02 March 2007
Building more low-cost homes for sale is one of the solutions to the housing crisis. But this doesn't have to be the sole preserve of private developers. In fact, social landlords are taking on this role and ploughing the profits back into the sector, as Steve Nunn explains
With the average price of a UK house now eight times the average income, the subject of affordable housing could hardly be more pressing. In the Southeast, where property prices have doubled in the past five years, a combined housing shortage and price boom have resulted in a desperate need for more lower-cost homes. With even moderate earners now struggling to get on the property ladder, the picture for those at the very bottom of the wage pile appears uncompromisingly bleak.
And housing associations are right in the thick of the problem. Professor John Hills' review, which reported on February 20, urged landlords to give tenants more flexibility and to do more to ensure a wider mix of people on their estates.
The Housing Corporation, the government body responsible for allocating social housing grant and regulating the sector, is also working to address the crisis through its National Affordable Housing Programme. Between 2006 and 2008, it plans to invest £3.9bn in affordable housing. This money is distributed in grants to housing associations, which build, sell and manage social housing via low-cost initiatives, such as shared ownership (part-buy, part-rent) schemes.
Despite this investment, much more needs to be done. The National Housing Federation, the trade association for the 1,400 independent, not-for-profit housing associations in England, is calling on the government to provide £11.6bn to build 210,000 new homes by 2011.
Last November, NHF chief executive David Orr warned of a 'housing timebomb'. Unless 80,000 affordable homes are built every year, he argues, the current UK housing crisis will continue to intensify. With 1.5 million people already on housing waiting lists and millions more unable to afford homes of their own, a long-term, sustainable solution is desperately required.
The real question is who will provide this solution. In this, the government appears to be backing off. After all, just as the market is forcing up demand for affordable housing, so housing associations are anticipating a steep decline in the amount of government grants available to them for lower-cost housing projects.
A 2006 report by data analysts Standard & Poors showed that the average level of grant from the Housing Corporation is set to drop by about 30% by 2008, compared with 2005. At the same time, the Treasury has told the corporation that from 2008/09 it must save 18% over three years on homes built for rent and low-cost ownership. In other words, it will have to make a smaller pot of money go further.
Far from cramping housing associations' style, however, this double squeeze has only fired us up to seek other income streams. Unwilling to leave the booming house-building market solely to private developers, registered social landlords are looking to diversify their operations. Across the country, we are increasingly taking greater control of our own purse strings by moving into the outright sales market.
Using reserves to build homes for private sale – and ploughing any profits back into affordable housing – means that housing associations are effectively becoming social enterprises. For many industry commentators, it's a welcome move. Orr, among others, has hailed it as an effective way for RSLs to 'make a real contribution to the supply gap'.
Our south London housing association, Tower Homes, is also in on the act. We plan to develop 500 homes over the next two years for outright sale through our sister company Zest Homes. For us, this move represents a clear step towards greater financial independence and better efficiency.
The private sale developments will create profit, which will enable us to be less reliant on public grants to produce affordable housing. In theory, we could pursue outright sales to such a scale that we could dispense completely with public funds, but this is unlikely, in the short term at least.
We still need to make the existing money work as hard as it can and we are more likely to match funds to make the money go further.
Developing for outright sale presents a major change for us and other housing associations. Traditionally, our private sector role has been limited to building and managing a small number of affordable homes within much larger private development projects. We usually have very little say in the overall design and composition of a private estate. Taking on complete developments gives us, homebuyers and tenants several knock-on benefits. Many private developers, for example, are interested only in building units to sell on at maximum profit. They are far less keen on managing estates.
RSLs have the experience to do both, and many local authorities support our move into this area. They believe RSL developers could be better in terms of delivering the standards expected, and that there are clear advantages to one party carrying out all aspects of housing and estate management.
The difference as we see it is that if we were a private developer we would care only about selling as quickly as possible to whoever has the money. But as a socially responsible business, we have a much broader interest and a reputation we want to protect.
This inherent social purpose brings other benefits too. Take a fairly typical new development in the UK: 35% of the homes could reasonably be earmarked for shared ownership, the remaining 65% for private sale. The affordable homes will almost exclusively be lived in and looked after by owner-buyers. A large percentage of the private sale properties, however, will be bought by investors looking to rent them out. If the estate is not highly desirable, this can create a fast turnover of tenants, with many units left standing empty. Such an abundance of absentee landlords can negatively affect the entire community.
Unlike private developers, many housing associations are committed to tackling this phenomenon. Tower Homes, for example, has a policy of selling its homes for outright sale only to resident occupiers: people who buy homes to live in, rather than buy to let. This social commitment helps to create stable, mixed-tenure communities.
Another factor in housing associations' favour is cost-effectiveness. Preston-based Places for People has already completed 250 outright sales in 2005/06, and has plans to develop a further 3,300 homes over the next three years. It believes that using public finance alongside such self-generated surpluses could drastically improve housing provision, ending up 20%–30% more cost-effective per unit than a grant.
While RSLs are relishing our new remit, it is not without concerns. By taking on entire development projects, we (and the government money we use) are being exposed to much greater financial risk than normal. Should things go wrong, this could potentially have a very damaging effect on future provision of affordable housing.
To some extent, this risk might control itself. Currently, housing associations enjoy favourable borrowing terms, thanks to close regulation by the Housing Corporation. If this is relaxed to encourage much greater forays into the private sector, it might negatively affect our borrowing ability.
Because of this, some experts believe we will look to forge new development partnerships with the private sector. But any RSLs that take this route will have to be cautious. The private companies have been operating in these markets for considerably longer, and their more socially minded cousins will need to enter any arrangements with their eyes wide open.
Nevertheless, the clear consensus is that housing associations' move into the outright sales market is a valuable and increasingly necessary step in the right direction. Local authorities are keen on seeing
their partners innovate – and that is exactly what we intend to do.
Steve Nunn is the director of operations at Tower Homes
Two for the drawing board
Tower Homes, based in south London, has been building homes for shared ownership and rent for some years and has won more than 20 design awards. Now it is moving into the outright sales market. It plans to build 500 homes in the next two years and has two developments at planning stage. The site of the former Rose and Crown pub in Whyteleafe, Croydon, will be transformed into a mixed-tenure scheme with shared ownership, rent and about 20 outright sale homes.
The former Rotary Lodge in Lambeth (below) is being worked up for planning but the aim is to build 14 homes for outright sale.
Step up the ladder
Places for People has already built homes for sale and one of those to benefit is Cambridge-based research scientist Ross Stewart. He earns £28,000 but was struggling to find anything affordable, even with a deposit of £30,000. So when he found a spacious two-bedroom flat for £152,500 in a new housing development just outside Cambridge, he jumped at the chance. Ross had no idea initially that he was dealing with a housing association but he found its management skills invaluable. 'I had a lot of contact with Places for People,' he says. 'It was good to have an extra party to put pressure on the builders. I still have a contact number for them if anything goes wrong.'
As for his new home, Ross says it combines functionality with comfort and 'offers exactly the right balance of affordability and convenience to work'.
PFmar2007
