As with all financial structures and business models there has been an evolution over time.
The Housing Association sector is focused on long-term arrangements that must cope with the economic cycle and not expose its tenants and residents to risks.
Successive governments have emphasised 'building and selling' as the future of the sector with the added benefit of private finance.
With continued pressure on budgets, ESG-related finance has the potential to become an important feature of the future market Perhaps, there would seem to be a recognition that vehicles that blend for-profit and not-for-profit sectors will emerge over time.
The diversity of the business model for growth
Grant has diminished, the rents have been capped so, by themselves, these are no longer sufficient for any meaningful growth. But the asset base has also grown, providing greater capacity to engineer new solutions.
The fact that large groups such as Places for People consist of 20 companies operating towards a common goal is indicative of what future models will look like.
1: Shared Ownership:
has historically provided HA's a regular stream of capital receipts with uplifted values when owners opted to full ownership.
Private investors began to buy into housing association shared ownership, as well as buying into the associations and then leasing the properties back.
For-profit registered providers (FPRPs) were first permitted by the Housing and Regeneration Act 2008 and the first was registered in 2010.
2: Mergers
Housing associations facing a challenging economic outlook with rising costs affecting supply chains on one hand and rents capped by the Government on the other. In some cases, mergers provide the capital for increased development capacity, secured cost savings and reduced risks. In other cases, a 'rescue' for a larger Association or housing group, where the post- Grenfell costs, the Building Safety Bill and decarbonisation regulation all have halted or stopped growth and large part of new development of some Associations
3: Cross-subsidy
Requires associations to raise money through selling private sale homes to fund affordable housebuilding. This funding stream is losing faith.
4: Mixed Funding
Housing Associations fund developments costs of development costs through a combination of private finance, and contributions from their reserves and Social Housing Grants. Mixed funding is likely to remain the core model over the next decade.
The market for lending to housing associations consists of about eight major institutions and is worth approximately £40 billion.
Private equity in one form or another plays an ever-bigger part.
The country’s biggest housing associations (HAs) are exploring equity solutions that could help them to maintain new build ambitions while investing more heavily in existing social homes. L&Q and Hyde are are bringing more private equity into their commercial subsidiaries and strategic partnerships. Homes England has also moved closer to such arrangements alongside building its relationships with the private sector, e.g. having its own housing delivery fund in partnership. Giant housing association Places for People has recently issued €150m worth of bonds in two deals.
All the evidence suggests that private equity is likely to remain a core mode. The opportunity is here -
Come and talk to the ninth Lender
we can provide the Private funding for your growth.
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