Private finance has become increasingly vital to housing. More could be done to help investors understand and continue to support the sector.
Housing has become adept at attracting financing from outside investors, including via bonds and private placements. According to the Homes and Communities Agency’s Global Accounts, £2.2 billion of new private debt was invested in social housing last year with the majority of this made up by capital markets transactions.
Such investment – typically long-dated, allowing housing associations to plan far into the future – has pushed the sector to increase housebuilding, helping providers to meet government expectations of higher development rates.
This is all the more crucial against the background of funding challenges the sector has had to endure in recent years. Rent freezes, reductions in grant funding and welfare reform have all forced housing providers to become more savvy about how they fund their build programmes.
Dynamic housing associations have begun to take new approaches to financing. Bonds and private placements have been a funding mainstay for a number of years, but financiers continue to innvotate.
At Aster, following our debut bond issuance in 2013, we use a range of financing options to fund our development programme, which will see £1.5 billion invested in new housing between now and 2024. This includes traditional lending and proceeds from OMS, while we also continue to consider capital markets funding options.
Many investors remain relatively new to the sector and its unique operating model. Yet its investment rationale is clear: those with long-term appetites, such as pension funds, appreciate housing’s steady, lower-risk returns.
Nevertheless, to continue to grow this pool of funders, housing associations need to play their part in helping investors to understand the sector and its strengths.
Reports by credit agencies are important in helping investors to evaluate the sector and individual housing associations – but only up to a point. We all have a role in painting a richer picture of this constantly evolving part of the UK economy and society, explaining aspects which cannot be understood from reports based on financial accounts alone.
Let us not forget this – the appetite to fund the UK housing sector is large and growing. According to JLL, £44.4 billion was invested in the wider UK real estate sector last year and 85 per cent of investors asked in its latest confidence index said they expect to be net-buyers of assets in 2017.
This appetite is going to be crucial in the years to come. The sector is often termed the ‘sleeping giant’ of the housebuilding industry and can fulfil many roles others simply cannot, for example by utilising smaller sites or by using money generated from open market sale to fund affordable housing, including shared ownership.
Those who have invested billions of pounds into affordable housing in recent years are vital to the future of the sector. We all must be proactive in helping them continue to play that role.
By Bjorn Howard, group CEO at Aster Group.
This article originally appeared in Inside Housing.