Presentation Transcript

1. Housing Led Recovery?Investing in the future.Implications for housing providers.

   Robert Grundy – Savills CIH South East Conference 2013
2. Housing Led Recovery – investing in the future The wider economy Assets and real estate opportunities Other approaches to funding Market Rental and investment returns Creating an investment market
3. The housing shortfall has widened Household projections Source: DCLG
4. The economic case for housing: 1% extra GDP from building an additional 100,000 homes Source: Oxford Economics
5. New homes create jobs – but how many?? One new home creates 2 jobs Government Housing Strategy Nov 2011 4.5 jobs Berkeley Group (Ernst & Young) Feb 2012 5.5 jobs HBF 2010 6 jobs Eric Pickles Mar 2011 Most expenditure is in the UK – not Far East....
6. But does new affordable housing displace market housing that would otherwise have been built? Treasury assumption I new market home displaced by every 2 new affordable Savills analysis for G15 – affordable housing results in little or no displacement of market housing Affordable adds when market capacity is limited Move away from Section 106 – less competition for land Beneficial early cash flow to private developers Source: Additionality of affordable housing, Savills commissioned by G15.
7. Post 2015? Post 2015 funding model not clear..... Public land? Procurement? Flexible tenure including market rented Asset management How and what to develop without grant?
8. An era of pragmatism? Is increasing absolute housing supply higher priority than low rents and affordability?
9. Use the property market to better advantage? Would we make the same investment decisions now that we have in the past? Can the allocation and use of housing assets across London and South East be improved?
10. Business Worth – Net Present Value (NPV) Per Unit by Asset Group £ per unit NPV per unit NPV of Operating cash flow: Rents after voids etc less Major repairs, maintenance – from condition survey Management etc All adjusted for inflation -£30k -£20k -£10k £0 £10k £20k £30k £40k £50k £60k
11. NPVs and Market Values – London Region £700k £600k £500k £400k £300k £200k £100k £0 -£100k Market Value NPV
12. NPVs and Market Values – South Region £700k £600k £500k £400k £300k £200k £100k £0 -£100k Market Value NPV
13. Gross Initial Yield on Market Value * Rent/ Vacant Value 14% 12% 10% 8% 6% 4% 2% 0% NB: Net initial yield after allowing for outgoings is even lower * Calculated as annual Social or Target Rent /Vacant Value
14. London - house prices by postcode......Scope to fund more housing?
15. London - house prices by postcode
16. London - house prices by postcode
17. Housing tenure
18. Investment strategy – mispriced markets Value uplift potential Unlocking hidden value house prices travel times quality of place
19. A coherent strategy for housing assets?? Can work within borough Cross borough co-operation to maximise benefits? Not just a London issue The prize – new housing “Social Cleansing?” Who has priority? Existing tenants or the un un – housed??
20. Resurgence of Local Authorities Local Authorities – post HRA reform Resurgent – want to develop themselves £30 billion debt cap – for now – may be relaxed? Range of funding initiatives From simple to the complex Development partnerships General Fund on lending New vehicles Sale and leasebacks
21. HA’s - Where are we now? £60bn debt £4bn bond issues 2012 Constrained bank lending – back book How much more balance sheet? Beginning to look at alternative approaches to funding Sale and leasebacks
22. Sale and Leasebacks What is it?? Selling a leasehold interest in return for a lump sum but paying rent for a term of years Recent Examples: Derwent/ Aviva - purchase of 900 social and target rented. 45 yrs. £40m. On balance sheet. Green Square/ Aviva – new build 210 units. £19m. 48 year. On balance sheet. Genesis – M&G. 400 market rented Stratford. £125m. Off balance sheet. Barking and Dagenham – Long harbour/ Laing O’Rourke. 447 units. 60 years. LB Ealing – regeneration to provide 200 units – competition in progress.
23. Sale and Leasebacks – are they a good thing? A competitive market – about 6 – 10 serious players Typically 4.5% initial yield or less - depending on lease term Reliant on organisations covenant Uses asset income more efficiently and no loan to value ratio Other clauses less wide ranging On or off balance sheet – will rules change? Are you confident your net income will cover inflation linked rent liability? Balance of inflation based funding in your portfolio? HCA attitude? Cosmo experience. Social housing?
24. Models of housing provision Social / Target Rent Shared Ownership (NewBuildHomeBuy) Intermediate Rent Discounted Market Sale Purchaser Initiatives – HomeBuy / FirstBuy / NewBuy Affordable Rent – up to 80% market Market rent
25. UK Housing Tenure – More Market Renting? Social housing stagnant Home ownership in decline In-betweeners Market renting expected to increase Policy flexibility Opportunity for social landlords and institutions Quality product Source: Savills, CLG, Survey of English Housing
26. 12yr to 2012 residential investment returns Income return = Net Initial Yield Source: IPD
27. 2012 residential investment returns Income return = Net Initial Yield Source: IPD
28. Outlook: strong prospects: benchmark against local market Source: Savills
29. Finding investment performance - the sweetspot between yield and growth Source: Savills, Rightmove
30. Finding investment performance - the sweetspot between yield and growth Source: Savills, Rightmove
31. Finding investment performance - the sweetspot between yield and growth Source: Savills, Rightmove
32. The starting point for investment appraisal – before stock selection & discount to VP Forecast Total Returns 2011 - 2021 Proportion of Total Return from Rent
33. Identify best locations: market renting and transport
34. Identify the best locations for investment...market rental as % of market Source: Census 2001
35. Identify the best locations for investment...Proportion of population 20 – 34 yrs. Source: Census 2011
36. Identify the best locations for investment...Increase in households in market rental Source: Census 2011
37. Identify the best locations for investment...annual rental growth 2010 & 2011 Source: Rightmove
38. Recent HA buying activity Fizzy Living/ E Thames. Funded by Macquarie Capital. Ambitious plans. 2 blocks so far. L&Q. Parkside Portfolio. £56m. 138 units. High value London. Places for People: £19.m. 281 units in 180 southern locations. Sold by Grainger. Places for People: Remainder of Terrace Hill’s residential portfolio. 900 units. Mids and North. C £70m.
39. HA’s and Market Rental: the future Now funded mainly by borrowing on social assets HA’s with depth and strength can fund this way For how long? Increases risk profile and erodes credit rating? Non recourse entity – with equity slug On lend into it – or borrow direct itself Build scale and track record – 2- 3 years – demonstrate credit worthiness Create long term value based on cash flow – yield shift Extract capital value through (partial) exit to institution Reinvest
40. The debt guarantees - overview Affordable rent/shared ownership £3.5b LTV 80% 115% interest cover Existing assets/equity as security Minimum debt £5m Market Rented £3.5bn LTV 80% 120% interest cover 125% asset cover Minimum debt £10m Up to 30 year term Draw down on Physical Completion Debt secured against legal entity (SPV) Application deadline 31st March 2015 £3bn ‘reserve’ for additional projects
41. Debt Guarantees – likely take up. Cost of funds?? RP’s – can already access low cost of funds for affordable but after initial self funding may see merits of Debt Guarantee for market rental – depends on strings Private Co’s/ For profit RP’s – may chose to retain affordable via For Profit RP. May welcome lower cost of funds – providing no excessive strings. Will not appeal to pension funds etc – they are not debt funded.
42. Housing Led Recovery – investing in the future The wider economy Assets and real estate opportunities Other approaches to funding Market Rental and investment returns Creating an investment market