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Social housing finance move

Billions of pounds of investment is expected to flow into the social housing sector as the top 20 associations push to raise finance on the bond markets in the next three years.

Notting Hill Housing Trust was the latest to tap into its bond last week and extract £120 million of funding, which it said it would use to reinvest in its development programme of more than 1,000 new homes each year.

The move signalled the increasing popularity of using the vehicle to raise finance for housebuilding.

Social housing is by no means new to the bond market, but the resurgence has come after the downturn as cautious banks opt for short-term lending.

Almost 150 housing associations, local authorities, house builders and other providers are set to deliver 80,000 new affordable homes under the government’s £1.8 billion Affordable Homes Programme.

That is part of a £4.5bn plan for investment the government is set to make up to 2015.

But public funding generally makes up about 15-20 per cent of a social housing provider’s support today, compared with between 30 and 50 in the last round (2008-11) and 90 per cent in the early 1990s, said Savills Financial Consultants director Sean Escott.

“I think the reality is that the market has changed; the availability of bank finance [we have seen] for the past 25-30 years is now greatly reduced, so banks would prefer to loan at three or five, maybe up to 10-year terms,” he said.

There is a gap in the longer term which the top 20 associations are likely to fill with bond issues over the next three years, Mr Escott predicted. An average of £150m per bond would amount to £3bn in finance, he said.

“They are not all going to do one every year, but over the course of two or three years, that is the sort of figure you are talking about.”

Eversheds partner and head of third sector services Paul Pugh said: “What we are generally seeing is that social housing is ahead of the game in the bond market.”

He estimated the value of the bond market in affordable housing over the past couple of years at around £750m.

Places for People was the first social housing group to launch a retail bond, which opened at £50m but attracted strong demand and raised £140m.

Part of that funding will be used for the 2,500-home Brooklands project in Milton Keynes, which has already seen 200 homes get under way and will create infrastructure including three new schools, shops and offices.

The group was also the first to issue a corporate bond, which raised £175m.

Through the bond market, Places for People has raised more than £850m in the UK, Japan and US over the past 10 years, compared with £300m in government grants.

Places for People group finance director Steve Binks said it was an important move towards a more creative and innovative financing structure for the housing association sector - and shows a strong appetite for individual investment in a sector which has a good credit rating, stable cash flows and strong financial viability.

Although bond investors were unlikely to take an active interest in the construction contractors through the supply chain as shareholders might, Mr Pugh said they would require “a level of transparency” in terms of reporting through the commercial chain.