It is 41 years since the Housing Corporation was founded and the interceding years have seen a huge rationalisation of the registered social landlord (RSL) market. Throughout that time RSLs have become increasingly more sophisticated in their financial and management thinking. Many now operate as developers in their own right.
So, what is the future for the relationship between RSLs and mixed-use developers? The planning system PPS3 in particular predicates the relationship, which in some ways represents a tension between the RSL's" not-for-profit" motives and the market-driven developer.
Developers need RSLs as the source of social housing grant in order to fill the gap in the development appraisal engendered by PPS3 and section 106 arrangements.
Also, as the balance sheets of the RSLs grow, the ability to fund development from recycled receipts increases. All of which makes RSLs a significant development funding force, particularly when the political climate requires an ever-increasing proportion of affordable housing.
The whole development process is now available to RSLs and many have taken advantage of it, often to the exclusion of developers, there by deriving full benefits from the private element of any scheme. This not only puts them in control of leveraging the cross subsidy between private development and affordable housing, but can also enhance their balance sheet.
There are other signs in the market of the increasing financial robustness of RSLs. Banks are more interested in RSL lending and, coupled with that, RSLs are often now investing in private development stock from new development again, fuelled by planning policies and the fact that house building is not keeping up with demand.
As a paradox to the increasing involvement of RSLs in the development market, developers now have their own strand of social housing grant, effective from the £200 million Housing Corporation pilot in 2005 and potentially more from the Corporation's £3.9 billion allocation for 2006-08. This will enable developers to "go it alone" in the production of affordable housing and many have formed their own RSL operations for just that purpose. All of this may be seen as promoting a rift in the affordable housing market, but that might turn out to be a less than considered assessment.
There seems to be no will or appetite on the part of developers to take on the role of the provision of affordable housing single- handed. Apart from the regulatory constraints on that sector, developers are just not geared-up for the management of housing, just as few involve themselves with housing investment.
Market Share
Specialist housing investors and managers have entered the market in recent years, but their market share is insignificant. Whatever the extent of developers' involvement in the affordable housing industry, they are almost always going to look for professional investors and managers as part of the development exit route.
At the same time, estate and facilities management is becoming more sophisticated and some RSLs are emerging as market leaders. There is no longer a stigma attached to an RSL-managed development.
This seachange reflects the will to create and manage housing stock underwritten by the sustainable and long term building methods being driven by the Housing Corporation. As a property manager, the RSL fulfils the acceptable balance between timely maintenance and cost control. As so much of larger scale mixed-use development is based on public sector landowner control, the RSL, by its very nature, presents (with the appropriate private sector backing) the "acceptable face" of the public sector and is, as such, able to influence the winning bids for such schemes.
When all is said and done, there is also a massive role for developers continuing to work alongside and "in partnership" with RSLs in all those public sector sponsored schemes. For example, within a partnership between the public sector landowner, RSL and private sector developer, the sharing of the upside is an acceptable spur of encouragement to both the landowner and RSL. But the downside risk is not easily allocated between the three partners, because the public sector and the RSL are not designed for such entrepreneurial excitement.
In the end, the greatest proportion of development risk will always lie with the developer, who with the bank of skills and experience, the wider view and involvement in the development business and the profit motive is the prime candidate.
So it is appropriate that the current market mix and contribution between RSL and developer is the likely formula for the foreseeable future, albeit with the benefit of an increasingly sophisticated approach.
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