Home advantage

Competing financial demands have forced many housing associations to make difficult decisions, and in many cases development plans have been paused, scaled back or even shelved altogether. They have been forced to allocate funds to pressing matters including fire/building safety, Awaab’s Law requirements, maintaining and retrofitting existing stock and decarbonisation and net-zero objectives. Despite this, in many cases, their primary objective remains to build more social/affordable homes.

Enter a new prime minister, Andy Burnham, and conversations about social/affordable housing development have taken on a new lease of life.  A strong advocate of ‘council housing’ provision, as it was in the 1970s and early 80s, when local authorities owned and managed large swathes of housing stock, Andy Burnham has promised "the biggest council housebuilding programme since the post-war period.”

For local authorities, this message from the new PM could seem confusing. Whilst they support the idea of accelerating social/affordable housing delivery and are already doing a lot to effect change in this area, how can it be funded at a time when many local authorities are struggling to make ends meet? Furthermore, if local authorities are going to be challenged to do ‘more’, what does ‘more’ look like and where do housing associations fit into this plan? Is it merely political hyperbole or could there be real opportunities for local authorities to move the needle on social/affordable housing?

What would ‘doing more’ look like?

Many local authorities, especially those outside of London, face significant financial pressures. In addition, decisions taken decades ago to transfer out housing stock have left some of them with little or no in-house delivery capability.

Nevertheless, many local authorities are still considered asset rich, noting the large parcels of land that remain in local authority ownership. Exploring what opportunities arise from retaining these assets could improve financial resilience at the same time as boosting social/affordable housing delivery. Some opportunities will carry more risk than others, but they need to be considered if the social/affordable housing needle is to change.

One way for a local authority to get further ‘behind’ social/affordable housing delivery is to lend money to a housing association, whether at commercial rates or at below market rates (subject to subsidy control rules). Whilst this won’t be viable for many, we have seen firsthand that Government-backed programmes and capital, where available, can lead to significant contributions to social/affordable housing stock. For example, we recently advised a housing association in Northern Ireland in relation to £60 million of debt finance provided by the Department for Communities (DFC) to facilitate the delivery, and ongoing management, of affordable housing units under an entirely new intermediate rent product.  The DFC had an appetite to fund and was willing to do so on highly competitive terms, and the housing association, with its wealth of local and development knowledge/expertise, was perfectly placed to receive it.  The result, based on just one pilot, is 300+ units added to Northern Ireland’s social housing stock over the next 3 to 5 years. The social/affordable housing needle has moved up.

There are also examples of local authorities, typically five or more, engaging in ‘club funding’ arrangements. This is where multiple local authorities lend to one housing association simultaneously. Local authorities get a positive return on their capital, further their social/affordable housing objectives, and do so on standardised funding documents with predictable legal costs. Housing associations get competitive money on flexible, often unsecured and importantly ‘covenant-light’ terms. Anthony Collins has been involved in many club funding arrangements in the last five years.    

Is leveraging land the key?

If a local authority doesn’t have access to capital for social/affordable housing development, can local authorities look to leverage land assets more creatively and are they already doing this?  

Retaining some ownership of land can bring long-term gains, rather than a one-off capital receipt from an asset sale. For example, local authorities can contribute land into development vehicles, agree deferred land payments, undertake land swaps, or otherwise look to retain a stake in developments, giving them a financial interest.

Alternatively, local authorities and combined authorities can also choose to enter into a joint venture with a housing association. A joint venture arrangement can enable a local authority or indeed a combined authority to benefit from a housing association’s development expertise and operational capacity and infrastructure. The housing association gets access to land that might otherwise have been unavailable. As you would expect in a joint venture scenario, risks and returns are typically shared, enabling social/affordable housing delivery, without necessarily a requirement for up-front public sector expenditure. 

A great example of this (and there are many) is Hive Homes. Hive Homes is a unique ‘profit-for-purpose’ development joint venture (JV) set up by 10 housing associations in the North West and the Greater Manchester Combined Authority (GMCA), operating to develop high-quality new homes for sale on the open market. The aim of Hive Homes is to support the GMCA’s housing strategy, helping to address the acute shortfall of housing in the area, whilst sharing profits among the JV partners to be invested locally. All revenue generated from building and selling the new homes is returned to the JV partnership for use in the creation and support of more social and affordable housing. The social/affordable housing needle has moved up once more.

Another way that local authorities can, and do, leverage land assets is enabling the creation of local development companies. This option is, in our experience, at the riskier end of the spectrum, as some wholly owned development companies have been impacted by governance challenges and, in rare instances, commercial disputes. However, success stories are emerging. Legal teams with sector-specific funding expertise have helped to establish very successful development arms, many of which have now completed multi-tenure housing regeneration projects often focused on former local authority-owned sites. These are all great examples of what development companies backed by local authorities can achieve. The social/affordable housing needle has moved up once more.

Tapping into positivity surrounding ‘Manchesterism’, it seems likely that more local authorities and/or combined authorities will explore further the potential of not just JVs but also public-private partnerships to support their plans for large-scale social/affordable housing delivery.

A good example of this is ‘Manchester Life’, the brand name for a well-established partnership between private investors and Manchester City Council. This public-private partnership has delivered over 1,500 market rent homes across nine developments, and there are plans in place to develop many more. The focus here is on generating financial certainty for investors and facilitating targeted investment at scale.  What this achieves is confidence within a community and ‘placemaking’, which should help to ensure stable, sustainable communities.  Once more, the social/affordable housing needle has moved up.

As well as accelerating the delivery of social/affordable housing at scale, utilising innovative funding models and prioritising placemaking could boost financial resilience and bring revenue-generating opportunities for the long term. Local authorities can, and often do, open up new long-term income streams through lease arrangements, profit-sharing mechanisms, overage provisions, and other value-capture structures, leaving local authorities, and the all-important new developments, on a better footing and with better risk profiles. 

In summary, whilst many local authorities are facing financial challenges, many remain asset rich and those assets could be leveraged further. If Andy Burnham is to see the ‘biggest council housebuilding programme since the post-war period’, this can only come from local authorities doing more with the assets that they have, rather than doing more in general. 

The examples described show the lengths that some local authorities and combined authorities are already going to in a bid ‘to do more with less’.  If that can happen on a larger scale with not just housing associations but with private investors too, the social/affordable housing needle could be shifted even further. 

Local authorities and combined authorities are and should increasingly be seen as strategic landowners and ‘place makers’ for the long term.  They can continue to play a role in driving housing development activity and delivering more social and affordable homes for generations to come. 

Jon Coane is a Partner and head of funding at Anthony Collins. Michael Nutman is a senior associate and funding specialist at Anthony Collins. Jon and Michael have advised on many innovative funding models for social housing developments, supporting both local authorities and housing associations.