Affordable housing - what a diff'rence a day makes ..

24 little hours….it’s been a busy few days for the economy, with absolute certainty of direction on Sunday morning, a volte face on Monday at “Conference”, and sterling flip flopping throughout. Plus ca change – but it’s created some additional challenges for the affordable housing sector, as pension fund providers took a hit while policy “evolved” this week.

Investment funds are not someone else’s problem for another day – they are front and centre in providing liquidity for the affordable housing sector. Big Society Capital, reported in IPE Real Assets (September/October 2022), said that capital flow into UK affordable housing funds grew 10-fold in 5 years, from £350m in 2016 to £3.8bn in 2021. Clearly, social-impact housing funds have a major role to play in supporting UK housing supply!

We’ve also seen, reported in Inside Housing (3 October 2022) that Savills Investment Management has acquired a majority share in the for-profit Registered Provider (RP), Simply Affordable Homes. They will buy existing stock from RPs to recycle capital and support spending on new home development, alongside investment in fire safety and decarbonisation. Savills IM is also launching the UK Affordable Housing Fund to invest in that RP, targeting shared ownership, affordable and social rent, and high environmental standards. Alex Jeffrey (Savills IM CEO) is quoted as saying: “People in the UK face serious housing challenges, especially at the affordable end of the market. Institutions can play an important part in helping to bridge this gap whilst providing attractive returns for their beneficiaries. This acquisition and subsequent fund launch will allow investors to gain access to this high-quality asset class and be a means of meeting their own commitments to socially responsible investment."

And yet…even in May this year (Social Housing, May 2022), it was being reported that RPs were managing capital market volatility with ‘hard underwritten’ bond issues, using underwriting to accelerate access to markets and manage pricing. While this is a known technique to speed transaction times and secure target pricing, one has to wonder if this will become more prevalent as a tool to keep bond issuance (and so access to long-term funds for RPs) moving.

More recently, we have seen several deals with affordable funds cool, reprice or collapse, perhaps because of concerns about construction cost inflation and short term marketability, rather than developer stability. We certainly don’t see this as evidence that the partnerships model is flawed or falling out of favour – it’s more likely, given current market volatility, that funds are giving themselves time to assimilate what they have under contract, and take a pause while market choppiness settles down. While interest rate volatility is less of an immediate concern for rented stock tenancies (setting to one side the current debate over the rent direction consultation, and soaring interest rates), current market yips will not help shared ownership sales.

Hopefully HM Government stays alert to the need for high quality affordable housing supply to be promoted and maintained across the tenure range, and avoids damaging or diverting investment for the sake of short term political gain. As David Frost once said – “but seriously, he’s doing a grand job”…..that was the week that was….