Ben Denton, Managing Director of L&G’s Affordable Homes, discusses the role of for-profit registered providers of affordable housing.
As Charles Darwin said: “It is not the strongest or the most intelligent who survive, but those who can best manage change.” One question currently doing the rounds is what impact the entry of for-profit registered providers of affordable housing might have on the existing players and the affordable housing market in general. Rob Beiley, from legal firm Trowers & Hamlins, boldly predicted at the Chartered Institute of Housing’s South West conference in May, that the advent of for-profit RPs was the greatest change to the affordable housing sector since it embraced borrowing in the 1980s.
1. New players
There is no doubt new players from all sorts of backgrounds are entering the market – from institutions holding long-term patient capital, to those backed by private equity. I wouldn’t be surprised if Sage, in which Blackstone acquired a stake in January 2018, topped the ‘biggest affordable housing developer’ when the Inside Housing tables are published next year.
The company in this sector that I Lead – Legal & General Affordable Homes – also has a bold business plan: we launched in 2018 and aim to deliver 3,000 affordable homes a year by 2022. Between ourselves and Sage, therefore, we could account for 10-15% of affordable housing development in the next two to three years.
The sector and government agree there is a chronic need for more affordable housing. Estimates range from 75,000 to 125,000 – whatever the number, it represents a significant step change from the 50,000 currently being delivered. So, will these new players deliver much- needed additional homes, or merely displace existing activity?
2. Long-term funding
The housing sector’s current debt-based model is not one that can scale up at the speed needed to address the affordable housing shortfall. Long-term institutional funding, such as Legal & General’s, is therefore needed to ensure additional homes are built. We can forecast over 10 or 20 years to identify the affordable provision required at the time, while also accounting for future demand.
This large-scale and long-term vision could be a real game-changer for the sector. As new entrants come into the market there may be a level of displacement. Legal & General’s plan, however, is to build a balanced business, delivering additional homes alongside section 106 schemes within a diverse portfolio. We also see our mission, wherever possible, to collaborate with existing players in the sector, combining Legal & General’s financial backing with local delivery capability and high quality management.
Such partnerships could increase the pace of affordable housing delivery, offering a positive step forward for people in housing need, enabling local authorities to boost provision and housing associations to grow the number of homes under their management.
3. Customer service
Other organisations – particularly those with a strong customer service ethos – have also seen the potential of collaborating with Legal & General. We aim to design, test and deploy a new technology led customer service platform, which will improve outcomes for residents, creating a blueprint which our management partners can adopt.
The building blocks for this are already in the market and this is the area of market evolution, or revolution, that excites me most. As a collective, we must focus on sustainable, genuine solutions to increase development capacity and improve our service offering. It is time to embrace, not fear, change.
To find out more, contact Jon Slade : jon.slade@campbelltickell.com
This article also appears in CT Brief-43
