COMMENT: Last week, the regulator of social housing registered L&G’s affordable housing arm, allowing it to accelerate its plan to develop, hold and manage various affordable housing tenures. Ben Denton, managing director of Legal & General Affordable Homes, outlines the key challenges in gaining registered status and why the company opted to do it in the first place.
Over the past year, the number of affordable homes owned by non-traditional providers has increased by 149%, according to the Social Housing Regulator’s Statistical Data Return. This is a historic high, more than all previous years combined. But what has driven this sudden rapid influx of fresh capital into the sector?
Having established Legal & General Affordable Homes earlier this year and been granted registered provider status, for us, our primary driver is social impact and making another step towards tackling the UK’s chronic housing shortage.
Across all tenures, the UK has consistently failed to keep up with housing demand. With more than 1.3m households now on the social housing waiting list, the situation is particularly stark in the affordable housing sector where just 50,000 new homes were delivered last year. Clearly this is not a sustainable position.
To bridge this gap, additional grant funding has now been offered to affordable housing developers by central government, coupled with the removal of the HRA cap. However, the sector’s current debt-based model is not one that can scale-up at the speed that is needed to address the affordable housing shortfall.
With housing associations limited in their ability to raise equity and many close to their natural capacity limits, this means even the additional government grant support will not be enough to address the growth that is needed. To make a real impact, the sector needs to be more innovative, including in terms of funding, new partnership models and thinking different around asset ownership. To drive growth, the existing capital base and debt model needs to be supplemented.
This is where institutions like Legal & General come in. Institutional investors, such as pension funds, hold long-term patient capital and seek long-dated stable returns. Long-term capital is exactly the type of funding the sector needs to increase development activity while the affordable housing sector provides a long-term stable return – a natural and mutually beneficial fit.
Achieving registered provider status last week means we can now accelerate our business plan to develop, hold and manage a blend of affordable housing tenures to tackle this major problem. Working in proactive partnership with best-in-class housing associations and local authorities, we are aiming to provide 3,000 homes per year within the next four years.
As our ambitions come to fruition, we will provide a range of options with both social and affordable rental options and shared-ownership homes under grant-supported and Section 106 schemes. This will not only make further provision available for those in need, but will offer a choice of tenures for residents and tackle the genuine need to advance overall service delivery.
To make a real impact, the sector needs to be more innovative, including in terms of funding, new partnership models and thinking different around asset ownership
At this time of critical need, our realisation of registered provider status represents a pioneering step change, acknowledging the important role institutional capital and new funding streams will have in increasing housing output.
Of course, reaching this milestone didn’t come without its challenges. Becoming a registered provider is a lengthy and detailed process which we have carried out over the course of this year. To become regulated, we have undertaken a significant recruitment programme with the appointment of some of the top industry figures and non-executive directors. We have also put in place robust corporate governance structures, developed the necessary suite of policies and are now implementing our plans to establish our development and customer service platforms.
Against this backdrop, it will be interesting to see whether many other institutions follow suit into the sector. In the past two years, just 11 non-traditional providers have been granted registered provider status, taking the total to 44 compared to 1,635 not-for-profits that are in the sector. Government, housing associations and institutional investors need to work together to ensure the value created by these new entrants is maximised.
As the major need for innovation and fresh capital becomes clear, as a collective, we must now focus on sustainable, genuine solutions to increase development capacity. Legal & General is looking forward to working in partnership to bring forward this funding and starting to tackle this major societal issue. Achieving registered provider status is just the first step.
