Rapleys’ Simon Corp answers Property Week’s questions about ‘for profit’ affordable housing

Published in Property Week – 14 April 2023

Rapleys’ Simon Corp on ‘for profits’ affordable housing. There are definite advantages to registering as a ‘for profit’ provider of social and affordable housing.

Our partner in affordable housing consultancy Simon Corp, answered Property Week’s questions in this week’s magazine. Some of his answers are below. Link to the full article here: https://www.propertyweek.com/residential-and-development/qanda-rapleys-simon-corp-on-for-profit-affordable-housing/5124668.article

What are the benefits of registering?

Affordable housing secured through a Section 106 agreement can usually only be bought by a registered provider and, therefore, there is a key commercial advantage to being a registered provider – being able to acquire s106 units. S106 affordable housing is often acquired at 60-70% of the value of the equivalent unrestricted open market dwelling.

Advantage two is that when negotiating with local authorities and other stakeholders, because they are regulated there is a degree of comfort from the fact that the regulator has assessed their suitability as a provider and they meet the regulation standards.

The third advantage is being a registered provider can enable the organisation to join existing partnerships to access Homes England grant funding.

Not many people understand the commercial advantages; the ability to retain the affordable housing they develop on their own sites, and to buy other developers affordable housing.

What are the challenges in registering?

It’s a two-stage process. There’s a preliminary application, where the regulator must decide whether it is the kind of organisation that should be holding affordable housing stock. They assess the organisation, look at its structure and whether it is providing, or intending to provide, affordable housing. It can take a month or so to produce the preliminary document, and the regulator may take a few months to assess the information, raise queries and respond formally.

Stage two is much more complicated. The regulator will look at an organisation’s detailed business plan, all the policies and procedures as well as its financial forecasting and statements. They will ask lots of questions and may require additional information. That’s the part that takes the time.

How has inflation affected the sector?

The most significant impact has been construction costs, with increased costs of delivery affordable housing funded through Homes England grant will require higher grant levels which influences the number of units that can be delivered per year.  

In addition, the traditional housing associations, the ‘not for profits’, have capped rents, whereas a lot of the ‘for profits’ haven’t made a decision on that yet, but everyone believes they should cap them at the same level. Capped rents combined with increasing costs, including ongoing management costs, interest costs and development delivery costs, has an effect on the sectors funding capacity and may reduce the size of some development programmes.

What other challenges does affordable housing face?

The upgrades in the building regulations mean we are now looking at air source heat pumps, electric vehicle charging and so forth. That is going to have a cost implication for affordable housing, and it is important to ensure that cost isn’t passed on to the tenants or reduces the quantity of affordable housing produced.

The affordable housing market usually works in reverse to the rest of the market. So, as the general market slows down, more developers will approach affordable housing associations and ask if they want to acquire the site or additional open market plots known as “additionality” because they might not want to be exposed to the sales risk with the open market.  We are seeing a lot more land led package deals being offered to registered providers.

How can government support affordable housing?

The obvious answer is more funding. It can increase the level of grants – if build costs are going up, a higher-level grant could help offset the funding gap and achieve values required to acquire sites. But it can do a lot of work in the planning system as well, such as promoting whole sites for affordable housing. It has the exceptions planning rule, which says organisations can get planning consent for all affordable housing on a site that wouldn’t normally get planning consent on the edge of a settlement or urban area.

We’d like to see that rolled out further because the site has a restricted use only for affordable housing reducing the land value and removing the competition from private developers, this helps reduce delivery costs.