黑洞社区

In times of economic strife, we are used to turning to the social housing sector for counter-cyclical investment in new housing. But in the current environment, the challenges to supply are formidable, with construction and borrowing costs rising and the government heaping extra building safety burdens on the sector.

Once you throw in a rent cap, planning uncertainty and consumer regulation coming down the pipe, it is easy to see why prioritising new-build may be difficult for some housing associations and other developers. 

So, what are the major obstacles to building for housing associations? And what can be done to overcome them? 

In June, a group of experts from across the housing world gathered at the Edwardian Manchester hotel (more popularly known as the Free Trade Hall) for Housing Today Live as the Chartered Institute of Housing鈥檚 annual conference took place at the nearby Manchester Central Convention Complex.

In a wide-ranging discussion, sponsored by affordable housing developer Edaroth, and hosted by Housing Today鈥檚 head of content Carl Brown, the panel covered topics from problems in the planning process to policy uncertainty and financial constraints. 

Fears of downgrading 

鈥淭here are undoubtedly different strains on people鈥檚 businesses than there were last time we had a downturn,鈥� said Kathryn Pennington, regional development director of Vistry Partnerships, addressing one of the major topics of conversation. 鈥淲e鈥檙e all worried about interest cover,鈥� added Kevin Williams, group director of development and commercial services at the Guinness Partnership.

鈥淲e鈥檝e got more calls on our finite levels of resource and never have we had such demand for spend on our existing homes 鈥� building safety, net zero carbon, Decent Homes 2, damp and mould.鈥�  

鈥淲e are quite happy to turn around tomorrow and start building 500 homes in Manchester, if the city had land for me to release鈥�

Richard Cook, development director, Clarion Housing Group

Philip Jenkins, executive director of development at Peabody, agreed that pressures on balance sheet capacity were currently the major barrier to growing new housing output. 鈥淚t is not that we are highly geared, because we鈥檙e not; it鈥檚 about interest cover,鈥� he said, explaining that with rents so low it was difficult for housing associations to add uncontrolled debt while staying within their borrowing covenants, especially as they are being further squeezed by increased operating costs.  

JLL鈥檚 head of UK living, Richard Petty, said providers were increasingly constrained by the 鈥渇ear of being downgraded鈥� 鈥� 13 social landlords were downgraded by rating agency Moody鈥檚 at the beginning of this year. Petty said the funding community needed a 鈥渟hake-up鈥� and urged housing associations to put pressure on banks to achieve this.  

鈥淭here are still five banks who are mainstream lenders to this sector who will not allow the rent from affordable rent to be reflected in asset valuations 鈥� that is just nuts, and it is probably halving the value of those homes,鈥� he added. 鈥淚n the last 20 years we have had this slowly emerging market of trading between providers, but we are not allowed really to take that evidence into account.鈥� 

Where is the land? 

Richard Cook said the biggest problem for Clarion, where he is development director, was the availability of land. 鈥淲e are quite happy to turn around tomorrow and start building 500 homes in Manchester, if the city had land for me to release,鈥� he said, complaining that even brownfield land was difficult to find.  

鈥淲e love dirty, brown land and we know we can go and find funding for dirty, brown land,鈥� he said. 鈥淏ut it is actually people wanting to release it that is the issue. Everybody seems to want to be a developer at present in central government and local government, and that, when starting from scratch, is very slow, so all that does is just delay the inevitability of releasing land.鈥�  

Helen Spencer, the executive director of growth at Great Places, said there were a number of markets in the UK, particularly in the north of England, facing extreme cost-value challenges that are making it difficult to deliver new homes. 

鈥淲ith the shift in construction cost and the lack of recalibration in the land markets, what we are seeing is our opportunities naturally narrow because markets just aren鈥檛 able to sustain the value,鈥� he said.  

Their response has been to focus on areas where they have existing stock and know that they can deliver viable schemes. 

Whither MMC? 

Many in and outside government have pinned their hopes for expanded housing delivery on modern methods of construction (MMC) but, after some high-profile failures in the offsite market, the technology has perhaps as many doubters as champions. 

Trina Chakravarti, director at 黑洞社区 Better, said there were two major challenges for MMC, the first being lack of resilience on the supply side.  

鈥淭his is still a very nascent market; it鈥檚 not clear which of the business models will pan out for manufacturers,鈥� she said, adding that there was a 鈥渓ack of collaboration between manufacturers and principal contractors鈥�. 

On the demand side, she said the market remained 鈥渇ragmented鈥� and 鈥渃omplicated to navigate鈥�.  

鈥淚t鈥檚 not clear, if you鈥檝e got a piece of land, what type of manufacturing you should go for, which manufacturer will have the financial weight behind them and won鈥檛 go under,鈥� she said. 

鈥淚t is one thing needing more homes, but there are quite a lot of problems with the existing homes that we have鈥�

Caroline Dove, partner, HTA Design

Chakravarti said there was 鈥渘o easy, pithy answer鈥� in terms of solutions, but said that MMC firms needed to work with housing associations and local authorities to 鈥渃hange some of their processes鈥�. 

鈥淪ome of this stuff is really practical 鈥� the assumptions we make to assess whether something is viable or not when you鈥檙e comparing MMC or modern methods against traditional 鈥� and some of it is about the internal capabilities and resource when you鈥檙e already stretching a development team doing a million an hour,鈥� she said. 

On the supply side, Chakravarti said manufacturers needed collaboration with the traditional construction sector to achieve scale. 

