Housing associations could borrow £7.4 billion

10 November 2016

The Government drive for increased new housing supply is putting political and financial pressure on housing associations to increase their housing delivery, a challenge the sector could be well positioned to respond to quickly by unlocking additional financial capacity, Savills says in Spotlight: Housing Association Financial Capacity, published today.

New analysis by researchers at Savills suggests that up to £7.4 billion of additional borrowing could be secured against assets to be used to deliver more homes.

Housing associations delivered 40,000 new homes in 2015/16, around a fifth of all new homes, with around 43 per cent outside the Affordable Housing Programme.  The National Housing Federation has set an aspiration for the sector to hit 120,000 per year by 2035, which will require housing associations to look beyond current models of fundraising.

Savills calculates that this additional borrowing capacity is both supported by balance sheets and fundable from existing cashflow, placing housing associations in a strong position to secure development funding and deliver new homes in a period of much tighter lending. 

“Government policy appears to be shifting away from a single focus on building homes for home ownership to a recognition that we need more homes of every single type,” says Robert Grundy, head of housing consultancy at Savills.  “Housing associations are very well placed to deliver and manage homes across a range of tenures and could be significant contributors to new housing supply. 

“Key to this will be an understanding of the sector’s real financial capacity and how this capacity can best be unlocked.  Increasing borrowing against existing assets seems to be a natural first step.  Greater capacity certainly exists, but house associations will need to adopt a different approach to their borrowing and cashflow.” 

Savills has assessed the additional borrowing capacity of over 175 of the largest housing associations, which control 91 per cent of social housing held by the sector, considering their ability to service more debt from existing cashflow, the potential to increase cashflow by improving operating margins and the extent to which existing balance sheets provide loan security for greater gearing.

“Half of the housing associations in our analysis have both additional cashflow and balance sheet capacity,” says Chris Buckle, associate director, Savills research. “But identifying financial capacity is just the first step, not least because some may be inaccessible due to restrictions of current borrowing arrangements. 

“The sector cannot avoid the challenges facing any body looking to build homes, which include finding land, obtaining planning permission, construction costs, sales and management.  Partnerships between housing associations and beyond the sector might also have a greater role to play in boosting housing delivery.”

Savills will publish a second paper at the end of November, which will attempt to answer the ability of the sector to respond to the new challenges and opportunities and tackle the question of how new many homes they may actually be able to deliver.

Click here to read the full report, Spotlight: Housing Association Financial Capacity


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