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Flurry of private builders set up associations to keep affordable homes

A flurry of private house builders have registered their own housing association arms to keep the affordable homes built in their developments, Inside Housing can reveal.

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Flurry of private house builders set up housing associations to keep affordable homes #ukhousing

House builders are setting up for-profit housing associations to build new homes through Section 106 #ukhousing

Companies register as HAs so they can retain affordable housing built through Section 106 planning rather than selling them to associations #ukhousing

Hopkins Homes, which has a turnover of £166m, has successfully registered Peal Community Housing as a housing association.

It joins smaller firms such as Park Properties and Larkfleet Homes in making the move which will enable the companies to retain affordable housing built through Section 106 planning commitments rather than selling it to a traditional association.

The firms all cited difficulties at striking deals for the affordable units with existing associations was a key driver for the move.

And sources told Inside Housing the trend will continue with more private builders working behind the scenes on registration as a housing association.

 

 


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Hopkins, which is expected to deliver 1,200 homes this year, said it had “no desire to compete with traditional associations” but believed Peal could unlock affordable housing in situations where associations didn’t have the capacity to buy through Section 106.

It will contract existing housing associations to manage the homes.

The firm has recruited Martin Aust, formerly strategy and development director at Flagship Housing, to chair Peal. He said a lack of desire from housing associations to buy up Section 106 properties, particularly in rural locations, drove the move. He stressed that Peal was a "highly regulated independent company".

Larkfleet, which has a turnover of £85m, established Swift as a housing association last year which will take on a proportion of the affordable homes built by the developer, as well as managing them, finding tenants, collecting rents and maintain the properties.

Karl Hick, chief executive of Larkfleet, said: “Unfortunately, it is becoming increasingly difficult for housing associations to obtain the funds they need to buy new homes.

“We have therefore set up Swift which has access to private sector funding to take on this role directly.”

Suffolk developer Park registered in September and Chris Wakefield, a director at the company, told Inside Housing the main reason for the move was due to the bureaucracy of housing associations.

He said costs were also an issue, with associations often offering “less than build cost” offers on developments.

It follows property giant British Land, which registered its own social landlord in 2017 and the publicly listed Inland Homes, which set up social landlord Rosewood Housing in August.

Rob Beiley, partner at law firm Trowers & Hamlins, said that there was an increasing trend in private house builders setting up their own associations.

He said: “We’re working with a number of house builders looking to set up their own RPs [registered providers] – often they are small privately owned house builders who are struggling to attract traditional associations to take [Section] 106 properties or because of a perception – particularly with shared ownership properties – the bids they are getting from traditional associations aren’t enough.”

Private house builders are obliged to build affordable housing as a condition of planning permission, in deals imposed by councils through Section 106 of the Town and Country Planning Act 1990.

They would typically sell these homes – which can be a variety of tenures – in bulk to the housing association sector. Such deals represent the entire development activity of some associations and account for around half of the sector’s delivery of new homes according to figures from the National Housing Federation.

In order to own affordable housing, providers must be registered with the Regulator of Social Housing – with registration open to for-profit providers since 2008.

Steve Douglas, co-chief executive of consultancy Altair, warned house builders against thinking that having their own association “make for an easier ride”.

He said: “The regulations for registered providers are stringent, and the quality of publicly funded social housing tends to be to a more robust and longer-lasting standard because of the long-term interest in the homes.”

What is a 'Section 106' deal?

What is a 'Section 106' deal?

Under Section 106 of the Town and Country Planning Act 1990 councils can impose "obligations" on developers as a condition of granting planning permission.

In many residential schemes, these obligations take the form of an agreement to make a set percentage of the homes 'affordable'.

The builders will then usually develop the scheme and will sell the affordable homes in bulk to a local housing association, which will then own and manage them.

Housing associations add thousands of homes a year to their portfolios through this method, with 49% (17,388) of the sector's completions coming through Section 106 deals in 2017/18.

However, recent years have seen some large housing associations move away from Section 106 deals as the primary driver of development and have favoured buying land and developing it in their own right. Prime minister Theresa May exhorted the sector to switch to this model in her landmark speech to the sector in September 2018.

Competition for Section 106 deals is now being provided by for-profit housing associations registered by giant equity investors and house builders themselves.

Since 2012, developers have been able to negotiate down the amount of affordable housing they build by arguing it makes schemes 'unviable' by leaving them with a profit margin of less than 20%. This process has been widely criticised for driving down levels of affordable housing overall.

 

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