
But now, Inside Housing interviews with 20 of the biggest developing associations have revealed, it is development teams’ turn to feel the pressure.
The falling housing market has seen home builders’ production drop dramatically. In turn, the supply of new section 106 deals, where developers agree to provide affordable housing as a condition of planning permission, has been drying up.
At the same time the prospect that house prices will continue to fall has raised questions about the viability of schemes dependent on homes built for sale or shared ownership.
Now some are questioning whether the Housing Corporation will be able to spend the entire £8.4 billion it has to spend on new homes between 2008 and 2011.
Jerome Geoghegan, group development director at London & Quadrant Housing Trust, told Inside Housing: ‘In the current market, achieving their £8 billion programme over three years, I think, is going to be hard work.’
L&Q has ambitions to build 5,000 homes over the next five years, 1,000 of them for sale. Mr Geoghegan said they were sticking to their targets, but if the housing market continued to worsen they might well fall short.
‘We will not achieve [build-for-sale] targets for the sake of it,’ he explained, ‘[miss them they] must generate a return.’
The corporation allocated £3.3 billion of its grant money at the start of its 2008/11 affordable homes programme. It plans to allocate the remaining £5 billion through the regular market engagement process, which allows associations to bid for funding at regular intervals during the programme.
Mark Thompson, deputy chief executive of Swan Housing Group, said: ‘Everybody will see very soon that regular market engagement will dry up, because there’s no market, and particularly no section 106 market.’
Mr Thompson said Swan had committed to bringing in £150 million in corporation grant over the next three years, and had been allocated £52 million at the start of the programme.
He said the association would now concentrate on spending the £52 million, and ‘do out of the further £100 million what the market allows us to do’.
The biggest developing association, Affinity Sutton, has already revealed half of its 1,000-homes-a-year development programme depends on section 106 sites, and half of those had been delayed or stalled.
Yorkshire Housing head of development Joe Bvumburai said difficulties shifting shared ownership and market-sale homes had prompted it to ‘drastically reduce’ the proportions of those tenures in its build programme. On mixed-tenure schemes, he said, the idea was to build the socially rented homes first in the hope that the market might change. But it is not all bad news for providers.
Where private developers have already started sites, they have been keen to offload homes as quickly as possible. That puts associations in a stronger bargaining position. Mr Bvumburai said one developer had ended up giving Yorkshire Housing bigger houses than agreed in the original section 106 deal.
And for associations who never relied on planning deals or booming property markets, it is easier to see the upside of the downturn.
Sasha Deepwell is group development director at Plus Housing Group, which works in north west areas with a history of housing market failure.
She said shared ownership enquiries last month were up 25 per cent on May 2007. The credit crunch was a ‘welcome correction’ to an unaffordable housing market, she added.
‘We have not had the house builder- led development approach that they have had in London and the south east,’ she said.
‘For years, getting house builders to build anything in the areas where we work was a struggle.
‘We don’t work in housing markets that have ever worked.’
Why are housing associations concerned?
House building has dropped dramatically. Home building giant Persimmon has shelved plans to develop new sites until the mortgage market improves and numbers are down across the board.
How does this affect them?
With starts down, the amount of affordable housing delivered through section 106 deals will also fall.
What kind of impact is it having?
Many housing associations are continuing to play their cards close to their chests, but the biggest developing association of them all, Affinity Sutton, has revealed that a quarter of its 1,000-unit a year programme has been hit.
Is the government worried about this?
You bet – although housing minister Caroline Flint is refusing to redraft house building targets, the government has pledged £200 million to help housing associations buy up developers hard-to-shift stock.