23 March, 2023
The current ongoing economic crisis has created a period of uncertainty across various sectors and businesses, especially the property market. High interest rates, high construction costs due to increased expense of materials following Brexit and increased costs of fire and safety and quality works means the property market is volatile. During times of adversity however, whilst there is also risk, there is also the chance to seek new opportunities. What risks and opportunities could the Social Housing Sector face during the current ongoing economic crisis?
In the current climate and due to the cost-of-living crisis, more people will struggle to meet their rent and mortgage payments, meaning an increased likelihood of rent arrears. Rent caps may assist in dealing with this issue, however, this cap also restricts the income stream for social housing providers who may have to diversify to increase their income.
Evidently, due to the cost-of-living crisis and people becoming unable to meet their rent arrears and mortgage payments due to soaring interest rates, the demand for affordable housing is going to increase as many more people will require assistance in the form of affordable housing.
Building new homes in the current climate is becoming increasingly difficult due to the increase in the cost of borrowing with higher inflation rates and interest rates meaning a higher cost of materials. There are also supply chain issues and a lack of workers to due to Brexit.
In the past where there have been prior economic downturns, social landlords have benefitted in the property market. The CEO of Heylo Housing, Andrew Géczy, has predicted that over the next 12 months this could happen again. Mr Géczy predicts that there will be potential opportunity if private developers start to become reluctant about the possibility of being unable to sell and may look for other avenues to sell such as through shared ownership schemes. Mr Géczy believes that shared ownership is the tenure to replace Help to Buy, because it can keep the market moving.
It has been anticipated that more private house builders want to participate in shared ownership deals. These deals would involve a private developer selling planned units in bulk to a registered provider whether this is for a traditional not for profit or for-profit, who would then advertise them for shared ownership.
It is unclear however, if traditional housing associations would be able to take advantage of the economic downturn. Consideration must be given to cost pressures such as the cost of fire and safety quality works, which is causing many traditional housing associations to re-evaluate business plans including reductions in appetite for new builds.
A code of governance for for-profit registered providers is anticipated to be launched this year, which aims to boost plans for affordable housing delivery. The introduction of this bespoke code of governance would mean, as stated by Rob Beiley, chair of the BPF's Affordable Housing Committee and a partner at Trowers & Hamlins, that the new code could provide alternatives to mergers for midsize housing associations, which are struggling to develop amid the current financial pressures facing the sector. Mr Beiley believes that "partnership working with investors would give associations an alternative to a merger."
This would mean that not only could for-profit associations benefit from making deals with the private sector, but with the introduction of the new code of governance, they could also begin to start taking sections of the social housing sector's development programme meaning that traditional housing associations may loose out. Ultimately, this could mean that for-profit providers could take on a more significant role in the future when financing new social housing.
Overall, it appears that the application of the status quo of social landlords benefitting from periods of economic crisis in the past, to the current climate is somewhat unclear. One the one hand, whilst it appears that for-profit organisations could benefit from the economic crisis, through the potential for making deals with the private housing sector by the means of shared ownership schemes and commence partnerships with midsize housing associations; traditional housing associations may struggle to benefit from the economic crisis without some assistance from for-profit organisations.
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