1. Land

Lack of land is an increasing limitation for housing associations with ambitious development aspirations. In last year’s survey, respondents said it was as important as government policy in influencing the number of homes they could build. This year, it is the standout factor, followed by a lack of subsidy from central government.

As in last year’s survey, 35% of associations say they have some strategic land already, and a similar proportion are looking to acquire some. However, they are pursuing these opportunities more urgently. Of those currently without any strategic land, 26% say they are looking to acquire some in the next year, compared with 13% in 2017.

Unhealthy competition?

Our focus group respondents say that most competition is from other associations chasing opportunities of a similar size and location. This is pushing up land values. Competition was evident around schemes of 100 to 200 units – considered the sweet spot in terms of physical deliverability.

It is felt that breaking up larger sites to meet this need would increase output. Although this requires some upfront funding of infrastructure from government, it is considered to be a more efficient means of increasing levels of affordable housing than, say, via s106 planning obligations.

Our focus groups agree that buying s106 stock is increasingly competitive. We heard that some associations are appraising schemes based on a 40 to 60 year basis to justify paying a premium compared with those using more conservative assumptions. One association says it had lost 60 consecutive s106 bids for affordable rented homes, meaning an increased focus on delivering homes themselves and taking a greater part in the planning process.

2. Mergers and partnerships

In recent years, there has been a flurry of major merger activity (see timeline below), with increasing development capacity usually cited as the main reason for the union. But other kinds of partnership are also taking place as housing associations look to secure additional access to land or development expertise.

In the North West, Trafford Housing Trust has a £160 million joint venture with L&Q and a joint venture of £100 million with Galliford Try. Barratt has joint ventures in London with L&Q, Metropolitan and Hyde. Hyde has a £120 million joint venture with Brighton & Hove City Council.

Preferred partners

Our capacity survey backs up these trends. Partnerships with private developers, local authorities, and other associations are each being considered by at least 60% of housing associations in the next year. That rises to around 80% in the next five years. Full mergers are set to be slightly less popular, at 40% and 60% respectively.

Even less popular are partnerships with institutional investors, who tend to want a secure long-term income return for a relatively hands-off investment. Housing associations (and local authorities) also value these secure income streams. Consequently, there is less obvious synergy. But this characterisation may be too simple. Some institutions are more directly involved in housebuilding – for example Legal and General owns a portfolio of strategic land plus a modular housing facility near Leeds.

For some in the focus groups, one of the key motivations for ensuring robust financial health is to avoid a regulatory downgrade. Gaining a balance between maximising development potential and not spooking the regulator is a difficult challenge. Some see partnerships and joint ventures as a way to ensure the future of their organisation and avoid unwanted mergers.

3. Funding and finance

A slight majority (57%) of associations already have their financial structure ready to deliver their development programmes. This finding mirrors last year, so while the survey sample is not the same, this suggests restructuring may be a slow or difficult process. Of those who do need to change, there are multiple barriers, with no single one of them standing out as more common. Among the smaller number of local authority respondents, there was similarly no consensus on a particular barrier. HRA debt caps, general financial capacity and member appetite were all mentioned as main barriers to change.

Public-private potential

Local authorities are often major landowners, but, in many cases, have scaled down their in-house development capabilities following stock transfer or more general loss of expertise.

A new breed of local housing companies – defined as independent arms-length commercial organisations wholly or partly owned by councils – have been springing up instead. A report by the Smith Institute identified 150 local housing companies, most with relatively low current output of around 50 homes per year.

It estimates the total capacity of this sector at 10,000 to 15,000 homes by 2022, of which 30% to 40% would be affordable, so a small fraction of the 100,000 needed. Whether local housing companies are seen as potential partners or extra competition for housing associations remains to be seen.