Investors suggest pressure on cashflows will force associations to pull back on development, while also questioning sustainability of Affordable Rent.
Registered providers are likely to ‘bear down’ on building new homes as attempts to contain the country’s welfare bill become increasingly acute, Social Housing’s north-west seminar heard.
Investors told attendees they are also looking at the sustainability of the Affordable Rent model, where providers can charge up to 80 per cent of market rates, as they assess
how managing nominations affects rental income and cashflows.
The seminar, hosted by PwC in Manchester on 5 December 2014, also heard that some investors like to see HAs ‘push the barriers’ to show how their finance can provide a wider benefit.
Piers Williamson, chief executive of The Housing Finance Corporation - a not-for-profit bond aggregator and delivery partner to the UK government’s Affordable Homes Guarantees Programme
- said the North West has been ‘disproportionately hit’ by the spare room subsidy or ‘bedroom tax’.
‘As Universal Credit or ways of trying to contain the welfare bill become increasingly acute, that will bear down on appetite to develop more; because the first thing associations will do is bear down or
stop developing if the cash flow is impaired elsewhere,’ he said.
Mr Williamson added that the sustainability of the affordable rent product through the next political cycle ‘will be an acid test’, particularly when combined with
Alex Gipson, social housing lender manager at Legal & General Investment Management, said: ‘In some areas there doesn’t seem to be any differentiation in terms of who you put in affordable [rent] housing; particularly where you’re relying on nominations agreements.
‘When affordable rent first came out, we thought it would steer towards non-benefit, low paid, economically active [tenants] - and that seems a much better fit.’
Mr Gipson said if targeting this group, the risk is ‘different but not significantly different’.
However he added: ‘There’s a mixed message over whether associations are able or do look to that area.
‘I think as the next programme goes forward we need to think a bit more about who it’s aimed at and how you get the right people in those homes so it’s not unaffordable.’
Mr Gipson added that affordable rent might suggest a greater risk to income streams, as at a higher rate it is more exposed to market rent volatility, but that it also provides a greater likelihood of being able to service more debt.
Mr Williamson added: ‘The first thing an investor would look at is arrears and voids; at the moment my perception is we’re working in an environment where discretionary housing payments have been making up a lot of slack.
‘We haven’t seen much of the real impact in the market today.’
Click on the PDF below for more on the north-west event and to view the full regional supplement.