Waqar Ahmed’s parting request to the banking sector? ‘Take some more risk’

1999: Project 2020 launches

Much of L&Q’s enduring thirst to deliver new homes can be traced back to a long-term strategy launched by the provider a year after Mr Ahmed’s arrival, and which the then-head of development finance and treasury was tasked with leading. Launched in 1999, Project 2020 was intended to double the group’s size in two decades to reach 50,000 homes, as well as make improvements to quality and maintenance services.

The association was already growing as a result of a government initiative at the start of the decade that supported the purchase of street properties. As these acquisitions continued (contributing around half of the 500 to 600 homes being added to its books each year by 1999), there was an opportunity for L&Q to examine: “What do we mean by growing?”, Mr Ahmed recalls.

“It can only mean one thing: you grow your balance sheet,” he adds. “Therefore, you’ve got to take risk, and the two risks you’ve got to take – one is development and the other is finance. So that’s where we engineered a new financial strategy, and I was fortunate enough to be leading on that.”

With a “fundamental shift” under way in how the group would develop, L&Q began to look at “almost taking the same risks that a house builder would take to develop, and that meant large-scale regeneration”, Mr Ahmed says.

In 2000, a project in Edmonton was the first, followed by one in Waltham Forest in 2002. “We started to buy land, started taking planning risk, taking construction risk, taking sales risk.”

The group’s – and the sector’s – first joint venture followed with Taylor Wimpey.

As his title formally changed to director of treasury in 2005, Mr Ahmed continued to use his role to focus on growth, with finance centre stage for L&Q’s strategy.

David Montague, who had served as group director of finance since 2003, became chief executive in 2008, a point at which Project 2020’s original 50,000-home target had already been achieved. (By 2020 and Mr Montague’s handover to Fiona Fletcher-Smith, the current chief executive, this figure had more than doubled.)

“It was a bizarre situation in L&Q, because we were probably the only housing association where finance was leading on the growth strategy, wanting to do more,” Mr Ahmed says.

“So often you have the finance director wanting to push things back and be more cautious. Not in L&Q: we were pushing development to take more risk.”

Asked how this was achieved, Mr Ahmed reiterates his view that the purpose of housing providers is to tackle the housing crisis by building more homes, supported by the balance sheet. He cites L&Q’s culture of operating on “commercial principles” – namely, striving to grow the balance sheet and improve margins – all in order to deliver its social purpose.

“It’s a combination of both that’s got us to be the organisation we are today.”

As the financial crisis hit in 2008, and developers pulled back, L&Q grew its annual pipeline from around 1,500 homes to 3,000. The organisation had already decided that, compared with slower timelines for grant-funded homes, cross-subsidy would be needed to accelerate development at scale. Alongside market sales, the creation of a private rented product in 2009 also offered more flexibility.

Mergers: 2003-17

At the same time, while not actively pursuing mergers, the group continued to support the Housing Corporation, the regulator at the time, by acquiring struggling providers. Beacon Housing Association and Beaver joined in 2003 and 2004, respectively, Threshold in 2006 and Ujima in 2008.

But a decade later, L&Q’s largest merger to date – the East Thames combination that occasioned that £2.6bn refinancing – was driven instead by its desire to bolster development capacity through a larger balance sheet.

The 2016 refinancing led to an eye-catching total of almost £440m in break costs on hedges, but Mr Ahmed remains unfazed by this mark-to-market side effect.

“[The internal target] was based on net present value of cash flows, and that was marginally positive from our perspective. But the accounting loss doesn’t necessarily equate a loss to L&Q; there was no loss of capacity.”

The merger added around 15,000 homes and £1bn to the balance sheet, but refinancing also, crucially, created flexibility, Mr Ahmed says.

“It’s freed L&Q up now to focus on exactly what it wants to do.”

2017: the drive for land

In fact, the deal could have been larger still, had initial plans for a three-way merger with fellow G15 member Hyde not been dropped.

Back then, L&Q was looking to build 3,000 to 4,000 homes a year on the strength of its own balance sheet. “The conversations with Hyde and East Thames at the time [were]: ‘If we combined the three organisations, could you get to 10,000 homes a year?’,” Mr Ahmed says.

“Mathematically,” Mr Ahmed says emphatically, “that was entirely possible” – bearing in mind the low-inflation, low-interest-rate environment of the period.

Ultimately, the “timing and chemistry” weren’t right for the trio, Mr Ahmed says. “But East Thames joined, and then to continue with that growth plan, we needed to do two things. One was, you need land.”

The second: expansion outside London.

L&Q already had around 50,000 plots. The acquisition of land business Gallagher Estates (renamed L&Q Estates) in 2017, at an enterprise value of around £505m, added a further 50,000.

“That gave us the 100,000, and by introducing Trafford Housing Trust to the L&Q Group [in 2019] it meant that we could expand our geography wider than London – because you wouldn’t want that much concentrated risk in London on development.”

In hindsight, these major transactions signalled the peak of L&Q’s growth ambitions. The group imposed a mighty target on itself to deliver 100,000 new homes within the 10 years to 2027-28.

But even as the new plans were taking shape, a series of challenges started to emerge: some external and economic, some very much in the fabric of its own homes.

Following the Grenfell fire in 2017, as housing providers assessed their tall buildings for unsafe cladding and other defects, for L&Q the costs of remediation would approach £1bn across around 220 high rises above 18 metres or seven storeys and 2,000 low to medium rises, in London alone. (Today, taking in work to address damp and mould, decent homes, safety and energy efficiency, its investment programme for existing homes amounts to £3bn over the next 15 years.)

Other challenges included the impact of the Brexit vote in 2016 (it “destabilised” London’s housing market, Mr Ahmed notes), and more recently, the spikes in interest rates, and construction and repair costs following the 2022 Mini Budget.

But for the executive finance director, where Westminster is concerned, one policy stands out as “the single most stupid decision ever made by a government”.

In 2015, the new Conservative majority government chose to tear up the previously agreed 10-year rent settlement of the Consumer Price Index plus one per cent, and instead mandate a four-year cut, ending in March 2020. Mr Ahmed calculates that this has cost the sector around £30bn in financial capacity.

“When you see people sleeping in the streets in London, those who made that decision are directly responsible for the housing and homeless crisis we have today,” Mr Ahmed says. 

He adds: “None of that money actually benefitted the government anyway, if you look at higher housing benefit cost and what local authorities are now paying monthly in London for temporary accommodation.”