Development by Scottish housing associations threatened by lack of grant, sector says
Registered social landlords in Scotland face a viability issue with development unless the Scottish government upholds grant levels, the sector has warned.
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Allan Briggs, a director in valuation advisory for affordable housing at JLL, told the Social Housing Scottish Annual Conference that development funding is like a “three-legged stool”, made up of willing and skilled housing associations, access to funding, and grant levels.
“If one of the elements falls away then the viability is threatened,” he said. “The risk to any future development of social housing is the removal of that third leg, of grant funding.”
Scotland has typically benefited from higher grant funding than England. As part of the ‘More Homes Scotland’ approach and linked to the delivery of 50,000 affordable homes by 2021, the Scottish government launched a five-year Housing Infrastructure Fund in February 2016.
Jackie McIntosh, director of property development and initiatives at Glasgow-based Wheatley Group, said the housing association is in “ongoing discussions” with the Scottish government about additional costs associated with developing new homes and whether grant funding could help associations to meet these costs.
When asked about any potential uplift in costs per unit, Ms McIntosh said: “Costs were already increasing, and will probably continue to go north in the coming years.”
But Gerhard Oberholzer, director at GB Social Housing, said that investors are still keen to put money into the sector – for now.
“There has not been much high-quality, long-basis product in the sterling market, and so there is huge demand for sterling paper and they do want issuers to come to market, preferably earlier rather than later,” he said, adding that bond issues are likely to be oversubscribed.
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“The feedback we get from investors is after October or November they will be looking at the US election, at Brexit, so they may sit back over Christmas and the new year,” he added.
He urged housing associations to make the most of the current low interest rates.
“Given the very low rates that are available, it would be sensible to lock them in for as long as you possibly can – it would give you a huge amount of headroom in your business,” he said.
He recommended switching out existing debt to refix at a lower rate, which could provide development headroom.
In an earlier session during the conference, Piers Williamson, chief executive of The Housing Finance Corporation, also suggested that housing associations are in a good position to take advantage of the low interest rate environment.
“Housing associations run fundamentally long-term businesses so it’s important to take decisions in that vein,” he cautioned.
But he said that investors are favourable towards housing associations, particularly as concerns about future negative interest rates persist.
“Housing associations are probably the only sector in the long-term interest rate market that are issuing in any scale,” he said, pointing out that £2bn of financing had been issued since the beginning of the coronavirus lockdown.
He also said that housing associations would be in a good position if interest rates rise, with long-dated financing and interest rate-linked income.
That said, lenders are currently modelling for rent arrears and voids to increase, Mr Oberholzer pointed out, although numbers are yet to increase to high levels.
“The sector is now on heightened surveillance from a lender perspective,” he added.
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