High land prices are squeezing housing associations out of building homes, says Peter Hibbert, but Richard Donnell says there are plenty of opportunities if associations market their skills
The mismatch between the high demand for new homes and the supply of suitable development opportunities pushes up land prices. The problem faced by housing associations is that affordable rents plus current levels of grant do not equal the land's market price in most London locations.

In many non-prime central areas our maximum total scheme cost is perhaps just 20% of the value of a private sector home of similar size. The net effect is that most associations no longer compete head to head for land opportunities, which have historically fed their development pipelines. This means many organisations are precluded from securing their own opportunities at a time when the supply of new affordable homes cannot keep pace with housing needs in many boroughs.

As a result, associations now rely on planning gain arrangements (section 106) with client local authorities to deliver affordable homes. In this arrangement, the client local authority chooses which of its partner associations shall receive the affordable part of a particular developer's land opportunity.

Housing associations can provide affordable homes without relying on planning gain by acting as developers

Peter Hibbert, Assistant Chief Executive of Network Housing Association

Section 106 deals can work satisfactorily, but there are two basic problems. First, there's the structural problem that comes of developers having control of the site, project team and production process. Second, there's the practical issue in that the housing associations are involved later in the day, following the formation of development and broad cost plans. The association is therefore too late to use its valuable experience to optimise the scheme's long-term success from an occupier's point of view and meanwhile efficiently managing running costs.

Network recognises the value of controlling land opportunities through our developer role. The mismatch between low levels of grant and a buoyant marketplace dictates a mixed-use/mixed-tenure solution. But as developer we can optimise the affordable housing content.

Housing associations can bring added value to the development business

Richard Donnell, Director of FPDSavills Research

For example, we recently started on site with a £73m development in Pimlico. This will deliver a 53,000 ft2 J Sainbury store and 160 apartments. With Network as developer, we have won more than 50% of the new homes, helping to meet the huge demand for affordable housing in Westminster without relying on planning gain.

We are seen rightly as equal players in the development field. Network is able to secure and maintain partnerships with developers and investors by reciprocating opportunities for involvement in new ventures.

Rising land prices mean that housing associations are finding it hard to bid for land in direct competition with private housebuilders. It should be no surprise that they are losing out. Indeed, it is questionable whether more grants should be supplied to increase their competitiveness, as landowners will be the single biggest beneficiaries of any extra funding. With land prices likely to remain high in the medium term, housing associations need to take a different approach in order to find opportunities to build more homes. There is plenty of potential land out there, but it is a question of how schemes are brought forward. Innovation in land assembly is the key and something that many commercial developers have been forced to pursue.