When it comes to development, housing associations face many of the barriers that are also experienced by private developers. These include land availability, skills shortage, regulatory concerns and as grant diminishes greater exposure to market cycles.

Land availability

Competing with private developers for land can be difficult particularly when delivering affordable housing or homes for rent.

With some weakness expected in the development land market over the next couple of years, there may be a window of opportunity for associations to invest in land and start to build up a pipeline for future development.

This is where the cashflow capacity to service borrowing without short term receipts should enable associations to act in a countercyclical way and avoid the strongest competition for land that exists in a rising market.

However, the land market is enormously varied. According to our land index, average values are stagnating or falling as land purchasers become more cautious. However, with huge variations across the market (Fig. 3) there are areas where demand has been maintained. HAs should be cautious not to pay over the odds.

^{Source: Savills Research}

Skills shortage

It is well known that there is already a substantial shortfall of skills in the development industry. It will take time to find enough people with the skills required to start up new development programmes in the 57 housing associations in our sample that have financial capacity but no existing development business.

Creating 57 new development directors to run relatively small programmes in some cases would also be an inefficient use of resources. A more effective way of accessing skills and creating a development operation of scale may be through consortia and partnerships, possibly with HAs with existing development activity.

Alternatively, it could be in the form of joint ventures with private sector developers, housebuilders or contractors. This will allow access to skilled operators already active in the private sector.

Regulatory concerns

Whilst there is political pressure to increase housing delivery, including developing for market sale, the Homes and Communities Agency (HCA) is understandably cautious. It is important to learn the lessons of some past mistakes within the sector, which often stem from misjudging the housing market.

The existing development for market sale activity within the sector is carried out by a relatively small number of players. Some of these have stretched their business plans, but the majority have been successful.

It is critical that associations taking on additional borrowing and increasing their exposure to the housing market do so in a way that is manageable. Those that fail to do so run the risk of being downgraded by the regulator, which would affect their capacity to borrow at advantageous rates.

Autumn Statement

Measures announced by the Chancellor of the Exchequer to support affordable rent marked a clear shift away from the previous Government’s focus on homeownership.

Philip Hammond’s commitment to provide an additional £1.4bn of grant funding to help support 40,000 new affordable rented homes, together with more flexible use of existing funding for affordable housing, will enable the delivery of a wider variety of housing tenures aimed at different parts of the market.

The boost for housing is part of a wider drive to increase national productivity, deal with imbalances across the country and prepare the economy for a potential slowdown ahead of Brexit. Housing featured at the top of the list for £23bn National Productivity Investment Fund which includes £7.2bn to support the construction of new homes through the Housing Infrastructure Fund and Accelerated Construction Fund.

UNTAPPED POTENTIAL

Innovative approaches could unlock further financial capacity

There is potentially a further £17.3bn of additional financial capacity that could be unlocked. But this would involve far greater collaboration across the sector, including mergers and partnerships. Our analysis identified £7.4bn additional housing association borrowing capacity that can be both supported by balance sheet and funded by existing cashflow. Here we highlight that some HA have balance sheet capacity but no cashflow capacity to service any additional borrowing. Others may have cashflow but no balance sheet capacity.

^{Source: Savills Research}