Debate focuses on need for new approach to partnership working and evolution of valuation methodologies, as well as aftermath of Grenfell. Luke Cross reports
Partnership working, access to land and the future for social housing valuations were some of the key topics at the annual North West housing finance seminar.
Tracy Harrison, deputy chief executive of the Northern Housing Consortium, said greater collaboration and place-based decision-making are central to addressing housing need across the region. She pointed to a series of very diverse markets with different requirements.
Phil Elvy, group finance director at Great Places, and Steve Modric, strategy manager at the Homes and Communities Agency (HCA), both stepped in to join the seminar panel at late notice at the event hosted by Trowers & Hamlins.
Mr Elvy said there is “real opportunity” in partnership working, but also challenges in bringing together 10 Greater Manchester local authorities and the numerous housing associations operating in the area.
Councils with newly created development teams, along with the housing associations, are all competing for the same land, sites and deals.
“I think if we can ease some of that competition we may create the ability to develop more,” he said.
Mr Modric said the sector would benefit from an approach that brings different parties together with opportunities and a sense of scale, such as the Greater Manchester Land Commission and One Public Estate initiatives.
While the HCA is now “in [the] land acquisition game”, he added it is focusing on markets that “don’t work as well”, like trickier brownfield places or large-scale strategic growth zones.
Mr Modric pointed out that funding support from HM Treasury is dependent on producing something additional and not “crowding out” private developers or housing associations.
He added: “The way the return-on-capital model works for a lot of providers means they don’t want to lock up capital, which means huge urban expansions are quite difficult for the market to start to deliver.
“So we see our role [as] to intervene and try to have a presence and unlock some of the larger-scale developments which would be more difficult to deliver by the market alone.”
Mr Elvy said one area where there has been a co-ordinated response is following the Grenfell Tower fire in London in June.
While the primary focus has clearly been on tenant safety, the event has led to some other technical questions around business and finance, particularly where remediation works are required, and valuations of tower blocks have been brought into question.
Richard Petty, lead director of residential advisory at JLL, said there have been some “unfounded” rumours that tower blocks cannot be valued. He pointed out that they can, but that it needs to be done on a case-by-case basis.
Mr Petty said the market would have to await the conclusions of Dame Judith Hackitt and the building regulations review in spring 2018.
However, he explained that planned expenditure has to be factored into value assessments, which could in turn wipe off the value of some high-rise buildings: “It very much depends where you’re starting from and what that particular building requires,” he said. Average values on tower block apartments can be anything from £20,000 to £50,000 per unit on an Existing Use Value – Social Housing (EUV-SH) basis, he said, while expenditure estimates are anywhere between £1,000 and £55,000 per apartment. He added that ‘abnormal uncertainty’ clauses will remain in place in valuation reports, as required by the Royal Institution of Chartered Surveyors (RICS), until the review’s conclusions are released.
The valuations debate also covered the wider question of the future for EUV-SH, particularly in the context of deregulatory measures set out in the Housing and Planning Act 2016.
Mr Petty said parts of the EUV-SH methodology are now “out of step” with primary legislation, with consultations ongoing with key stakeholders to address that, who he said need to “accept that the time has come for change”.
He suggested this is likely to happen in the first quarter of 2018, rather than this year.
Mr Petty pointed to levels of risk associated with the EUV-SH and Market Value Subject to Tenancy (MV-T) methodologies, with housing associations starting to change the way they think about the former by introducing asset sales and more active asset management, and additional risk elements “lurking in the background” around the future rent regime beyond 2025, when the impacts of Universal Credit will be more clear.
He said: “I think we’re starting to move towards something that is more of a middle ground in valuation terms; that’s where we’re trying to take the definition of EUV-SH, not because we want to push values higher, but because that’s the way the market is behaving and that’s where legislation has put us.”
He said lenders are “very understandably” pricing in an increased risk after investing in associations with index-linked, long-term stable cash flows that have started to move to more market exposure from sales. He said that could be interpreted as a “material change” in the terms of lending and business, but stressed that positives remain, with a strong appetite and support for the sector.
However, he also made “a plea to the lenders” not to put the sector in a position of having more than one EUV-SH definition, including one from RICS and another from the banks.
He added it is also an opportunity to address suggestions that the sector is “undervalued and under-geared”.
The event also heard from Ken Youngman, chief financial officer at real estate investment trust Residential Secure Income (ReSI), which is offering to acquire shared ownership stock in particular. He said ReSI’s approach is to offer a more effective and efficient way to leverage the balance sheet, helping to “accelerate the rent in [the] business plan” by bringing it forward, taking out uncertainties and getting cash immediately.
The panel also broadly welcomed recent news, such as the return to a Consumer Price Index plus one per cent rent formula from 2020.
Source: Home Truths 2016/17, National Housing Federation