The news this week that the world’s largest real estate private equity investor, Blackstone, has decided to invest in the UK affordable housing sector is potentially a game-changer for the sector given their financial might. Equally intriguing is their use of a ‘for-profit’ housing association, Sage, as their investment vehicle, with the intention of securing stock from private developers via their section 106 planning requirements.
Blackstone is reported to be targeting a net yield of 5% for their investors. That will be their priority. Rents will need therefore to be set at a level which will achieve that target. A number of questions spring to mind. First, just how ‘affordable’ will the rents for the relevant homes be? Is there a risk, or perhaps likelihood, that poorer tenants will not be able to afford the rent levels required to sustain the model? Also, is there a risk that this model will suck up the supply of housing that would otherwise have been available for social rent?
On the first question as to how affordable the rents will be, I suspect this will depend on locality and local rental levels. Presumably, the plan will be to let the homes at below market rent, but how far below will depend on what is required to maintain the investment return. A challenge may be how to secure that there is not a risk of excessive rental inflation to maintain yield, which results in the housing becoming less and less affordable.
On the second question, it would appear inevitable that this model will not serve tenants in need of housing let at rental levels for traditional social housing as provided by not-for-profit registered providers. That is not necessarily negative however given the general fluidity increasingly applying to the housing market, which now embraces everything from pure social rented housing through to market-faced PRS and everything between the two.
On the third question, it is possible that in certain areas this model may take up much of the available section 106 capacity, thereby restricting what would otherwise be available for traditional social housing. Again, however, to the extent that the model assists in overall provision of much needed new housing, is this a price worth accepting?
It strikes me that potentially local authorities need to consider being more sophisticated in their section 106 requirements, setting requirements for different types of affordable housing, including social and non-market rented housing. It may in certain areas, for example, be necessary to consider requiring that all of the affordable allocation is restricted to social housing if there is inadequate supply and relevant demand.
Overall, I would suggest that we should welcome additional investment into the affordable housing market, but with appropriate checks to ensure that the housing is truly affordable in nature and that it does not prejudice the ability to service the demands for social housing or otherwise price out of the market those in need.
On January 5, 2018