Housing: The problem that won't just go away


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"People often talk about a housing crisis, but that’s not
always helpful," says Amy Shaw, real estate partner. "The picture is
much more complex than that. There’s huge pressure in some areas, but not in
others, and there’s a danger that if we just talk about crisis, then the
response will be political, not practical, and that is going to affect the
quality of schemes as housing is rushed through."

Tonia Secker, real estate partner and a leading name in social housing, agrees that a singular focus on delivery of a certain number of housing units is unhelpful.

She points to attempts to create a much grander strategic vision for housing which the government has outlined in its long-awaited white paper. Among other things, the white paper focusses on encouraging local authorities to make more creative use of their assets, and partnering with market actors in other parts of the sector in order to deliver ambitious housing targets.

"Housing is such a complex area," she says. "There is lack of supply at the right price points in the private sector and, meanwhile, housing policy from successive administrations has curtailed the historic role of local authorities in building for people who can’t afford to access the market 'proper', with the result that every single social housing target, however well intentioned, is never achieved. Why this is happening is understandable," Secker feels.

Austerity and demographics are definitely factors, as is access to land. Yes, developers might not build out at the rates which government wants, but the reality is that they are commercial organisations with duties to shareholders. You can’t expect them to operate in a manner detrimental to their business, particularly given their contribution to GDP. There are lots of factors at play, including a reduction in government funding and constraints on local authorities' ability to borrow, so there hasn’t been enough money in the affordable part of the sector full-stop."

But there are more subtle issues too," Secker adds. "For instance, why many local authorities, private developers and housing associations pursue different channels, and fail to get the benefits of scale they might of if they thought more co-operatively."

The team sees a change in the climate, with different patterns of demand driving more creative thinking. "It’s not just about gross housing demand any longer," says Amy Shaw. "For instance, in one scheme we’ve been involved in since the outset, one key driver of the development has been a local authority seeking to create specific ‘digital quarters’ to attract young, high-growth tech businesses."

"That has interested developers looking for commercial opportunities, but it has also required a lot of thinking around creating low-cost yet desirable housing to provide units at all price points, as well as accompanying retail and infrastructure," says Shaw.

"Demand is one driver, but policy has also affected the thinking among the three key market actors – the private sector, housing associations and local authorities – with a blurring of traditional boundaries."

For instance property companies setting up Registered Provider subsidiaries, allowing them to retain control of affordable units in their developments rather than turn them over to housing associations, and Registered Providers becoming more like property companies and being re-engaged as such by local authorities for specific developments."

"The climate has definitely changed," says Tonia Secker. "The government’s focus has changed from forcing local authorities to sell off high value voids in favour of encouraging innovation over the use of assets. The government is implicitly saying through its policies and the white paper that 'we want you to be more creative in the use of your assets', look at how you can use them more ‘commercially’ where it’s appropriate to do so because they can generate long term revenue streams for the Council. Savills have coined the phrase 'profit for purpose' which I think encapsulates the idea brilliantly."

"But 'creative use of assets' requires a different mind-set, and different skillsets to those some local authorities have been used to employing in the past," she adds. "Establishing joint ventures (JV), for instance, is sometimes tricky, but can be immensely productive. Local authorities tend to be in the driving seat in procuring services, but in these types of arrangement they are a collaborator not a master. That is a bit of a mind-shift for some of them. A JV will involve a degree of risk and compromise. So it is more commercial mind-set that you are asking people to adopt than has previously been the case." One issue many local authorities face is a lack of specialist skills in particular areas.

"Many local authorities have set up their own housing companies, for example," says Amy Shaw, "but because they haven’t been able to build on a large scale since the 1980s, they don’t have the experience of developing to scale. There is, however, a growing realisation that it might be a good idea to buddy-up to do this – and there are structures out there that can offer "procurement friendly" solutions."

"Housing associations do have that kind of skill, and local authorities need to be dipping into it, thinking about joint ventures, partnering, new kinds of rental and equity schemes to attract and retain the buyers and renters of tomorrow and the businesses where they’ll work and which will provide income." Corporate partner Ian Dobinson agrees and says that sharing skills, resources and risks are central to joint ventures.

"It’s about funding, sales and marketing and longer term management issues," he says. "Many of these partnerships are Special Purpose Vehicles. Now, external funders will look at that, but they’ll want a decent slug of equity to cushion their risk. You’ll typically get 60%, maybe a little more, on this. Local authority involvement does not affect the analysis because the funding doesn’t go through them. How the local authority funds their equity investment is another question, but there are a number of things they can do, for instance they may bring some land to the party."

"Councils sometimes also have a pot of money from Right To Buy receipts," adds Amy Shaw, "and sometimes s106 commuted funds too. Coupled with the ability to access attractive finance from the Public Works Loan Board, funding can sometimes be quite attractively-packaged."

"Ultimately, any strategic vision for the UK’s chronic housing problems will only succeed if all interested parties in the public and private sector can come together and figure out some creative solutions," says Tonia Secker. "We all need to make sure this white paper won’t become a white elephant."

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