The Housing and Regeneration Act of 2008 opened up the social housing sector to the prospect of profit-making registered providers, writes Nick Thompson of Rightsize Consultancy. While initial take-up was modest, 13 years later the for-profits have begun to make their mark in the sector and there are a large number of prospective entrants waiting patiently in the queue.
Some may cast ideological aspersions against these new capitalist ventures, but the cost of housing they offer to the tenant or owner is no more than that provided by non-profit housing associations, and their addition to the sector can only help in the supply of new affordable homes for rent and sale.
Just like the open market housebuilding sector, social housing has been characterised by a series of mergers and acquisitions that have resulted in some huge corporate-style entities. These provide the big, ambitious, development pipelines that Homes England seeks, but this trend has tended to leave space at the bottom of the sector for new entrants and new ideas.
So, who is getting into this space? All kinds of organisations have succeeded in registering their own independent for-profit RPs. These are funds and investment houses, SME housebuilders, developers, housing managers and landlords, building contractors and so on. Each of these come at the sector with their own experience and ideas and offer the chance to enter, enjoy and contribute to it.
It is commonly held that there is a high bar to entry, however there are some fundamental benefits that validate the endeavor. Firstly, it is a regulated sector and this means standards are kept high. The effect of this regulation provides a high degree of certainty in projected budgets and returns. Some of the largest global and indigenous institutional funds have entered the space – BlackRock, L&G, et al – and that alone points towards the sustainable, index-linked, low-risk returns on offer.
Secondly, demand: close your eyes, put a pin on a map and hit a settlement large or small – there’ll be demand for housing there and demand for affordable housing too.
Thirdly, grant funding; Homes England’s latest round of funding for the sector has recently kicked off. The 2021-2026 Affordable Homes Programme has allocated £7.4bn, (yes billion) to be spent on new affordable housing stock outside London over the next five years. This is the single largest allocation for the sector and follows a £5.5bn expenditure in the previous five-year round. Whatever industry you’re in, that kind of public subsidy makes some serious headway. The use of Homes England grant by new entrants to the sector can dampen, in a big way, the overall level of equity finance needed to fund housebuilding at scale.
It is easy to describe these benefits but there are, as you would expect, some significant hurdles to clear and prospective entrants need to consider the opportunity as a long-term commitment. Rightsize Consultancy is supporting a handful of clients in the application process. Applications can take over 12 months to reach conclusion and the success rate is a mere 20%-25%. Many begin the process without fully recognising the issues and the commitments that are needed.
Curiously there are not many for-profit RPs whose registered offices reside within the North West. Perhaps this is just an indication that the pool of capital runs from London outwards into the regions. There are more than a handful actively developing and seeking new sites here. But for a region that has often led the way in BTR, I am sure it won’t be long before we will have a further number of for-profits based here seeking out sites and plotting their future growth.