When builders become landlords

Karl Hick, chief executive of Larkfleet Homes, says that he set up Swift partly in response to the government’s attitude towards housing associations at the time he began the 18-month registration process, during George Osborne’s tenure as chancellor.

Mr Osborne spent much of his tenure in conflict with housing associations, including infamously bringing in a 1% rent cut for five years, which slashed associations’ income considerably.

Mr Hick recalls: “I was worried about how I was going to deliver affordable housing. If there were fewer housing associations around, I might as well try and de-risk the business by having my own that could at least deliver the affordable housing if everyone around me couldn’t.”

Mr Hick is clear that he is not interested in competing with traditional housing associations, but wants to use Swift only to take on Section 106 housing on his sites that would not otherwise find an owner.

Martin Aust, director at Pathfinder Development Consultants, has been involved with helping a number of developers to set up their own for-profit providers.

According to him, Mr Hick’s attitude is typical. He says many of his clients “might be on a site of 20, with two affordable or three affordable”.

He adds: “Getting a housing association to bid for it at money that covers the cost of the bricks and mortar being laid is really hard.”

Spending 18 months registering might seem a daunting task for a relatively small company but Jim Bennett, assistant director for regulatory strategy at the Regulator of Social Housing (RSH), says that there is no objection in principle to the idea of developers setting up providers.

He does, however, sound one note of warning: “Obviously, the board of the registered provider is going to have to make decisions about the ongoing running of that social housing. So we would want decisions to be taken in the interests and the objectives of that organisation. They would need to be able to demonstrate independence of thought.”

The other developers that have been particularly interested in setting up for-profit providers of social housing are those that are involved in the housing management game already.

In 2017, British Land, which describes itself as a property company rather than a house builder, set up a for-profit provider called Seymour Street Homes.

This organisation started life by taking ownership of 11 homes at British Land’s £130m Clarges Estate scheme in Mayfair.

Emma Cariaga, head of operations for British Land at Canada Water and director of Seymour Street Homes, says that it has not yet expanded beyond that first scheme. But, she says, Seymour Street could be involved in British Land’s 3,000-home Canada Water development.

Explaining the rationale behind setting up a housing association, Ms Cariaga says: “We’re a landlord in the main, we’re not a house builder, so we don’t tend to sell and move on, which means that we are interested in the management and stewardship of our places in the long term.

“And so, having affordable homes form part of that portfolio is quite complementary.”

She also argues that having the same manager for the affordable and private rented homes can help to alleviate the stigma sometimes associated with social renting.

Grainger is another company that sees itself more as a housing management business than a builder, although it is involved in multiple development schemes. It set up Grainger Trust back in 2012 with similar ideas to British Land.

Kurt Mueller, director of corporate affairs at Grainger, says: “Grainger is an operator of rental housing. Tenants call us up to request a repair or extend their lease. They deal with us directly. With the increasing [trend towards] trying to make sure you have mixed communities and mixed-tenure blocks and tenure-blind buildings, we didn’t want to have a registered provider managing some of the units in the same building as some of the private units. We’d be stepping on each other’s toes.”

According to Mr Mueller, Grainger plans to significantly expand its affordable housing offering in the coming years. While it currently owns 360 affordable housing properties, it plans to deliver another 3,500 over the next seven years.

Steve Partridge, a director at Savills Housing Consultancy, says he has heard from other build-to-rent developers that they are interested in following the lead of British Land and Grainger.

He says this is partly because they would like influence over the affordable housing on their developments. That, he says, could include nominations. In other words, they want to choose who from the council housing waiting lists end up in their blocks.

Mr Partridge adds: “In their terms, they will want to maximise the value of the development and how it operates going forward.”

Another industry source tells Inside Housing that for-profit providers are interested in using these rights to exclude prospective social renters with “chaotic lifestyles”.

“We’re a landlord in the main, we’re not a house builder, which means that we are interested in the management and stewardship of our places in the long term”

Emma Cariaga, director, Seymour Street Homes

Mr Mueller of Grainger admits that this is part of the company’s motivation, revealing: “In one of our schemes, we were taking from the waiting list and those at the top of that list in need, but also doing a bit of our own referencing to make sure that we were also happy with who was coming in to live in those buildings.

“If they’re going to be the neighbours of everyone else in the building, we need to make sure that everyone’s happy with their neighbours, and that the people who were going to be living in the building and renting from us, we got to know them and could reference them just as well.”

But others are shocked by the tactic. “There’s a limited amount of affordable housing being built in this country,” says Joe Beswick, head of housing and land at the New Economics Foundation.

“If it’s not even being made available to those people who are perhaps most in need of it, we really need to ask questions about whether organisations primarily driven by the profit motive and by the need to increase value for their shareholders have any real place in providing affordable housing in the UK.”

Asked if he could understand why some might find this practice objectionable, Mr Mueller counters: “There are circumstances and types of housing that cater for certain demographics and certain types of people that we just don’t think we would do a very good job at managing. We would put our hands up and be the first ones to say that’s probably not for us.”

For-profit providers seem set to become a permanent fixture in the make-up of the social housing sector. It remains to be seen what their long-term impact will be, but issues like this show that there are limits to what they will offer.