How Do The Uk’s Housing Associations Work And What Do They Do To Increase The Housing Supply?

By Author: Bradley Weiss
Total Articles: 139

The need to answer the high demand for homes in the UK is being addressed on many fronts. Private investors and homebuilders, working through alternative investment funds, are turning unused land into homes where planning authorities allow. Institutional investors are participating to a greater degree than ever in the private rental sector. And England’s 1,500 housing associations build approximately 45,000 affordable and 5,000 private homes per year.

A policy paper, “Freeing Housing Associations: Better financing, more homes” (November 2014) from the Policy Exchange, a planning advocacy organisation, argues for a category of deregulated housing associations that would effectively enable them to double building activity to twice its current levels. The “Free Housing Associations” would be allowed to sell off expensive social properties and use the proceeds for more development. The relaxation of rules would also provide associations with greater latitude in choosing tenants and pricing, allowing them to refuse antisocial tenants and offer cheaper rents to reward good behaviour. A reported 67 per cent of housing association leaders favour this plan, in part because it could help reduce the waiting list of 1.7 million households.

Other housing association programs offer different paths to increased development. A December 2014 announcement by the U.K. Homes and Communities Agency revealed that the Government will directly fund the building and sale of 10,000 homes in Northstowe, near Cambridge. This is a new approach to increasing the country’s housing supply. The Chief Secretary to the Treasury, Danny Alexander, said that unlocking capacity in housing associations will put in motion “stalled regeneration projects” such as this one, which is on a remediated former Royal Air Force base.

Housing associations have evolved considerably since their founding in the mid-19th century and later in the Thatcher era, when social housing was transferred to private ownership and to the management by associations. Today those associations are largely generating income above their operating expenses, despite their non-profit status, according to the director of Million Homes Million Lives, a non-profit housing association. In an August 2014 editorial in The Guardian, Calum Mercer writes that housing associations have become “very profitable organisations,” with £2 billion in excess revenues largely generated on social rents, and that margins of 29 per cent were hit in 2013 and will continue rising. Mercer says that social rents are rising faster than inflation, which is what creates this windfall. He also maintains that this money is not being directed at building new homes, nor toward reducing rents, but is instead being spent on commercial activities.

Others in housing associations argue that investing in commercial properties is an essential means of generating income. The Chartered Institute of Housing warned to the contrary, that in 2014 welfare cuts and rising social housing rents spell trouble for associations’ abilities to continue building after 2015.

What this all may illustrate is that there are many ways and ideas for building in the UK. There may not be one or two or even five methods that are “the best” approach to increasing the stock of housing. Real asset funds from the private sector play a role. National homebuilders with their pools of investors are increasing their activities, as are deep-pocketed institutional investors. As should be clear, housing associations, taking different approaches, are finding ways to grow.

What’s essential is that they all do so in financially sustainable ways. For individual investors who are eager to participate, a visit with an independent financial advisor can guide him or her to identify if and how to invest in housing.