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Social Housing Speed Read – Brexit and the future of the social housing market

Reports this week by the Royal Institution of Chartered Surveyors suggest that the number of house sales will fall, and prices stagnate, throughout 2019 due to Brexit.

The 2008 financial crash proved difficult for registered providers of social housing, and there are fears that Brexit could produce a similar downturn. For example, housing association Network Homes has raised money from US investors due to UK bonds becoming more expensive.

There may also be a lower appetite for higher-value properties. Younger people are struggling to buy, but this has given a boost to the build-to-rent market. This could signal similar implications for the social housing sector. Despite this, there is no doubt that a fall in the sales market generally would hamper the ability of builders to produce the stock that is required. Here we consider the strength of the market faced with these concerns, and assess what RPs can expect for the future.

A different approach to building

One solution may be in the building of modular homes. As we discussed in December, constructing a larger proportion of homes using modern, modular techniques may mean that units can be provided on a site up to 40 times faster than with traditional building methods. This may prove capable of providing the rapid production that is required both to meet demand, and could mitigate the effect of supply-chain issues that Brexit might cause. There are well-publicised shortages of such materials as bricks and internal doors, but making entire houses in one single factory could mean that sourcing different components from different European suppliers is less of an issue.

Planning and Building Control Today said on Thursday that shipping containers may provide ‘the answer to the global housing crisis’ and that ‘shipping containers are a form of modular construction’. This, as well as an increasing use of modular homes and shipping containers by homeless charities could reduce the strain upon RPs and housing charities. For example, Bristol City Council have looked to trials of modular housing to combat their own housing crisis

Last September, insurance company Legal & General launched a modular housing business of its own in order to provide 3,000 new homes annually within the next four years. And this week Home Group has acquired 49 modular affordable housing units in Kent as part of a £12.9m deal. This acquisition includes 13 Town Houses purchased on the open market which will be re-designated for shared ownership, thereby increasing the amount of affordable houses on the site.

Affordable and social housing remains an attractive investment

Re-designating open market houses to shared ownership is a growing practice. It has been suggested that housing associations have been able to buy new build homes from traditional house builders at discounted rates due to the uncertain conditions created by Brexit.

Last week, we discussed the emergence of impact investors and private funds boosting the market. This trend has been continued by the (billionaire-owned) William Pears Group. Inside Housing revealed on Thursday that the Group had registered one of its companies as a social landlord just before Christmas. This signals a diversification of the providers in the sector, with the company attempting to “reach out to those for whom the private sector is not an affordable option”. Steve Douglas, co-chief executive of consultancy Altair said that “it shows that investors are seeing social housing as a safe, long-term investment.”

It is promising that investors entering the social housing market independently. This could help to insulate the market from the potential reduction in the building and sale of affordable homes by traditional developers pursuant to their Section 106 obligations; if building numbers decrease post-Brexit. Savills have estimated that a downturn could ‘reduce the number of affordable homes built by a quarter’, as Section 106 sales account for 53% of all affordable properties built.

In summary, the increasing pool of investors looking to enter the market, the demand for social housing and the impact on house prices, mean that social housing appears to be an attractive option for property investment companies that have otherwise focused solely on the private sales market. This, however, only serves to illustrate the need for providers to diversify and adapt in order to cope if there is a fall in prices and demand. Dominic Brindley, director of corporate financing and risk solutions at NatWest Markets took a positive outlook last week:

“with the market majority view of a no-deal Brexit increasingly off the table, we continue to expect strong investor demand for the social housing sector”

However, a week is proving a very long time in Brexit politics, and it must be noted that in conditions such as these, the current trends could all change depending on what happens on 29 March.

If you have any questions on the above and how it will affect social housing providers, or any other questions as a social housing provider, please do not hesitate to contact John Murray or a member of our expert Social Housing Team.

Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.

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