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Associations need to take a multi-pronged approach
As housing becomes increasingly unaffordable, associations need to complement debt with other measures, argues Mark Sebba
The term housing crisis means different things to different people.
To me, it refers simply to the fact that large groups within our society cannot afford decent homes – whether to rent or buy.
In this context, affordability and affordable housing are increasingly one and the same.
Today affordable housing isn’t just for those most impacted in society; it’s for society as a whole.
The Hyde Group provides housing for more than 100,000 people, around half of whom are not in receipt of housing benefit.
"Today affordable housing isn’t just for those most impacted in society; it’s for society as a whole."
If Britain is to address the crisis in a meaningful way, without the negative consequences of steep house price decline, then we need to face some unpalatable realities.
Supply and density are two key levers for increased affordable provision.
Only 5.9% of the UK’s land is actually built on, according to a recent study, with 56.7% being farmland (72.9% in England).
Yet agriculture accounts for less than 1% of GDP and the obsession with the green belt (itself often a “rust belt”) around urban locations needs to be re-examined to allow for a material increase in land supply where it’s most needed.
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However, land values can only ever be part of a solution, as an affordable home is often worth less than its build cost.
Density, especially but not exclusively, in highly urban areas needs a radical rethink. Undergraduate and postgraduate students often live in attractive, well-designed 200-250 ft2 homes yet society balks at the idea that a working millennial might experience similar for the first five years of her or his own personal property ladder.
In lower rise towns, the zealotry of three story maximum heights does affordability a disservice when four stories really wouldn’t make much of a difference to the townscape.
Political claims of land-banking not only mask the real and genuine frustrations of all developers in the laborious process of planning approval and meeting the conditions but also fail to understand that a developer builds to order.
“Land values can only ever be part of a solution, as an affordable home is often worth less than its build cost”
What’s the point in building 1,000 homes in one go, with all the associated risk and cost, if the weekly sales absorption rate is two homes?
In 2015 George Osborne encouraged the housing associations to “step up.”
The easiest tool was leverage and many committed to building through enhanced balance sheet use, resulting in a consequent increase in risk and a regulator now looking to “recalibrate” viability assessments.
Other housing associations have capacity but remain unwilling to use it. Borrowing is not a panacea and in an uncertain economic environment debt needs to be complemented, if not supplanted by other approaches
Joint Ventures: Associations have gone through stages of joint venture evolution – from being a pre-placed Section 106 purchaser to partnering with housebuilders on mixed tenure schemes, to now increasingly thoughtful arrangements with local authorities. The Greater London Authority has demonstrated a willingness to monetarily innovate. Hyde’s own JV with Brighton Council will deliver 1,000 homes that already meet the new government target of favouring local key workers and creatively link rents to local wages rather than to a percent of market rent. Central and local government together with entities such as Transport for London and the NHS making land available to innovative JV arrangements must be beneficial to affordable home ambitions.
Investment management: Institutional investors looking to simply hold affordable homes over a 15+ year period delivering an attractive low risk / low inflation adjusted return are increasingly attracted to our sector.
Provided tenants continue to benefit from a quality offering and occupational stability, why cannot a housing association develop, manage but not necessarily fully own affordable homes?
Bringing institutional capital into the sector reduces the need for government funding and valuable housing association leverage.
Asset management: More than 2.7 million homes are owned or managed by housing associations along with a variety of land, garages and other commercial assets.
Increasingly we need to ensure that our assets remain fit for purpose, that the tenant perspective is thought through – for example, heating costs - and that the charitable capital invested is optimally used. Appropriate strategic asset management should be able to deliver an accretive number of affordable homes.
State backstops: The government is concerned about housing association debt being counted as national debt. However it could look at backstop guarantee programmes to associations such as the role Freddie Mac plays in the US mortgage market. This could allow associations to undertake additional development that would otherwise fall outside their standalone risk tolerances.
British society has an affordable housing problem. Housing associations remain charities whose only objective is to address this problem.
More than ever, creativity and objectivity are needed and should not be confused with “selling out”.
In economically and politically turbulent times, associations can lead by example by doing the right thing.
Mark Sebba, chair, Hyde Group
