Over the Summer I have spent time in a number of areas in the South West. I’m quite a chatty person and simply from talking to the locals you hear the true views they have. Tourism is great for their local economies however it creates a big challenge – housing. It was quite stark looking around on Scilly Isles particularly to see the level of homes for let. For those growing up in these areas you have to wonder what they feel – affordability is a key challenge for many across the country (not just the South West).
There has been a chronic undersupply of affordable housing for a number of years. With an estimated 1.0m plus on waiting lists the model in place now has failed. The National Housing Federation has estimated that 145,000 adorable homes are needed each year – which is broadly a threefold increase from what is currently being constructed.
Over the years some progress has been made in shifting the dial in increasing the output of affordable housing. There are obstacles however they are not insurmountable to overcome – and this is being shown by developers, housing associations and local authorities – collaboration can really help. Building safety works will cause a challenge for those impacted as funds are rightly directed to remediate but means less capital is provided to replenishing affordable housing.
So how do you build more affordable housing? Well, the core problem is funding. To build more affordable housing will require capital. Historically affordable housing has come from local authorities, housing associations and not-for-profit organisations – none of which are awash with cash. In terms of obtaining funding, housing associations are close to their allowable limits nor can they raise equity. They therefore need subsidies.
So, help is needed one way or another.
There has been interest from institutional investors – investing their capital can provide stable returns and unlock quality and sustainable housing. Some large players, like Legal & General, are moving into the sector – a key credential being they have a large amount of capital to deploy and are looking for a lower risk return over a longer period to match their liabilities.
The solution is partnerships. The legislation allows For-Profit Registered Providers to own social housing and receive a social housing grant, enabling institutional investors to play a greater role in the provision of social and affordable housing. Partnerships are already in place but there is the potential for larger scale collaborations. Funding from an institutional investor and the capabilities and know-how of the registered provider. Government support is needed to create stability to allow these partnerships.
A new Government will be formed soon. Maybe (let’s be honest inevitably a new Housing Minister and Secretary of State) a change in those who head up key functions that facilitate delivery of affordable housing. The key action would need to be to increase the subsidy provision available which would facilitate the delivery of more homes. Generate stability in the market to provide assurance to investors and look at ways to remove obstacles that hinder collaboration between the private and public sector. Alongside the Government though, Housing Associations should look at which models will support their organisation goals and deliver additional housing stock. Housing Associations have significant experience of delivering homes and that knowledge should be shared.
These actions would then help institutional investors have the confidence to increase their capital allocation and their own wealth of experience to achieve the ultimate aim – more affordable housing.