Social housing as business opportunityPosted: July 23, 2021 | |
Originally published as a column for Inside Housing.
Sometimes a news story stops you in your tracks. A report in The Times that former chancellor Philip Hammond is teaming up with Tory election guru Sir Lynton Crosby in a social housing business certainly did it for me.
After checking that it really was July and not April 1, I read that the plan is to lease homes to local authorities where there is a shortage of social housing. Municipal Partners, a company formed last year, is a ‘for-profit social impact business to acquire, refurbish and lease residential property’.
Seen from the perspective of the Labour leader of Barking and Dagenham Council, Darren Rodwell, this makes some kind of sense in an area where 30 per cent of properties are owned by buy-to-let landlords, including many sold under the Right to Buy. Municipal Partners would instead fund the purchase of the homes, the council would charge affordable rents and pay an income to the company before taking back possession at the end of an agreed period.
Cllr Rodwell says that ‘we can’t fund it via government, so we’re talking to different private pension funds, other organisations and seeing what’s out there’. While he has political differences with Philip, now Lord, Hammond, ‘if he and the company he represents gives us the deal that works for us, and the due diligence all plays out, then obviously we would do business with them because it would benefit my residents’.
The details of the scheme are still hazy. Lord Hammond has not yet taken up a role at the company, but his background as housebuilder before going into politics is a logical connection. His entry on the website of the Advisory Committee on Business Appointments shows that he has sought advice on a wide range of appointments in the UK and overseas since leaving office but not yet Municipal Partners.
Companies House lists the directors of Municipal Partners as Sir Lynton Crosby and Gavin Stollar, managing director of the real estate and property development arm of his CT Group business. However, the Linkedin profiles of Sean Anstee, former Tory leader of Trafford council, and Sir Robin Wales, former Labour leader of Newham council, list them as executive director and executive deputy chairman since March and June respectively.
However this new venture turns out, it’s tempting to see this as a symbolic moment in the seemingly relentless rise of private ‘social’ housing and of lease-based financing models.
If this offers a route for councils to buy back homes sold under the Right to Buy, some may be outraged but others may calculate that it offers a better deal than paying huge rents indefinitely for temporary accommodation.
But this connects to two broader housing trends. First is the way that social and affordable housing has become an asset class for international investors – CK Asset Holdings of Hong Kong is the latest example – seeking a guaranteed return on their capital.
As they become more familiar with housing, they are extending their reach into for-profit housing associations but have also cottoned on to the fact that a substantial chunk of the private rented sector now enjoys the same advantages for investors of buoyant need and rents guaranteed by housing benefit.
This ‘social’ private sector now stretches from major providers in the £1 billion-plus a year market for temporary accommodation to lease-based providers of premium supported accommodation and every buy-to-let investor knows that houses in multiple occupation are where the biggest returns lie.
Second, though, is the way this has been directly facilitated by government policy via cuts to investment in affordable housing in general and social housing in particular just as a laisser-faire attitude to house price inflation exacerbates a general problem of affordability.
In fairness, Lord Hammond did oversee an increase in affordable housing investment as chancellor but after deep cuts between 2010 and 2016 that bar was not set very high. More pertinently, he is also widely credited with repeatedly blocking more ambitious plans.
Sir Lynton was the mastermind of the surprise 2015 Conservative election victory. That was fought on a manifesto that pledged to extend the Right to Buy to housing association tenants and sell off the most valuable council housing and promised £12 billion of cuts in welfare.
It’s still early days for the new company but it’s hard not to reflect on how times have changed.
In office, then, social housing seemed to offer relatively poor returns as an investment for the state and was politically expendable, the Right to Buy was a success story and no meaningful attempt was made to tackle affordability.
Out of office, the scarcity and unmet need that helped to produce seem to represent a business opportunity.