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Move into market rent 'almost inevitable' for housing associations

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Move into market rent 'almost inevitable' for housing associations


Published by 24publishing for in Housing

Move into market rent 'almost inevitable' for housing associations Move into market rent 'almost inevitable' for housing associations

The finance director of a housing association whispered to me this week that the move into the market rent sector for housing associations is "almost inevitable".

I say whispered because although he believed it - and some are already doing it on a small scale - I don't think he could necessarily see what or how it looked like on a large scale. Because of this, he didn't want me to quote him. Fair enough.

But it's a view held by many that market rent + institutional investment is one of the few emerging options likely to be available in the next five to ten years for associations to build homes.

Cross subsidy - the way housing associations have traditionally funded new homes - has dried up because people are locked out of ownership and grant rates from the Government are unlikely to return to historic levels.

There are also many predicting the return of the 3G - that's three generations under one roof. All of the above then, point to more people renting.

Then there's the Government's housing strategy - which, believe it or not, at least clarifies one thing. That housing associations are on their own. As the FD put it: "If you read the numbers they're far short of what we need. Their support isn't going to deliver what we need."

The Government knows it hasn't got the money, so it's saying 'Come up with your own models and make it work for you'.

Doing away with regulation, handing down rent setting freedom, and doing away with labels that say you're a Registered Provider (RP), you're a private landlord and you're a developer - puts everyone in the garden, out of which the Government wants flowers (that's new homes) to grow.

Two intriguing recent developments are Grainger - the UK's largest listed private landlord - thinking about developing an RP subsidiary - and Sovereign Housing Association moving into the market rent sector. Both are cases in point, and, are unlikely to be the last. But what both are doing - through their subsidiaries - is looking to provide homes for all income streams across all tenures.

Included in that will be those falling between the gap of social housing and home ownership - as highlighted by the Resolution Foundation.

The move to market rent - in a rising market - would attract investors, especially in major commercial centres like London, Birmingham and Bristol - the latter being where Sovereign has bought homes. Toss into the mix the management skills of housing associations, it's hard not to see the potential.

What it would mean for housing associations is being able to get their heads around a new type of balance sheet.

With investors building and owning the units, housing associations wouldn't have the asset base in the same way; but they would be managing and providing the broader social function.

In the London borough of Barking and Dagenham, the council is looking to develop 500 affordable rented homes - with funding from an institutional investor - which would be let at a range of sub-market rents from 50% to 80%.

The build is being funded by the investor with the council acting as a guarantor for the rents minus the management and maintenance costs. After 60 years, the council will retain ownership of the homes.

So, in summary, the future is far from certain, but far from uninteresting.

Ross Macmillan is Deputy Editor of 24housing magazine.









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