I am a long time serial investor in housing. I have done so corporately and personally for almost 20 years, through the last recession and am still going strong. I have a range of business interests but my investment into housing is the largest single asset class that I hold.
It's a strange choice for someone who for personal reasons is very risk averse, to invest into social housing because on the face of it, it is a risky asset class with very modest returns. So risky that even the government will not invest its money into it. Instead Whitehall looks to pension funds and the City to do so, offering loan guarantees as incentives but sadly meeting with only tiny success and achieving minimal new housing stock in return.
My choice is based on a wish to improve lives. Alongside my co-directors in Houses for Homes we have built up a portfolio of housing that meets the housing needs of some of our most vulnerable citizens; people whom we have got to know and supported through some of the most difficult transitions in their lives and I have seen first hand the impact that good housing can have.
We like solving housing problems and the more complicated they are, the better. Most of our portfolio represents a solution to a long standing housing problem that has confounded other statutory and non statutory agencies. It has resulted in Houses for Homes achieving a niche position and has provided us with a range of experience that equips us to provide lasting solutions that are properly funded and risk managed.
However while sentiment is a powerful motivator, it does not pay the rent and does not attract other investors to the cause. Social housing needs lots of investors and for people and institutions to put their money at risk, it has to pay a return.
Over the years we have learned that risk is best managed when it is clearly understood. For us the risk is not about falling property values but reducing rent rolls. Houses for Homes survived the 2008 property crash intact because throughout the period our properties remained full, rents continued uninterrupted and our leverage of 40% meant we were unconcerned about falling asset values on our balance sheet. The last thing we wanted to do was to sell.
So how do you maintain a rent roll and keep properties full? In short, develop only the property for which you know there is an enduring demand. By ensuring your tenants can afford the rent and that your property is well managed, the tenants will want to stay. While this is easier said than done, we and our registered social landlord partners have tenants that have been with us for over 10 years so it must be possible.
The rented sector needs more than the amateur buy to let landlord if we are to achieve the scale of new housing and the rental levels that we want to see in our country. The government is correct when it points to the trillions of pounds of institutional funds available for investment into social housing but to this point Westminster has done little more than that. The last budget made no meaningful contribution to the social housing stock.
Houses for Homes has spoken to those institutions and they have confirmed that the money is there but only if the housing is already in existence with a rent roll in place. Large scale investors are even more risk averse than I am and will not contemplate any involvement in the building or development of stock. If an RSL has a portfolio big enough, is not leveraged beyond 70% and its existing borrower does not enforce a covenant it may have on the lending, then the institutions may get involved.
Secondly, institutional investors are looking for scale. These are big funds which want to spend £300m+ in a single transaction and really are not interested in anything less. Only the largest housing associations can get involved and it is easy to see why the government cannot and will not achieve the outcome we all need unless a method can be found to bridge the gap between housing development and long term housing investment.
So it's another housing problem and as I said earlier, we like solving housing problems via investment.
My co-directors and I have made our personal investments in order to solve this housing problem. Now we are giving large property investors a platform that satisfies their needs for risk management and predictable returns. We are utilising the Real Estate Investment Trust regime and Houses for Homes will be the first social housing REIT. This creates a tax efficient environment for investors to finance newly built housing stock and achieve the balance of rental affordability and strong returns.
The company has a substantial order book of new properties for which we have evidence of long term need and a financial framework that makes them deliverable for tenants whilst being serviceable in terms of maintaining the standard of accommodation. We are sticking to the same, successful strategy that has served us as private investors well for almost 20 years.
Critics might argue that we are simply building a bigger personal portfolio, but the reality is we are investing into housing supply and providing a platform for scale. Large institutions want portfolios of "settled stock", by which they mean stock that has been built with a settled and proven rent roll and adequate management arrangements. Houses for Homes intends to supply them with what they want. We are able to provide them with the scale they need and they will accept a return consistent with the requirements of social housing rent affordability.
To us this is the obvious solution to the log jam of housing supply and I'm excited about the potential we hope to unlock with our institutional investment partners.