Nearly 90% of housing associations would consider partnerships with for-profit providers, survey suggests

Savills said partnerships between HAs and for-profits could be beneficial for both sides.

 

It said for-profits had “significant volumes” of capital to deploy, and sought “strong” ESG characteristics, but lacked operational and development capabilities.

 

HAs had the in-house operational and management expertise, but required access to investment capital to invest in existing stock while maintaining their development programmes, Savills added.

 

The report said partnerships also presented a “great opportunity to share best practice” across the affordable housing and other living sectors.

 

Savills added that there was also scope for for-profits to help fund large-scale decarbonisation and net-zero programmes across the sector.

 

Development and sales

 

Savills said that constrained financial capacity meant HAs were unlikely to be able to deliver at higher volumes over the next five years, but that this presented opportunities for other organisations.

 

The report said: “This does present more opportunities for FPRPs and investors to build their development programmes, particularly through the increased use of partnerships.”

 

Ms Collins said capital from investor-backed for-profit RPs was needed for development.

 

She said: “As HA capacity for development is constrained, the need for investor FPRP capital is high, if the supply of much-needed new housing is to be maintained.

 

“Stability of policy, particularly of rent policy, grant funding and Section 106 supply routes, is vital to underpin investor confidence.”

 

The report said that the most popular form of partnership was development joint ventures, which 85 per cent of traditional HAs would consider, while more than 70 per cent would consider stock management arrangements.

 

These are also the most popular partnership arrangements among for-profits, with 70 per cent surveyed already engaged in stock management deals with HAs.

 

Savills’ survey found that several HAs either already had or were considering setting up an in-house for-profit to help fund their development ambitions.

 

The report said: “Being able to take on equity investment will open up a different pool of capital, particularly advantageous now that debt is more expensive.

 

“AXA has recently taken a 50 per cent stake in Hyde Group’s FPRP Halesworth, for example, which will unlock up to £400m of development finance for the group over the next decade.”

 

Savills said the market for sales of stabilised social housing remained active, as landlords continued to “rationalise their operating footprint for greater efficiency”.

 

Savills said the shared ownership market was “on the verge of opening up”, as appetite from HAs to sell at scale gathered pace. It expected an increase in demand from for-profits and investors to build shared-ownership portfolios, as pricing aligned.

 

The report said the “greatest appetite” among for-profits remained for newer, more energy-efficient homes – but there was growing interest in acquiring older legacy housing, too.

 

Savills said: “This will become important as housing associations increasingly seek to recycle capital from housing sales to fund development and investment.”

 

ESG investment

 

The report said that more investors were looking to the affordable housing sector as firms tried to meet ESG goals and engage in responsible investment, but investors still demanded a return on their investments.

 

Savills found that, for most investors (over 70 per cent), the long-term stable income affordable housing offered was the most important factor attracting them to the sector.

 

The report said that over half (57 per cent) of investors claimed ESG was “very important”, and a further 29 per cent said it was important.

A separate Savills survey of investors in the living sectors across Europe found 63 per cent reported that favourable demand and supply dynamics were very important.

 

Two-thirds (60 per cent) said social value and impact were very relevant for them, with a further 31 per cent saying it was somewhat relevant.

 

The report said: “Affordable housing therefore remains a very attractive investment product for a large number of investors, providing a secure, steady stream of rental income and contributing significant social value and impact.”

 

Size of the for-profit sector

 

According to Savills’ analysis, the for-profit sector has grown its number of affordable homes by 35 per cent since March 2022, to reach over 28,150.

 

It found the number of homes in the sector had more than doubled since March 2021, driven by a 131 per cent increase in the number of general-needs rented homes owned by for-profits.

 

The research showed that, as a proportion of all affordable housing, for-profits still owned a very small proportion of stock, comprising 0.7 per cent of total affordable stock in 2021/22. The report said shared ownership made up 59 per cent of total for-profit homes and this would rise to 63 per cent by 2028.

 

Savills said the number of for-profits had continued to expand, albeit at a slower rate than in previous years.

 

Over the past year, there were six new for-profit registrations and one de-registration, taking the total number of for-profits to 69, with about 30 further applications for registration in the process of being completed. This followed a record year of 13 registrations to March 2022.

 

The report said for-profits were forecasting that they would own a further 9,300 homes by the end of 2023, taking total for-profit stock to almost 37,500 homes. Savills said this was set to rise to around 100 for-profits owning around 113,000 homes in 2028.

 

According to Savills’ survey of for-profit RPs, the majority (90 per cent) said they wanted to hold stock over the long term and had no plans to exit the sector in the next 20 years. Smaller providers were also planning to scale up and increase market share, Savills added.

 

‘Mixed feedback’ from investors over market

 

At the same time, the report referred to a mixed picture among investor perspectives. While noting strong growth from existing FPRPs, Savills said it had “mixed feedback from potential new entrants noting the market backdrop”, alongside a “flight to quality”, meaning there was strong interest in the most attractive opportunities.

 

“Whilst there is strong support for the sector, there are fundamental challenges particularly as real yields on social housing haven’t repriced vs 2021 levels. There is also uncertainty in terms of inflation including the cap on rent increases and also the relatively high set-up and operational costs in running a registered provider.

 

“There still remains strong appetite from investors to enter into the sector and establish FPRPs and demand for debt to leverage established structures although the market isn’t as strong as it was 12 months ago.”

 

Ms Collins said that while some for-profits investors paused or slowed acquisitions in the wake of increasing debt costs and market volatility, with pricing moving out accordingly, sentiment was improving.

 

She said Savills expected to see pricing and capacity improve during the second half of 2023.

 

She said: “Our pipeline of FPRP registrations shows continued investor/developer demand to access the sector, and this reflects wider investor sentiment and appetite for the living sectors, as noted in our latest European Living Investor Sentiment Survey.”