Housing Stock Strategy: FD and CEO Survey
During the Autumn, Devonshires conducted a survey amongst finance directors and CEOs of a broad range of our Registered Provider clients to ascertain their views on strategy for housing stock – including the extent to which there may be any change of emphasis as between ownership and management of stock.
We received 29 responses to the survey, although not every question was answered by each respondent.
This article summarises the key findings of the survey.
The results of the survey show the following key findings:
- construction: While 41% of respondents intended to build less than 200 units over the next 5 years, 24% of respondents intend to build over 2,000 units during that period.
- proportion of pipeline that would be social housing in 5 years’ time: the survey results indicate a wide range – from 100% to under 50% in some cases.
- is there a profitability target for housing management: 17% of the respondents targeted a particular level of profitability. However, 62% indicated that they did not have a profitability target.
- financial constraints on development plans: 52% indicated income cover covenants as a constraint whereas, for 38%, it was uncharged security. However, 20% of respondents did not feel there were any financial constraints.
- is retention of management important on a sale of social housing: for 34% of respondents it was, whereas for 55% it was not. On a sale “out of sector”, retained management was more important (54%).
- is ownership (as opposed to simply management) of social housing of fundamental importance to the organisation: for 66% it was.
- the importance of price as an incentive to make disposals of social housing “out of sector”: 79% of respondents would sell out of sector if this provided the highest price, but subject to ensuring regulatory compliance.
- identifying the asset classes that RPs would be most likely to sell: a number of respondents indicated that shared ownership would be the most likely asset class. In some cases, private rented stock could be sold, if a high value can be realised.
- when growing a non-social housing portfolio – what is the RP’s strategy for mitigating the impact on lender financial covenants: the responses were split between using sales or JVs to mitigate the impact.
The issues that generated the most comment
- Proportion of pipeline that would be social housing in 5 years’ time
Almost all respondents expressed views about the % of the pipeline that they expected would be social housing in 5 years’ time. Some 58% of respondents indicated that 75% of the pipeline would still be social housing. However, a number of respondents indicated that they wanted to see a split between affordable rent, social rent, shared ownership and intermediate rent in the question.
- Retention of management on the sale of social housing
There were a wide range of responses to this question. Typically, where the property was outside an RP’s core area, there was little interest in the management. As expected, if it was important to adjoining properties or to protecting the reputation of, or a future “pipeline” of properties for, an RP, then the RP wanted to control management.
- Selling stock
There was a consistent response as regards the potential sale of shared ownership stock for a number of reasons; these ranged from the concern that they offered poor security to funders to the fact that opportunities arise for capital returns when “staircasing” occurs. In some cases, the potential sale of private rented stock in particular in high value areas was noted.
The survey, interestingly, reveals a divergence of views towards ownership of stock (important to two-thirds of our respondents) and on-going management of sold stock (fairly evenly split), suggesting increasing opportunity for ownership and/or management by new private entrants to the market, in particular the growing REIT investment community, sitting alongside and working with the traditional Registered Provider community.