Balancing regeneration, refurbishment and new-build 

鈥淚t is one thing needing more homes, but there鈥檚 quite a lot of problems with the existing homes that we have,鈥� said Caroline Dove, a partner at architect HTA Design. Homes England鈥檚 decision to open up grant funding for regeneration projects was warmly welcomed, including by Guinness鈥檚 Williams.  

鈥淲e know, as a nation, we鈥檝e just got an ageing stock. We have all got properties that are way beyond their useful life, and we are putting sticking plasters over them 鈥� we can鈥檛 do that indefinitely,鈥� Williams said. Dove, whose practice does a large amount of regeneration work, agreed but pointed out that 鈥渢o actually get more homes than just what you are replacing is quite a challenge, especially in very dense locations already鈥�. 

Tom Titherington, chief investment and development officer at Sovereign, challenged the idea that work to improve and maintain existing stock should act as an impediment to new development.  

鈥淚f you think about your assets, simply as something which is a drain, you鈥檙e not going to be able to continue to develop,鈥� he said. 鈥淭he problem that housing associations have had for a long time is they haven鈥檛 seen themselves as sort of social property companies.

鈥淪o they haven鈥檛 thought through some basic disciplines about condition of stock, churn, the utility of that, and what they鈥檝e done is raid the balance sheet to go and build more homes, many of which were not of a particularly good standard, and so 鈥� while they thought they were strengthening the balance sheet 鈥� actually they were just putting a latent liability on that balance sheet for a period of time.鈥� 

He said that if housing associations looked to sell 鈥渄oer-upper鈥� properties with a good value in the private sector but a high cost to social landlords and a low social value, then they would 鈥渟tart to create a capacity to do more鈥�. 

鈥淣inety percent of the people living in your homes you do not know anything about鈥�

Caroline Toogood, project director, Altair

The major barrier to this, he said, is that housing associations 鈥渄on鈥檛 really understand their stock鈥�. 

There was agreement on this point from Caroline Toogood, project director at housing consultancy Altair, who said that the knowledge problem extended to tenants. 鈥淢ost social landlords, entirely understandably, have not kept any information about their tenants unless they have got a problem,鈥� she said. 鈥淭hat means 90% of the people living in your homes you do not know anything about.鈥� 

Dove said that a better understanding of who is living in particular properties could enable housing associations to help some tenants 鈥� particularly elderly residents 鈥� to right-size, freeing up space in homes for people in greater need. Social landlords, she said, should be 鈥渇ocusing on getting more homes in the right place, perhaps more centrally located for older people, so they are not isolated and have amenities near them鈥�. 

She added: 鈥淲e鈥檙e actually doing a scheme for Reading council where we鈥檙e doing just that 鈥� we鈥檙e doing slightly larger flats to encourage downsizing.鈥� 

Planning, planning, planning 

As with any conversation about housebuilding, the discussion eventually came around to the planning system, with most participants expressing frustration.  

鈥淲e are subject to the same delays in the planning system as everyone else, which I find incredibly frustrating personally given the kind of national rhetoric and the conversation around sustainability net zero,鈥� said Graham Kauders, development director at Edaroth. 鈥淭his stuff does not seem to filter through to some of our colleagues in planning authorities, and, frankly, in 2023, I find that astonishing.鈥� 

Martyn Jones, executive director of development and sales at Paradigm and a chartered town planner, said some of the government鈥檚 鈥渢inkering鈥� on planning had been 鈥渜uite radical鈥�, but acknowledged that many in the industry will have 鈥渂reathed a sigh of relief鈥� when the planned infrastructure was 鈥渒icked into the long grass鈥� with a 10-year test-and-learn introduction. 鈥淲hether that ever comes out of the grass is a question,鈥� he said. 

Altair鈥檚 Toogood complained that the government was 鈥渂ehind the public鈥� on the issue of planning and that, particularly in the big cities, nimbyism was being replaced by an 鈥渁cknowledgment of the need for housing鈥�.  

Asks for government 

There were further grievances aired relating to the incumbent government and the perceived lack of a cohesive housing strategy. Toogood bemoaned the 鈥渞idiculous鈥� turnover in housing ministers and said other UK nations were taking a better approach to housing that England. 鈥淭hat golden era post-war where housing was seen as part of healthcare and health provision is something we probably need to go back to,鈥� she said. 

Petty pointed out that with a possible change of government next year, there was 鈥渁 fantastic opportunity鈥� for the sector to engage with the Labour Party, though Shelagh Grant, chief executive of the Housing Forum, noted that whoever ends up in charge, the industry would need to focus on taking its case to No 11 Downing Street.  

鈥淲hatever certain government departments want, if you don鈥檛 get the Treasury to understand what you are doing, then it is a difficult,鈥� said Grant. 鈥淚 think we are, unfortunately, a long way from the politicians really understanding how the whole process of housing development works.鈥� 

Alyson Heald, regional partnerships director at L&Q, agreed, pointing out that the government would never provide the funds needed to build social homes at the necessary scale unless it stopped seeing the investment solely as an expense. 鈥淚f you don鈥檛 look at the savings to the Treasury, you don鈥檛 look at the savings to local councils and governments, you鈥檙e not going to get that buy-in,鈥� she said. 

One thing the Treasury could do to help, according to Guiness鈥檚 Williams, would be to arrest or even reverse the long-term decline in grant funding for housing associations.

While the panel had plenty of ideas for things the government could do to help the industry ahead of a difficult year, their core message for Whitehall was a simple one, perhaps best summarised by Jane Gallifent, development director at the Aster Group: 鈥淚f we are left alone, we have a well-resourced planning authority and we have that availability of land, we can deliver exceptionally well.鈥