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.

^{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.

^{Source: Savills Housing Sector Survey 2017}

^{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.

^{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.)}