The Savills Housing Sector Survey

The Savills Housing Sector Survey
 
Expanding horizons

27 June 2017, by Savills Research

To deliver their development aspirations, housing associations face challenges over finances and land. We chart some of the financial obstacles, and highlight what can be learned from the private sector when it comes to buying land

 

Ambitious housing associations may have to change their financial structure to deliver their development aspirations. Some 43% of respondents said that changes would have to be made. One-fifth viewed this as a straightforward process, but, for many, there are obstacles.

The most common barrier cited by respondents was exit charges from existing financial arrangements rather than their inherent financial capacity. This is consistent with the findings from our Spotlight: Housing Association Financial Capacity, which found that many housing associations had spare cash flow and gearing capacity. Although these were mentioned, they were less significant barriers than exit charges.

FIGURE 6

Show me the money – Although many housing associations have a financial structure that is set up for future developments, some face obstacles, the most common being exit charges from existing loans

 
Figure 6

Source: Savills Housing Sector Survey 2017

Learning about land

Land was cited as the number one barrier to expanding development programmes by more than one-third of survey respondents. So, what can the housing sector learn from private-sector housebuilders on this topic?

They may operate under a different business model, but as building homes for market sale becomes more prevalent for housing associations, buying the right land at the right price becomes increasingly important.

Private developers focus on gaining access to land without tying up capital. In the past, they favoured option agreements, but now seem to prefer hybrid or promotion agreements. Either way, the key is to secure a good pipeline of deliverable sites. Developments are typically funded by cash, corporate-level financing or project-specific borrowing, with an aim of recycling cash once the sales start. Return on capital employed and margin are key measures of performance.

This is a big shift for a housing association with a record of longer-term investments and asset management. Of course, it will be important to match funding structure to project structure and appraise risks correctly. But there’s no reason why land-led market sale developments shouldn’t be embraced, with strategic land playing a more significant role. Failure to do so will limit the ability of the sector to grow and respond to changing demands.

FIGURE 7

Investment in strategic land – With strategic land playing a significant role in future developments, more housing associations will need to increase their investment in land to meet changing demands

 
Figure 7

Source: Savills Housing Sector Survey 2017

FIGURE 8

What are the biggest factors preventing your organisation from building more homes? – Although land is viewed as the biggest barrier, government policy is a close second

 
Figure 8

Source: Savills Housing Sector Survey 2017


Who controls the land?

Housing associations control land with capacity for around 90,000 homes in the development pipeline (according to the Savills Development Database). Of these, almost 50,000 plots are at the pre-application stage, with a large proportion of this made up of land in the Gallagher portfolio purchased by L&Q in 2017.

We’ve noted increasing activity by housing associations in the land market, but they remain a minor player in the early stages of land promotion.

FIGURE 9

Growth market – There is increasing activity by housing associations in the land market, but fewer are involved in land promotion

 
Figure 9

Source: Savills Research, Glenigan | Note The Savills Development Database tracks housing land from pre-application through to the delivery of new homes, with more than 13,000 sites currently recorded. (Pre-application figures not comprehensive.)

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