If the spending review put into place pretty much everything the housing association sector has asked for in recent years, it may well beg the question where does this leave institutional investment into affordable housing.
Perhaps the obvious place to start is to recognise that the announcements will not provide an immediate panacea for the challenges that many housing association balance sheets continue to face; whether that be the need to prioritise expenditure on building safety (notwithstanding the welcome announcement in the spending review about equal access for the housing association sector to the building safety fund), remediation of damp and mould or energy efficiency work. So, notwithstanding the long-term rent settlement and the new grant programme, there will continue to be a number of associations for whom development capacity remains scarce and won't be in a position to access grant to develop on their own balance sheet.
Secondly,whilst the 10 year CPI+1% rent settlement will go a long way to stabilising current business plans (albeit that we suspect that many plans had already assumed rent increases at that level) it is questionable whether the package creates development capacity per se; as JLL has surmised, the £39 billion grant application is likely to require the sector to secure £100 billion of debt – and there must be a real question about the ability of the housing association sector to deliver that alone.
Finally, the spending review will do little to provide additional capacity for housing associations to acquire s106 properties – and here we believe that there is a compelling case for (modest and time limited) grant allocations to be made available to the sector to overcome current delivery challenges faced by the housebuilding industry.
So whilst it might be tempting to assume that the £39 billion represents a return to the status quo of "on balance sheet" delivery,there is a compelling argument that the new programme may actually accelerate the need for housing associations (and indeed local authorities) to partner with institutional investors to maximise the opportunities the enhanced grant allocation will bring; whether that be in the form of formal joint venture registered providers or in forward sales to institutionally backed RPs.
For investors in the affordable housing sector the package is clearly a good news story; recent years have seen the nascent institutionally backed Registered Provider sector able to deploy social housing grant at scale and the 10 year rent settlement will engender greater investor confidence in the sector and - critically - will reduce the cost of capital (because that will make the grant programme go further); as such the rent settlement is a textbook example of how government can facilitate further investment in the housing sector without actually incurring expenditure. It will also increase the attraction to institutionally backed registered providers of acquiring tenanted portfolios from the housing association sector which will enable the re-capitalisation of housing association balance sheets. There will also remain opportunities for investors to acquire s106 properties and to acquire stock at scale from housebuilders.
The spending review represented a serious statement of intent from government - and it will take every part of the affordable housing ecosystem, local authorities, housing associations and institutional investors to work in partnership to deliver on government's ambitions.
