The announcement of the Voluntary Right to Buy (VRTB) and rent cuts in 2015 rocked the English social housing sector and understandably a number of housing associations paused or shelved uncommitted developments, leading to reduced demand for debt. Many of those who did want to borrow chose the subsidised offerings available from the government-guaranteed aggregation vehicle, Affordable Housing Finance plc, and the European Investment Bank (EIB).
2016 had its challenges too, with accounting changes (FRS102), the Housing & Planning Act, and the Brexit vote, not to mention a number of high-profile mergers. Another real test for housing associations was the focus of the Cameron government on home ownership, with all unallocated grant temporarily redirected this way, to the exclusion of rented housing products.
So how is 2017 likely to shape up? The good news in the Autumn Statement was the allocation of an additional £1.4 billion into the affordable homes programme and the current government’s flexibility on the tenure type for which it is used. Such response comes as no surprise, considering the need to boost housing supply.
Housing associations have largely dealt pretty well with the rent cuts and most of the developing organisations have realised that they can continue to build new homes, even in this more difficult climate. It will mean that housing associations will need to borrow a lot more money – as the grant may run out.
So where will the money come from and is there enough of it?
Unless the government decides to extend its guarantee scheme, the imminent withdrawal of Affordable Housing Finance plc from the provision of new finance has to be factored into the equation. An additional headwind will be the EIB’s involvement once Article 50 is triggered and whether it will continue to pump money into UK social housing.
There remains strong, and in some cases pent-up, demand from institutional investors due to the dearth of public issuances in 2016. The year saw a number of innovative financing schemes come on stream and more are likely to be set up in 2017.
The banks too, continue to exhibit strong appetite to lend into this sector on a short-medium term basis, although their enthusiasm is sometimes masked by the legacy debt issue.
With the need for further housing, the ambition of housing associations, and the appetite from pension funds to lend to the sector, 2017 should shape up to be a good year.
*Mark Davie is head of social housing within the M&G Fixed Income team