Blackstone Q&A: partnerships are key to attracting more institutional capital into the sector

What are the biggest challenges on the horizon for the UK affordable housing market? Is the system working as it should?

The combination of structural undersupply of housing generally and the growing demand in particular for affordable rental housing have resulted in a widening imbalance in the overall supply of such housing. There are many reasons contributing to this imbalance, including sometimes restrictive planning policies, increasing construction costs as a result of elevated inflation and disrupted supply chains, as well as the rising cost of capital in the past several years due to higher interest rates.

While there is no panacea to solving the problem of housing overnight, through public and private co-operation, we believe the capital that is needed to build more affordable homes can be found.

What was your initial strategy when entering the UK affordable housing market? How has that strategy changed in the years since?

Our strategy has remained consistent since we co-founded Sage Homes: to partner with local authorities, developers and house builders to provide modern, high-quality and energy-efficient homes via affordable rent and shared ownership products to those that need them the most.

It is this focus, as well as our ability to invest capital on a long-term basis, that has meant that in the past seven years, Sage Homes has become [one of] England’s largest providers of newly built affordable homes.

[Sage Homes did deliver the most new build affordable homes out of any registered provider in 2021-22.]

As our residents are at the heart of what we do and resident experience is of the upmost importance, we have evolved our strategy to ensure they are supported in every way we can, whether that be through Sage’s dedicated customer care team, the recent creation of the Heart of Sage fund, or through the financial well-being team. Customer satisfaction is crucial and this will always be a core part of our focus.

What have Sage Homes and Leaf Living delivered so far in terms of new homes?

Since Blackstone and Regis launched Sage Homes and Leaf Living in 2017 and 2021 respectively, they have delivered nearly 16,000 homes, and Sage is currently on track to deliver a total of 30,000 new affordable homes by 2030.

This has been achieved through a mix of public-private partnerships, such as our development agreement with Vistry announced in November last year, as well as working with Homes England and the Greater London Authority (GLA) to further increase the number of new affordable homes being built.

We believe the sector will continue to benefit from a mix of partnerships, ultimately increasing vital investment into the sector.

What is the pipeline for Sage Homes and Leaf Living looking like? Is it bigger or smaller than your hopes a year ago?

Like all prudent organisations, Sage and Leaf keep a close eye on the economic climate to anticipate and adapt to any relevant impacts on the market and sector. Both companies have strong pipelines and are confident and on track to deliver on their targets. 

Last year, Sage and Leaf announced a significant partnership with Vistry Group, for example, which will deliver more than 2,900 homes across key markets where the demand for high-quality housing has outpaced supply.

There has been some criticism in the press of investors “pricing British families out of the market” by buying up new builds and raising rents. What do you make of this? How does the market (and consumers) benefit from more well-organised players?

We are a leader in responsible investing in housing and we couldn’t be prouder of our record and our long-term capital commitment to add to the supply of high quality, professionally managed rental housing.

We believe this is beneficial to the sector, as over time it will contribute to attracting more institutional capital. In the case of affordable housing at Sage, we rent to those on local authority housing registers which have been identified as being in housing need.

The UK government sets and regulates all of Sage Homes’ rents at significant discounts to open-market levels. It is Sage’s operating model that allows it to bring additional stable capital and capacity to the UK housing market ultimately benefiting all of those most in need.

The solution to the housing crisis, we firmly believe, is to build more housing. In the UK, new home completions are 49% below estimated annual housing needs and 40% below 1970 levels, when the UK population has grown by 12 million people since then.

Will there be more opportunities for for-profit providers and housing associations to work together in the current development and financial landscape?

Absolutely. Partnerships are critical as we believe that by working together, we can bring the required investment into the sector to help address the housing crisis currently faced in the UK.

Since its inception, Sage has delivered in partnership with Homes England, more than 220 councils, the GLA, as well as countless other housing associations and developers.

The need for private sector investment is increasing, and we believe that affordable or private rental housing providers, such as Sage Homes and Leaf Living, are positive examples of how private sector capital can help to meaningfully increase the supply of homes across the country.