UK Edition
Will private capital solve the social housing crisis?
It’s fair to say that few property developers get into the industry for a love of building social housing.
Some go to great lengths to minimise their obligations under the Town & Country Planning Act to ensure a certain proportion of units are social and affordable.
When social housing is built, the tenants are often segregated from wealthier neighbours by so-called “poor doors”. But having long been seen as a nuisance or hoop to jump through, social and affordable homes are attracting growing interest from builders and investment companies.
Last year, Legal & General launched a new affordable homes division, and Blackstone, the US private equity giant, took a majority stake in Sage, a British social housing provider aiming to build 20,000 homes by 2020.
Civitas and Triple Point Social Housing, listed investment trusts, have each raised hundreds of millions of pounds to develop social housing, mostly aimed at vulnerable people. In January, CBRE Global Investors launched a £250m fund to invest in social and affordable homes.
Meanwhile, house builders including Bellway, Bovis and Crest Nicholson have been growing their so-called “partnerships” divisions, which build homes for local authorities and housing associations.
But while getting into social housing is an opportunity to tap into a reliable, state-backed income stream, the politically sensitive nature of the sector means there are risks attached.
To understand why social homes have become such hot property you need only look at the state of the housing market. As recently as 1981, about 30pc of people were housed by their council or a housing association, a figure that had plunged to less than 13pc by last year. At the same time many young people are struggling to save up to buy a home outright.
“It’s about responding to the mismatch within the sector,” says Hannah Marshall, head of UK funds at CBRE GI. “The cost of housing has rapidly increased ahead of earnings growth and wider inflation, and the deterioration of affordability has caused a shift towards rented accommodation and increased demand for affordable housing”.
More than a million families are on the waiting list for social housing in England. The Government estimates we need to build 300,000 homes of all types per year to meet demand. It hopes to close the gap partly with private sector measures, such as the Help to Buy scheme, but will also need to increase the supply of social homes.
Last year, the Prime Minister unveiled plans to hand an extra £2bn to housing associations over the next five years and scrapped a cap on how much local councils can borrow to build houses.
The likes of Civitas and Triple Point have identified a particularly reliable niche. Local authorities have an obligation to house vulnerable people, but there is a particularly acute shortage of suitable accommodation, forcing them to pay over the odds to house people in care homes, hospitals and hostels.
“We are moving tenants out of those kinds of establishments and into independent community-based living,” says Ben Beaton, a managing partner at Triple Point. Andrew Dawber, of Civitas, adds: “If a local authority has a family staying in a hostel or hotel it might cost them £150 a night; we could provide it for £150 a week, and rather than having one room, they’ll have a house.”
The funds leave management to local housing associations, though these need to be carefully vetted to ensure tenants are properly treated.
Private sector interest has not been without controversy. Blackstone’s takeover of Sage provoked a backlash from the National Housing Federation, which represents housing associations. Sage stopped referring to itself by that term after the NHF challenged whether it could be applied to for-profit providers.
“We provided a comprehensive response to their concerns and have acted decisively on their request,” the firm said at the time.
“Of course we need new investment in social rented homes,” says Kate Henderson, the NHF chief executive. “But there are questions about whether they are crowding out housing associations ... there is a risk of distorting and driving up the cost of affordable housing.
“What we don’t know is what will be the priority ... will they invest in communities or is their priority to extract value?”
Growing public scepticism about private sector involvement in public services, in the wake of Carillion’s collapse, risks provoking a political backlash that could make life difficult for those investing in public housing, and policies published by the Labour party show plans to take vast swathes of the economy into public hands.
But proponents suggest that, given the yawning gulf between how many homes are being built and how many are needed, their investment would be an unlikely target. A bigger risk may be a surge in Government spending that crowds out the private players.
“If more public funding can be found ... then hopefully more houses would be built ... and there would be less of a role for private capital,” says Beaton. “But our view would be that, such is the demand ... they will never be able to find enough public capital to completely satisfy it.”