As some private developments stall, housing associations can offer an attractive alternative for landowners, says Brian Culank.
When it comes to selling land for housing developments, it’s only natural that landowners want to secure the highest possible price for their sites.
However, in my experience the biggest barriers for housing associations is the false belief held by the majority of vendors that private housing will achieve a much higher land value than by selling to housing associations.
Many landowners dismiss the idea of selling their site to a housing association, assuming that they cannot be as competitive as a private developer.
These landowners fail to take into account all the variables involved with developing a housing site, many of which can often favour a housing association development over one built predominantly for private sale.
Reduced sales risk
At the moment one the biggest advantages a housing association can offer – especially if it concentrates largely on affordable rent properties – is that they don’t have the same sales risk that private developers do.
In the wake of the UK’s vote to leave the EU the major housebuilders’ share prices took a hammering, and some developments are starting to be put on hold. These decisions have been driven by fears that Britain will enter a recession as the effects of Brexit take hold, leading to a cooling in the private sale market.
However, while sales might dip, the demand and need for housing – especially affordable housing – is as strong as ever, driven by years of under-investment in the housing stock.
This has led housing associations to claim that they can step into the gap and build sites that would otherwise lay dormant if left to private developers. Last week, following news that construction output from housing had fallen, National Housing Federation chief executive David Orr claimed housing associations could keep “the nation building”.
Orr’s claim can be backed up by the fact that in the last recession between 2007 and 2009, the non-profit housing association sector upped the number of homes it built by 22%, while private development dropped off 37%.
When your revenues do not depend on consumer confidence and private sales, you can keep on building.
No profit margins
As a landowner you may think that a private developer, because they will be selling the built units on rather than renting the units out, will be likely to pay a higher price.
While this might be true of the most expensive areas of central London and the Home Counties, it is almost never true everywhere else.
Because private housebuilders have to make a profit, and that profit margin will always be factored in to any price they pay for their site.
Equally, private housebuilders have to make their properties marketable by providing things like one or two car parking spaces per property, which can take a large amount of space on a site. Housing associations are less restricted by these “nice-to-haves”, and so in many cases can plan more units on their site in order to make them financially viable.
These all add up to housing associations being well positioned to be able to pay a competitive market price for the land they need.
No Section 106
These days any private housing development must, under the Section 106 agreement that forms part of its planning consent, include some level of affordable housing – the exact figures are normally determined by the local planning authority.
For some sites, such as Bramble Estate’s Biggin Way development in south London, a Section 106 agreement can be the difference between a site being financially viable for a private housebuilder and impossible to build without impacting on their profit margins.
This dilemma of just how much affordable housing to include does not have the same impact for housing associations.
Hurdles to clear
Despite all these arguments in favour of affordable housing developments, it should be pointed out there will be a few areas that need addressing if housing associations are really to make a meaningful impact on the construction market during any post-Brexit downturn.
The government’s right-to-buy scheme is having a huge negative impact on housing association’s revenue streams, and its policy of specifying favouring affordable sale and shared ownership over affordable rent is also restricting the number and nature of developments that can take place.
The National Housing Federation and Local Government Association are both lobbying for changes to the Government’s housing policy. If the new Prime Minister listens, then landowners throughout England might start waking up to the possibility that housing associations could be the best buyers for their sites.
- Brian Culank is director of Bramble Estates.