All posts from: June 2012
The hows and whys of attracting institutional investment into housing have been debated now for so long that, frankly, I am sick of writing about it.
Sometimes, the sector’s attempts to woo new investors resemble those of the lovelorn teenager who thinks the hot girl who ‘just wants to be friends’ might finally succumb if he makes one more heart-felt mixtape and tempts her for a glass too many of Ouzo Destructo, ignoring the fact that she is being picked up at the school gates every day by a tattooed Goliath on a Yamaha.
What we seem not to realise is how clumsy our chat-up lines actually are. Those housing associations offering 4 per cent returns – the equivalent of a date at a pizza place with a Groupon discount – will be politely turned down while there are corporate borrowers willing to guarantee as much as 8 per cent, or, to continue a now rather strained analogy, a country house weekend with champagne breakfast and four-poster bed.
Still, the news coming from Vince Cable this week should be encouraging. The erstwhile Slayer of the Murdochs told a bunch of think tank bods that the government would step in to offer guarantees to investors willing to plough their filthy lucre into infrastructure. And yes, that includes housing.
Obviously, given his dwindling influence on coalition policy, any announcement from the business secretary should be taken with the requisite bucket of salt. But this time, Vince echoed the thoughts of his Tory overlords George Osborne and David Cameron, so it sounds like we could finally be getting somewhere.
The problem is that, even with these vague promises of ‘guarantees’ –details of which remain thin on the ground – there is no certainty that these investors will have their heads turned by the sector. Or, indeed, that banks will stop demanding the kind of rates that have made them all but disappear as a borrowing option for most landlords.
Cable and Grant Shapps hosted a meeting on Wednesday with the luminaries of the house building and social housing world, but there was not a word said about the nascent guarantees plan.
The meeting itself was dubbed ‘a listening exercise’. While it’s nice to see that the government is listening, maybe it’s time for them to hear instead. Or, better still, act.
According to Henri Poincaré’s beautifully constructed conception of chaos theory the flap of a butterfly’s wings in Japan can affect the course of a hurricane in Florida.
Yes, that’s a simplification. And yes, few delegates at the CIH’s annual shindig this week in Manchester were discussing Monsieur Poincaré and his whacky ideas over a pint of Boddingtons in the Midland Hotel.
But the notion of such symbiotic relationships was brought to mind during a debate on how housing associations are going to finance new house building in the brave new zero-grant world that many are predicting.
Because it seems that one part of the government’s many tentacled social policy is impacting on another in a way that may not have initially been predicted.
The decision to slash funding for social housing and replace it with the affordable rent regime at the last comprehensive spending review has been endlessly debate on this website and elsewhere. While the prospect of further cuts to capital funding at the next CSR was a subject that hung over many a conference session like the dark clouds above Manchester on Wednesday afternoon.
The more forward thinking landlords have been grappling with the problem for some time and the words ‘institutional investors’ were the ones on everyone’s lips in Manchester. But just as the sector may finally be making progress in bringing these mythical cash cows to the milking shed, another danger is looming in the background.
Lord Freud got what might politely be called a frosty reception during his session at conference. His welfare revolution contains a fair few things that irked delegates. But for financiers, it is the prospect of direct payments that are the cause of anger.
Bromford chief executive Mick Kent calls the policy, which will see tenants receive housing benefit direct, ‘potty’. He claims that it is this single idea alone that has scared investors sufficiently to create a gap between the returns they would like to see for investing in housing associations and the kind of returns landlords are comfortable delivering.
And the really barmy bit of it, given that almost the entire remainder of current government policy is aimed at saving cash, is that the idea is likely to cost money. Mr Kent, whose organisation is one of five conducting pilot projects for direct payments, thinks the policy comes from a philosophical idea. That may be appropriate given the surname of its architect, but if it prevents landlords raising cash, to what extent can we afford to indulge philosophy?
The early indications from some pilot projects are also that tenants themselves don’t want to receive housing benefit directly. So here we seem to have a policy that will save nothing, increase landlords’ cost of borrowing to unacceptable levels, and which is unpopular among the very people it is supposed to help.
As theories go, this is one that may prove to be pretty chaotic too.
The ever-controversial issue of Scottish independence raised its head again this week, with Labour leader Ed Miliband popping his head above the parapet to declare his love for the Union.
Miliband Jr’s opinion would, of course, have nothing to do with the fact that seeing the Scots finally achieve Mel Gibson’s long lusted after freedom would almost inevitably lead his party to decades of electoral oblivion.
But if you want a real demonstration of the political divide between the north and south of our little island, it’s probably worth looking at the right to buy.
While England’s Tory housing minister is hailing the re-invigorated right to buy - with its super-charged discounts and wild promises about replacement housing – as the best thing since sliced bread, in Scotland, housing minister Keith Brown is thinking of scrapping the whole thing.
It is one of a number of options under consideration by the Scottish Government, which may instead choose to limit eligibility for the scheme amid fears that too much badly needed council stock is heading out of the door.
Mr Brown said that the right to buy has led to a ‘haemorrhaging’ of stock and higher rents for those who remain in social housing. For him, it is a no-brainer that, one way or another, it’s best not to encourage too much take-up.
Contrast this with the gung-ho attitude in England, where discounts have trebled in some areas after Chancellor George Osborne hailed it as ‘one of the greatest social policies of our time’. Many local authorities are concerned about the viability of replacing every home sold and there is still no clarity around whether the one-for-one replacements will be like for like.
Most councils I have spoken to, whether broadly in favour of the new push on right to buy or – as in most cases – not, now accept it is part of their new reality. But maybe it’s time the government listened to what their friends in the north are saying and have a rethink.
Horsham in West Sussex is an unlikely setting for a revolution. And while what has taken place there hardly ranks with the storming of the Bastille in terms of historical significance, for anyone interested in financing the housing sector it marks a major sea change.
Saxon Weald, the LSVT that took on almost 6,000 council homes at the turn of the century, has become the first organisation of its kind to refinance its debt through a bond issue. In fact, the £225 million deal means that this mid-table housing association has become the first of any stripe to fund itself entirely through the capital markets.
So, whither the banks?
Well, for one, they might not mind too much about being surplus to requirements.
It won’t be lost on seasoned market watchers that one of the four banks whose debt was paid off through Saxon Weald’s bond was none other than Newcastle Building Society. Yes, that’s the very same NBS which has been quietly waging a war with its borrowers, triggering punitive repricing clauses in an effort –or so many believe – to put an end to its exposure to the sector.
Newcastle’s is an extreme case – a small lender over-exposed to a sector, seeing its loan book suddenly become very expensive to run once its own cost of funds went through the roof post-Lehman. However, the story isn’t too different when it comes to the big boys of the banking world.
No one would dream to suggest that the likes of RBS or Santander want to exit the sector. But sitting on old loans priced at 20 basis points over LIBOR, arranged in the halcyon days of cheap money, is not something that will make credit committees sleep easy in their beds at night. Especially not while the banks themselves can now only borrow at six or seven times that price.
So there might not be too much disappointment among traditional lenders if more LSVTs follow suit and decide to abandon them for the brave new world of the capital markets. If they can get a slice of the action by garnering some arranger fees while they’re at it, even better.
From the housing association point of view, to follow Saxon Weald’s example most would have to pay so-called ‘break fees’ to cancel their loans. The decision they’re faced with is whether freeing themselves from the tyranny of the banks is worth paying for.