Housing Associations’ business models are changing
Renting is set to become the norm for much of the UK population and local authorities and housing associations are well placed to lead on the delivery of a better rental sector. To address changing demographics and fluctuating budgets, organisations are changing the way that they work. This has been fuelled by partnerships with private companies offering transformative services to registered providers and organisations themselves diversifying their delivery.
The social housing sector long relied on high levels of government grant, which enabled it to build up its stock at little to no cost or debt. However, the past decade has transformed the way that registered providers have needed to behave in order to survive. Organisations are now finding that they need to behave in a way that’s closer to the corporate world. According to the Housing and Communities Agency, by 2021-22 the debt of registered providers is set to rise from £66bn to £77bn. In spite of this, the sector remains very attractive to investors because, according to Alex Gipson, lending manager at Legal & General; “there is plenty of money out there.”
Like Legal & General, other large institutional funders, such as hedge fund Man Group are also starting up in the affordable housing sector. Another strategy which is becoming predominant are JVs (joint ventures) between housing associations and housebuilders, adopters of this model have been Optivo, Genesis Housing and affordable housing interlopers Legal & General. What is likely in this environment are the rise of affordable housing specific third-party consultants gaining business by shepherding these deals through.
“Big, complex housing associations need good quality leaders, but not necessarily private sector imports. The social purpose ethic is paramount and needs preserving, wherever leaders come from.”
The government target of building 300,000 homes a year, alongside the acute effects of the housing crisis have set many housing providers on a path of construction innovation. In 2017 65% of local authorities reported ‘being directly engaged in housing delivery’ including private partnerships with homebuilders.
For example Homes for Lambeth, after successfully delivering 3,000 mixed tenure homes was given more freedom from the council department to be able to act more independently and commercially. And they’re not the only ones. What matters though, is that social purpose remains central to these organisations’ strategies.
“It’s so important that we differentiate who we are, why Housing Associations are different to others that build homes and others that manage homes. So when we build, we build for the long-term, any surplus we generate gets re-invested into building more social and affordable homes and into community investment. That’s a totally different business model to a volume house builder. It doesn’t mean that we don’t partner with commercial developers to do development, but our drivers are quite different.”
Swan Housing saw an opportunity to deliver high quality, affordable homes in the form of modular construction models. Rather than import from China, the main provider of these models, Swan decided to build their own modular construction site in Basildon. Cutting out the middleman, reducing shipping miles and creating jobs, they deliver mid-rise modular homes in Essex. Which can also now be sold to other registered providers and construction companies.
“Swan is truly committed to delivering innovation. Having opened our own offsite modular factory in 2017, we are convinced that this method will enable us to deliver high-quality homes that people will want to live in, at the same time building local and national expertise in manufacturing and supporting the UK modular industry. This guide, we hope, will encourage others to consider modular, whilst enabling high-quality homes to be built, quicker, more sustainably and at a lower cost.”
Geoff Pearce, Swan’s Executive Director of Regeneration and Development
The public sector has in the past, been seen as a sector that is relatively slow to react, however what the last decade of challenges has shown is the opposite of this. Instead, the sector is keen to find solutions through in-house transformation and strategic partnerships.
Partnerships need to be forged with organisations with long-term social value at the heart of their organisational purpose. Helen Collins, head of Savills Housing Consultancy proposed that what we will see more “ethical property residential developers” in the future.
Following many years of tough upheaval, it is the hope that registered providers have weathered enough storms to become adaptive rather than reactive organisations, protecting themselves and their customers.