Thank you to those that were able to attend our third Affordable Housing Summit across our Manchester and London offices.
For those of you who were unable to make it on the day, we have set out the key takeaways below:
The market and where government is going
- Housing remains a key priority for Government, not least because it provides one of the few opportunities for growing the economy.
- That said, the ability of Government to materially intervene will inevitably be hampered by world events.
We need to think about crisis in a different way
- Planning for crisis – whether environmental, cultural or political – is a key factor for any business in building their overall long-term resilience.
- Housing providers and the wider real estate industry play an important role in managing the response and effect of shocks – creating buildings and places which can withstand weather extremes and promote health play a key role in supporting communities.
Can you have it all? The existing vs new build conundrum
- Choosing to invest in existing stock versus delivery of new homes, remains a real challenge, but it can’t be an 'either/or' choice. Aside from the pressing social need for further affordable housing, without new homes, the sector's average age of stock will materially increase, with implications for valuation and future investment.
- There remains a significant amount of institutional capital wanting to invest in housing, but currently there is a mismatch between investors and housing associations in terms of price expectations, particularly given the costs of finance remain relatively high.
- Both public and private housing providers and developers would welcome Government taking a placed based approach to funding so that the housing providers can make the decisions themselves (rather than chase after the time limited grant funding pots) on how to improve and retrofit their homes and build new homes of the right tenures to support the existing communities.
- Whilst is recognised that demolition of existing homes may be the only option due to their state and condition and cost to bring up to decent homes standard and be fit for the future, where possible preserving existing homes and communities is preferrable and there are many examples of successful regeneration based on this model.
- Regulatory compliance on all fronts is adding to the pressures faced by the sector. The delays when engaging with the Building Safety Regulator are a pressing and immediate hurdle to new homes.
Balancing the scales: the importance of credit ratings and balancing this with pursuing strategy
- 2024 saw continued downwards pressure on ratings because of financial challenges arising from the rent cap/cuts, fire safety challenges, net zero carbon works, damp and mould issues, pricing pressures on development as well as increasing interest rates – all putting pressure on operating margins. Investment in existing stock alongside continued development ('doing it all') is a careful balancing act for housing providers to maintain credit quality (and the impacts of that on the cost of debt).
- Where it is primarily the consumer regulatory grading driving the governance regulatory grading (assuming this is below G1) this is of less concern in terms of prompting credit rating actions – there is, however, a focus on governance more generally for investors and the raters. Good management and strong governance remain important.
- There is evidence of the bond markets being receptive to issuers with weaker regulatory and even credit ratings but is this more about timing / lack of issuance generally.
- The social housing sector benefits from the link to the sovereign 'sponsor' and the expectation of ''extraordinary support' as well as the sector's 'no default' status. If the UK rating changes or there was an insolvency scenario affecting investors this could have significant implications for rated providers.
Meeting the Government housing and growth targets – Drivers for demand and the role of the affordable sector
- There is an acknowledged need for new homes to reflect both the diverse needs of the population and to support economic growth – understanding the drivers for growth, our demographic trends and the way people choose to live is key to identifying the right targets for development.
- It is likely that homeownership will always have a big part to play in our priorities as a country, but the combined challenge of affordability and supply needs more focus and creativity both for the rental market and the provision for the growing number of older people in our population – and viability was seen in both sessions and the number one challenge to addressing this.
