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The nature of the new for-profit registered providers (FPRPs) has also changed. The first wave of for-profit providers were small to medium-sized developers looking to exploit the synergies across their build for sale, Section 106 and shared ownership operations. The new wave of FPRPs is a completely different animal. The likes of Legal & General (L&G), M&G and Blackrock are large, high-profile, publicly listed investment companies able to deploy significant capital (patient or otherwise) to back their business strategies.

In little over 18 months Sage has built a portfolio of 4,000 units and a pipeline of more than 12,600 units on site or contracted. L&G is expecting to grow its affordable housing subsidiary from just over 600 units in 2020 by adding 3,000 units each year over the next three years.

M&G has taken a slightly different route, launching an investment fund with Hyde Housing Association. The initial fund received commitments from local authority pension funds of £215m and is seeking additional investors to increase the fund size to £500m. The initial £215m investment has been used to purchase a portfolio of shared ownership units from Hyde.

“The first wave of for-profit providers were small to medium-sized developers looking to exploit the synergies across their build for sale, Section 106 and shared ownership operations. The new wave of FPRPs is a completely different animal”

There is of course an upside to the arrival of the FPRPs. The shared ownership portfolios that have been sold to the FPRPs have provided charitable RPs a capital injection that can be invested in the development of new housing without adding pressure to gearing levels because borrowing on shared ownership housing is usually relatively low. Where the charitable RP is retained to manage the stock, the disposal of units will also deliver an ongoing income stream to contribute to overheads.

However, a portfolio of shared ownership assets (say) can only be disposed once, and with it goes the potential for capital uplifts from staircasing as well as the long-term rental stream. No doubt one of the parties will be getting a good deal. It may be that the new FPRPs backed – as some are – by local authority pension funds value the inflation-linked income streams from shared ownership more highly than charitable RPs. It is too soon, and there is not enough information on transaction values, to say which is right.

There is no doubt that there is potentially insatiable demand from the new breed of FPRP for affordable housing assets. Given the importance of surplus from first tranche sales and staircasing for the viability of long-term business plans, the competition from new entrants is likely to undermine the viability of many business plans unless grant rates increase. In the circumstances the likelihood of grant rates increasing is low.

RPs may therefore soon find that they very quickly become bit players in the business of delivering affordable housing.

Howard Webb, director, Link Group

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