Salamanca Group leads on housing crisis

15/12/2015

The worst kept secret in the UK is our chronic shortage of lower rent housing especially in London. Every political party has now said it will grasp the nettle but as ever the real question is: how? Not only do lower-income families need decent homes and security of tenure, but they also provide the workforce we all rely on in health, schools, policing and most public services. A modern society depends on a population mix able to sustain the whole body of people.

Salamanca Group has emerged as a key actor in providing at least part of the solution.

First, what is the scale of the problem? Broadly, two million families are on the waiting list for homes – that is about four million people. In recent years, the UK has built about 40,000 affordable homes each year so, as night follows day, the problem is getting worse. The consequences are serious for homeless families. For example, in Tottenham in North London, primary schools start each school year with 30 children in each class. Only ten of those kids are the same children at the end of the school year which tells a grim story about their prospects or the stability of the school. The reason is not the quality of the schools which are usually well-regarded. It is the churn in the housing those children share with their families; they are always on the move from one dwelling to another. They move school, doctor and sometimes the family breaks up.
So the problem is about the homes and a raft of social problems that are nurtured by instability.

Salamanca Group has launched a new housing company, Funding Affordable Homes (FAH), based on a new private sector model to boost provision which evidently cannot be met in the public sector. It has brought together equity funders from across the world, individuals and institutions, to invest in affordable housing schemes. We use data from a leading housing charity to prove social change is genuinely being achieved.

The key innovation is that FAH will own the properties by forward funding new development or sometimes buying built homes to realise capital for new homes. The tenants will still receive their services from the housing association or local authority and in both cases there is good evidence of good services. They, however, demonstrably cannot raise enough development capital themselves. The service providers though, on long-term contracts, will pass on to FAH as the property owner a proportion of the rents; and the rents are mostly regulated. So there is no need for the PropCo to be the OpCo.

In brief, the injection of private sector know-how and a change in traditional patterns of ownership are game-changers. FAH will boost the numbers of homes built and the investment available against the security of owning the property and showing a line of returns to investors comparable with the best long-term annuity types of investment.

And it reflects a chance to make a difference which reflects huge public credit on investors. It enjoys the combination of sound investment and ‘corporate social responsibility’ and individual values.

The first investments have been made or are agreed. The schemes include specialised housing in Luton for young people who can now expect to hold down a job and community care projects in Essex. Several London projects are in focus. In each case, alongside providing good homes to people who are often in Bed and Breakfast and constantly on the move, we can track the route for them into stable employment or the quality of care which keeps older people active and healthy. It is among these kinds of group that central government support for rent payments makes great sense. It is expenditure which mitigates the need for higher expenditure on other social services.

One of the reasons we have experienced investor and housing association confidence lies in the quality of the leadership. FAH is chaired by Richard McCarthy, former chair of the National Housing Federation and Peabody, and has Debbie Ounsted on the board, the former chair of the Joseph Rowntree Housing Trust and now Master of the City of London’s Mercers Company. Andrew Dawber, Head of Corporate Advisory at Salamanca Group, formerly launched the first listed social infrastructure fund in the UK. I have the privilege of serving on the board and chaired the UK’s Inquiry into Housing Benefit. As a team we bring strong commercial discipline and a sense of what creates social change for the better.

A further round of Fund raising will be launched in 2016 which we believe will be attractive to professional investors. Additionally we are getting enquiries about whether we could export the model to other countries, a few of which have comparable difficulties.
And that is where the future of social housing lies. Less wishful thinking by politicians and more rigour from people who know about real estate and social growth. Less taking postures; more delivery of valuable outcomes.

I am delighted to have received invitations to talk at impact investing conferences and seminars, sometimes organised by the philanthropic sector although our scheme is not philanthropy. It provides a chance to show some of the new thinking in FAH, thinking we anticipate providing for the social housing inquiry starting in the Economic Affair Standing Committee in the UK parliament’s House of Lords.