How can the social housing sector deliver new housing despite rising costs? Daniel Gayne reports on a roundtable hosted in Manchester as part of Housing Today Live in partnership with Edaroth
In times of economic strife, we are used to turning to the social housing sector for counter-cyclical investment in new housing. But in the current environment, the challenges to supply are formidable, with construction and borrowing costs rising and the government heaping extra building safety burdens on the sector.
Once you throw in a rent cap, planning uncertainty and consumer regulation coming down the pipe, it is easy to see why prioritising new-build may be difficult for some housing associations and other developers.
So, what are the major obstacles to building for housing associations? And what can be done to overcome them?
In June, a group of experts from across the housing world gathered at the Edwardian Manchester hotel (more popularly known as the Free Trade Hall) for Housing Today Live as the Chartered Institute of Housing’s annual conference took place at the nearby Manchester Central Convention Complex.
In a wide-ranging discussion, sponsored by affordable housing developer Edaroth, and hosted by Housing Today’s head of content Carl Brown, the panel covered topics from problems in the planning process to policy uncertainty and financial constraints.
Fears of downgrading
“There are undoubtedly different strains on people’s businesses than there were last time we had a downturn,” said Kathryn Pennington, regional development director of Vistry Partnerships, addressing one of the major topics of conversation. “We’re all worried about interest cover,” added Kevin Williams, group director of development and commercial services at the Guinness Partnership.
“We’ve got more calls on our finite levels of resource and never have we had such demand for spend on our existing homes – building safety, net zero carbon, Decent Homes 2, damp and mould.”
“We are quite happy to turn around tomorrow and start building 500 homes in Manchester, if the city had land for me to release”
Richard Cook, development director, Clarion Housing Group
Philip Jenkins, executive director of development at Peabody, agreed that pressures on balance sheet capacity were currently the major barrier to growing new housing output. “It is not that we are highly geared, because we’re not; it’s about interest cover,” he said, explaining that with rents so low it was difficult for housing associations to add uncontrolled debt while staying within their borrowing covenants, especially as they are being further squeezed by increased operating costs.
JLL’s head of UK living, Richard Petty, said providers were increasingly constrained by the “fear of being downgraded” – 13 social landlords were downgraded by rating agency Moody’s at the beginning of this year. Petty said the funding community needed a “shake-up” and urged housing associations to put pressure on banks to achieve this.
“There are still five banks who are mainstream lenders to this sector who will not allow the rent from affordable rent to be reflected in asset valuations – that is just nuts, and it is probably halving the value of those homes,” he added. “In the last 20 years we have had this slowly emerging market of trading between providers, but we are not allowed really to take that evidence into account.”
Where is the land?
Richard Cook said the biggest problem for Clarion, where he is development director, was the availability of land. “We are quite happy to turn around tomorrow and start building 500 homes in Manchester, if the city had land for me to release,” he said, complaining that even brownfield land was difficult to find.
“We love dirty, brown land and we know we can go and find funding for dirty, brown land,” he said. “But it is actually people wanting to release it that is the issue. Everybody seems to want to be a developer at present in central government and local government, and that, when starting from scratch, is very slow, so all that does is just delay the inevitability of releasing land.”
Helen Spencer, the executive director of growth at Great Places, said there were a number of markets in the UK, particularly in the north of England, facing extreme cost-value challenges that are making it difficult to deliver new homes.
“With the shift in construction cost and the lack of recalibration in the land markets, what we are seeing is our opportunities naturally narrow because markets just aren’t able to sustain the value,” he said.
Their response has been to focus on areas where they have existing stock and know that they can deliver viable schemes.
Whither MMC?
Many in and outside government have pinned their hopes for expanded housing delivery on modern methods of construction (MMC) but, after some high-profile failures in the offsite market, the technology has perhaps as many doubters as champions.
Trina Chakravarti, director at Building Better, said there were two major challenges for MMC, the first being lack of resilience on the supply side.
“This is still a very nascent market; it’s not clear which of the business models will pan out for manufacturers,” she said, adding that there was a “lack of collaboration between manufacturers and principal contractors”.
On the demand side, she said the market remained “fragmented” and “complicated to navigate”.
“It’s not clear, if you’ve got a piece of land, what type of manufacturing you should go for, which manufacturer will have the financial weight behind them and won’t go under,” she said.
“It is one thing needing more homes, but there are quite a lot of problems with the existing homes that we have”
Caroline Dove, partner, HTA Design
Chakravarti said there was “no easy, pithy answer” in terms of solutions, but said that MMC firms needed to work with housing associations and local authorities to “change some of their processes”.
“Some of this stuff is really practical – the assumptions we make to assess whether something is viable or not when you’re comparing MMC or modern methods against traditional – and some of it is about the internal capabilities and resource when you’re already stretching a development team doing a million an hour,” she said.
On the supply side, Chakravarti said manufacturers needed collaboration with the traditional construction sector to achieve scale.
Balancing regeneration, refurbishment and new-build
“It is one thing needing more homes, but there’s quite a lot of problems with the existing homes that we have,” said Caroline Dove, a partner at architect HTA Design. Homes England’s decision to open up grant funding for regeneration projects was warmly welcomed, including by Guinness’s Williams.
