Housing associations are now major players

As your recent piece on IPOs attests, the social housing sector is undergoing dramatic change, building on the trend of ‘mega-mergers’ - from London & Quadrant (L&Q) and East Thames last year to Notting Hill and Genesis most recently.

These new ‘super-associations’ are emerging with ambitions to rival the major housebuilders in output and the other week L&Q undertook the biggest single bond issue by a housing association to date.

Rewind to just a few years ago and the outlook for the sector was far from certain. The steep reduction in the affordable housing grant and the social rent cut was forcing many associations to look nervously at their balance sheets, while the promised Right to Buy extension was seen as a threat to the future of affordable housing.

But, as the saying goes, ‘necessity is the mother of invention’ and housing associations have adapted remarkably to the circumstances, diversifying into new sectors such as build-to-rent (BTR) to cross-subsidise their social activities.

Housebuilders have diversified into new sectors such as BTR to cross-subsidise their social activities

The healthy development pipelines of big players such as L&Q and Notting Hill Genesis have resulted in a greater need for funding. Fortunately, as the competitive pricing achieved by L&Q in its latest bond issue showed (being the lowest yield and coupon ever achieved by a UK housing association for 12-year and 40-year bonds), investors’ interest in the sector remains strong.

Looking ahead, we can expect to see further consolidation in the sector and diversification into different product types, generating more interest from a broader range of investors offering more financing options.

There will no doubt be questions over whether housing associations are moving away from their original social purpose and becoming more like private developers. But the UK is in desperate need of new homes of all types and tenures and, due to the cyclical business of housebuilders, they will not be able to deliver them all. When looking to generate supply, the market should turn to a newly emboldened housing association sector.

Beth Collett, capital markets partner, and Steve Mackie, social housing partner, Addleshaw Goddard

Want to find out about more on the growth of housing associations? Book your place for RESI 2017 now

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