The Government hopes that by supporting ‘non-traditional’ builders it will help to achieve its goal of building 300,000 new homes a year. The theory being that, with more house builders in the market there is greater potential to deliver new homes.
Housing associations (HA) are not-for-profit organisations that provide social housing through rent or shared ownership schemes. They are typically funded by the income produced from their rental housing stock, alongside Government grants. However, the Government recently reclassified HA’s as private rather than public bodies, removing a significant level of public grants, but notably not all grants. However, a reduction in public grants, together with a national drive to deliver more housing, has prompted many in the sector to build homes for private sale, cross-subsidising other forms of tenure.
It is estimated that there are now over 100 HA’s with the scope, scale and expertise to become major players in the private sale market. They have significant strategic support from Homes England and ambitious aspirations to increase the supply of new homes, with the potential to match national PLC house builders over the coming years.
However, whether new homes are delivered by traditional house builders or HA’s, there is no guarantee that this increase in market competition will lead to the delivery of more homes. Conversely, it appears to be inflating land values and compromising the viability of private development, something which the Government’s National Planning Policy Framework (NPPF) in 2018 was designed to help prevent.
In addition, HA’s are now turning into a very attractive alternative for landowners, with one of the biggest benefits being, that they are not exposed to the same level of risk that private developers are. Should sales rates dip, HA’s have the ability to mix tenures to meet the needs of the market, and as a result, are less reliant on the economic factors at play in the market.
HA’s benefit from a number of advantages that can sometimes provide them with a competitive edge over private sector house builders. This is particularly the case in the acquisition and development of sites that might be financially unviable for PLC house builders. Private sector developers are required to generate a profit, and this margin will always be factored in to any price they pay for the land. These margins can sometimes be in the region of 20-30% of gross development value. This is also the case with affordable housing stock, where such provision on private sites can tip the viability scale against private house builders.
In contrast, HA’s are less focused on immediate returns and often take a long-term approach to development. Affordable housing provision is viewed as a key benefit to providing homes for mixed tenure communities and any profit generated is reinvested back into the business
With the Government continuing to support house building across all tenures and the new homes market continuing to be relatively resilient to the wider economic uncertainties, indicators suggest the level of housebuilding will continue at a substantial rate, particularly from HA’s, as they look to become major forces in the market.
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