Aquila Half Year Results – The Operating Environment for Housing and Regeneration – 2018-19

The tragic fire at Grenfell Tower in 2017 and its aftermath continue to have an impact on the social
housing policy agenda. As does the general election result of June 2017 and the announcements on
funding and delivery of housing around the budget in the autumn of 2018. And of course, Brexit casts
uncertainty on the whole policy agenda including housing. However, the key challenges for housing
remain the same and continue to have high government interest, despite a range of competing priorities.

The Fundamentals
There continues to be insufficient supply of new homes across all tenures to meet demand.
Government has reconfirmed its ambition to build 300,000 homes per annum by mid 2020s. There is
also a need to ensure that all existing social homes meet health and safety standards. And government
has committed £400 million to assist housing associations and local authorities to fund cladding
removal in the wake of the Grenfell enquiry into building regulations.

The Budget and Related Announcements
In the autumn 2018 Budget, government announced a series of initiatives, intended to continue to
support homeownership and to stimulate increasing house building amongst a range of providers,
including local authorities, who have had the removal of borrowing restrictions to allow them to build,
as well as increased funding for registered housing providers.

The stimulants include extending the Help to Buy equity loan scheme for a further two years to 2023
and limiting it to first time buyers; axing stamp duty for shared ownership buyers of homes below
£500,000; giving retrospective stamp duty relief to first time buyers of shared ownership; allocating
£500 million in Housing Infrastructure Fund to unlock a further 650,000 homes; and supporting British bank guarantees for SME builders.

This builds on the £2 billion new funding for social housing building from 2022 pledged in September
and the statements in The Housing White Paper – Fixing the Broken Housing Market (2018); and the
National Planning Policy Framework (2018) on increasing supply.

The stimulants are also echoed in the final report of the Sir Oliver Letwin Review – The Independent
Review of Build Out, published at the same time as the budget. The review recommends making receipt
of government support, including Help to Buy, conditional upon builders accepting suggested levels of
affordable housing for large sites; providing small amounts of funding to support viability to deliver a
range of tenures; new planning rules to encourage diversity of tenures on a site, to address the
‘homogeneity’ of current developments.

The Market
The social housing sector now has £148.8 billion of assets and an annual turnover of circa £20 billion.
It owns 2.8 million homes (RSH Global Accounts 2017). With reserves of £45.2 billion, it is a stable
sector. It has ambitions to grow and to support the challenge to increase housing supply and over the past few years has built on average 50,000 per annum and this rate of build is set to continue, if not increase to 60,000 during 2018/19. Some of the development will be funded through facilities that are already in place. However,  the regulator’s analysis suggests registered providers have also forecast an increase in net debt of £19 billion to help fund their development programmes.

Housing Developers and New Entrants
The regulator’s latest forecasts indicate that the sector plans to increase development across all tenure
types; and that for-sale tenures, including outright sale homes are set to rise threefold while shared
ownership is forecast to double in size. We have seen some consolidation in the sector with several registered housing providers now owning over 50,000 homes and a small number owning in excess of 100,000 homes. We have also seen new entrants to housing delivery including significant private sector investors such as Blackstone, L&G and Civitas.

The recent growth in this area has often been supported by equity provided by private investment funds
and real estate investment trusts (REITs). This trend is set to continue. And the Regulator will continue
to evolve its approach to regulation to take account of a more diversified sector.

Impact of Brexit
It is impossible to predict with any certainty what will be the impact of Brexit, either positively or
negatively on housing. However, each year, the Bank of England publishes details of the stress test that
it applies to the banks and building societies, and scenarios which other businesses can apply to their
own stress tests. The 2018 Bank of England stress test is based on a global growth slowdown and sterling currency shock which leads to a sharp fall in house prices, increased inflation and an increase in interest rates.

So in Conclusion…
The next few months and coming period are likely to be uncertain for housing policy and delivery.
Housing will however continue to be a high priority and the means of delivery will continue to be in the
spotlight.

Across the Aquila Plc group, which is now a multi-national consultancy, we have a team of almost 60
dedicated professional consultants, experienced in dealing with the changes and turbulence of the
policy and regulatory environment. Within Altair, we have specialists in governance; strategy and
change; property development; senior level recruitment and interim management; and financial
modelling and appraisal.

In ATFS, our FCA registered treasury and finance consultancy, we advise clients on raising finance,
treasury strategies and policies, and managing funding streams.
We’ll continue to work with our 350 plus clients on all aspects of their business, from growth, to ensuring business resilience, or to managing change.

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