“We know, as a nation, we’ve just got an ageing stock. We have all got properties that are way beyond their useful life, and we are putting sticking plasters over them – we can’t do that indefinitely,” Williams said. Dove, whose practice does a large amount of regeneration work, agreed but pointed out that “to actually get more homes than just what you are replacing is quite a challenge, especially in very dense locations already”.
Tom Titherington, chief investment and development officer at Sovereign, challenged the idea that work to improve and maintain existing stock should act as an impediment to new development.
“If you think about your assets, simply as something which is a drain, you’re not going to be able to continue to develop,” he said. “The problem that housing associations have had for a long time is they haven’t seen themselves as sort of social property companies.
“So they haven’t thought through some basic disciplines about condition of stock, churn, the utility of that, and what they’ve done is raid the balance sheet to go and build more homes, many of which were not of a particularly good standard, and so – while they thought they were strengthening the balance sheet – actually they were just putting a latent liability on that balance sheet for a period of time.”
He said that if housing associations looked to sell “doer-upper” properties with a good value in the private sector but a high cost to social landlords and a low social value, then they would “start to create a capacity to do more”.
“Ninety percent of the people living in your homes you do not know anything about”
Caroline Toogood, project director, Altair
The major barrier to this, he said, is that housing associations “don’t really understand their stock”.
There was agreement on this point from Caroline Toogood, project director at housing consultancy Altair, who said that the knowledge problem extended to tenants. “Most social landlords, entirely understandably, have not kept any information about their tenants unless they have got a problem,” she said. “That means 90% of the people living in your homes you do not know anything about.”
Dove said that a better understanding of who is living in particular properties could enable housing associations to help some tenants – particularly elderly residents – to right-size, freeing up space in homes for people in greater need. Social landlords, she said, should be “focusing on getting more homes in the right place, perhaps more centrally located for older people, so they are not isolated and have amenities near them”.
She added: “We’re actually doing a scheme for Reading council where we’re doing just that – we’re doing slightly larger flats to encourage downsizing.”
Planning, planning, planning
As with any conversation about housebuilding, the discussion eventually came around to the planning system, with most participants expressing frustration.
“We are subject to the same delays in the planning system as everyone else, which I find incredibly frustrating personally given the kind of national rhetoric and the conversation around sustainability net zero,” said Graham Kauders, development director at Edaroth. “This stuff does not seem to filter through to some of our colleagues in planning authorities, and, frankly, in 2023, I find that astonishing.”
Martyn Jones, executive director of development and sales at Paradigm and a chartered town planner, said some of the government’s “tinkering” on planning had been “quite radical”, but acknowledged that many in the industry will have “breathed a sigh of relief” when the planned infrastructure was “kicked into the long grass” with a 10-year test-and-learn introduction. “Whether that ever comes out of the grass is a question,” he said.
Altair’s Toogood complained that the government was “behind the public” on the issue of planning and that, particularly in the big cities, nimbyism was being replaced by an “acknowledgment of the need for housing”.
Asks for government
There were further grievances aired relating to the incumbent government and the perceived lack of a cohesive housing strategy. Toogood bemoaned the “ridiculous” turnover in housing ministers and said other UK nations were taking a better approach to housing that England. “That golden era post-war where housing was seen as part of healthcare and health provision is something we probably need to go back to,” she said.
Petty pointed out that with a possible change of government next year, there was “a fantastic opportunity” for the sector to engage with the Labour Party, though Shelagh Grant, chief executive of the Housing Forum, noted that whoever ends up in charge, the industry would need to focus on taking its case to No 11 Downing Street.
“Whatever certain government departments want, if you don’t get the Treasury to understand what you are doing, then it is a difficult,” said Grant. “I think we are, unfortunately, a long way from the politicians really understanding how the whole process of housing development works.”
Alyson Heald, regional partnerships director at L&Q, agreed, pointing out that the government would never provide the funds needed to build social homes at the necessary scale unless it stopped seeing the investment solely as an expense. “If you don’t look at the savings to the Treasury, you don’t look at the savings to local councils and governments, you’re not going to get that buy-in,” she said.
One thing the Treasury could do to help, according to Guiness’s Williams, would be to arrest or even reverse the long-term decline in grant funding for housing associations.
While the panel had plenty of ideas for things the government could do to help the industry ahead of a difficult year, their core message for Whitehall was a simple one, perhaps best summarised by Jane Gallifent, development director at the Aster Group: “If we are left alone, we have a well-resourced planning authority and we have that availability of land, we can deliver exceptionally well.”
Round the table
Chair: Carl Brown, head of content, Housing Today
Shelagh Grant, chief executive, the Housing Forum
Helen Spencer, executive director of growth, Great Places
Martyn Jones, executive director of development and sales, Paradigm
Jane Gallifent, development director, Aster Group
Richard Petty, head of UK living, JLL
Caroline Toogood, project director, Altair
Philip Jenkins, executive director of development, Peabody
Alyson Heald, partnerships director (North-west), L&Q
Tom Titherington, chief investment and development officer, Sovereign Housing Association
Kathryn Pennington, regional development director, Vistry Partnerships
Kevin Williams, group director of development and commercial services, Guinness
Graham Kauders, development director, Edaroth
Caroline Dove, partner, HTA Design
Trina Chakravarti, director, Building Better
Richard Cook, development director, Clarion Housing Group
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