Member Article

Social housing providers faced with funding gap

Social housing providers are being forced to seek new sources of funding to revive their development programmes, research suggests.

The survey from accountancy firm BDO asked senior executives from 60 providers on their views about the current position, and looking to the future.

Banks were found to be raising the cost of loans or reducing the period for which they will lend, despite over 70% of social housing providers seeking to raise new funding this year.

Bonds were identified as the most popular option for new finance, as the longer-term loan profile preferred by social housing providers, lends itself to bond financing as banks tend to cap lending periods at a decade or less.

Philip Rego, Partner and Head of BDO’s Social Housing practise commented: “It is clear from what providers are telling us that the sector faces a severe funding gap.

“The need for an increase in social housing stock in the UK has never been greater, so it’s concerning that providers are experiencing difficulties.

“It’s not for everyone, but Capital markets provide a definite alternative to bank debt financing and this option should be explored by those social housing providers that require capital to fund expansion.

“Both bond and equity markets provide borrowers with an excellent stream of long-term funding and financial institutions with an alternative way to cover long term liabilities.”

Elsewhere, providers were turning to joint ventures with private developers to expand or accelerate their development programmes, share risk and access skills.

It was shown that 46% of social housing providers surveyed are working with, or considering a private partner.

Impending changes to the UK Real Estate Investment Trust (REIT) regime, were also noted as another emerging stream of funding.

The changes should enable smaller organisations to enter the UK REIT regime at lower cost, and could enable social housing providers to put part or all of their rented housing portfolio into a UK-REIT, listing them on AIM in order to raise equity.

Mr Rego added: “The government says that it is making housing the cornerstone of its plans for economic growth and recovery.

“However, this sector faces a major funding shortfall. Whilst some have the strength to bridge that gap, many will soon be severely challenged to source alternative finance from yesterday’s traditional models without some painful pricing implications and acceptance of greater commercial risk.”

This was posted in Bdaily's Members' News section by Tom Keighley .