Why would a housing association consider forming a for-profit partnership with a private investor or commercial developer?

Legal & General (L&G) and Hyde Group have recently spoken about their joint venture model and why they believe it would be beneficial for other housing associations too.

Their joint venture, which includes two for-profit providers jointly owned by Hyde and L&G called Halescroft and Lanecroft, launched in March. It includes both shared ownership properties (Halesworth) and social rent properties (Lanecroft) and at present only includes properties which were built within the last decade. 

In a white paper recently published by L&G, there was the suggestion that if housing associations transferred 35% of their properties to such for-profit partnership vehicles, sufficient private capital could be released to build an additional 185,000 affordable homes in a decade.  In a challenging moment in the housing sector, all avenues need to be explored.

How can for-profit affordable housing partnerships work?

The basis of the model used by Lloyds and Hyde is that existing, occupied properties owned by the housing association are transferred to the jointly owned for-profit provider. The transfer releases cash for the housing association, which it can use, for example, to build more affordable homes or reinvest in retained stock.

Income from the transferred properties is then shared by the investor and the housing association. The housing association also earns management income by continuing to manage the transferred properties. 

What are the benefits of a for-profit affordable housing partnership structure?

There are a number of potential benefits for housing associations. These include:

• The ability to access private capital from institutional investors and private funds, which see such an investment as an opportunity which can deliver stable and long-term cash flows.
• The sharing of financial and development risks.
• Less dependency on public finances, due to the use of alternative investment models.
• The ability to increase the supply of housing and the diversification of housing portfolios (including the ability to provide mixed-tenure housing).

What are the key risks/points to consider arising from a for-profit affordable housing partnership (or partnerships of any kind)?

• How the values and social and ethical standards of the parties align.
• Ensuring the requirements of the Regulator of Social Housing are met.
• A downturn in the property market can impact profitability and return on investment.

Whatever one’s view of the merits or pitfalls of partnerships and/or the role of for-profits in the social housing sector, I think we can be confident (particularly with the advent of the National Housing Bank) that we will be talking about partnerships and for-profits for many months to come!  The opportunities are clearly there for those bold/agile enough to explore them.