The Government’s announcement of the allocation of the first £10 billion allocation from the Social and Affordable Homes Programme (SAHP) has been widely welcomed across the housing sector.
The funding is expected to support the delivery of more than 70,000 new social and affordable homes over the next 10 years, with a significant focus on social rent. The biggest challenge for many Registered Providers (RPs) will be the practical challenge of converting those allocations into homes and Homes England will be monitoring RPS with tighter controls expected.
Challenges
Recently many RPs have been forced to balance ambitious development targets against increasing regulatory requirements, building safety costs and financial pressures so the announcement represents a genuine opportunity to increase housing delivery. Those involved in affordable housing development (or development of any kind for that matter!) know that funding has never been the only issue and is only one piece of the puzzle.
RPs and developers are often faced with challenges around navigating:
- Viability of schemes (including value for money and complying with grant funding conditions)
- Planning being unpredictable
- Rising build costs and challenging market conditions
- Changes in legislation and the impact on contractual arrangements (Awaab’s law being a hot topic at the moment!)
- Infrastructure constrains
- Projects stalling because of title issues, access problems, overages/restrictive covenants or delays securing consents.
In our experience, schemes rarely run into difficulty because the issue could not have been addressed, but instead it is often because a problem is discovered too late in the process. None of these issues are necessarily a deal-breaker but identifying them early can help to avoid significant and costly delays. The key is often understanding the legal and practical issues that could affect viability early on and is much more than simply finding land and agreeing the headline terms.
We are regularly involved with identifying issues early on and often at the heads of terms stage such as:
- Rights of access that are inadequate for development purposes;
- Historic covenants that restrict residential use;
- Third party land ownership issues;
- Overage obligations which need to be varied/removed or may affect the value of the land;
- Utility and infrastructure constraints; and
- Title defects that affect funding or charging arrangements.
There may be opportunities to broaden the pipeline – SAHP provides scope for RPs to consider utilising funding for a proportion of allocated open market homes to instead be used for affordable housing.
Greater collaboration across the sector
The scale of the SAHP programme is also likely to encourage greater collaboration across the sector. We’ve already seen a number of significant mergers and partnerships of late and RPs, local authorities and developers are increasingly looking at innovative delivery models, including package acquisitions and strategic development agreements. These arrangements can unlock opportunities that might not otherwise be proceedable, but they also bring additional considerations around risk allocation, governance, funding requirements and long-term management responsibilities. Getting the structure right at the outset is often as important as negotiating the commercial terms.
Accessing funding
Continuous Market Engagement (CME) remains an important route for eligible providers to access funding and bring forward individual schemes and portfolios for those RPs who are not strategic partners – the announcement of strategic partners does not mean that other RPs are excluded from SAHP. The challenge with this will be putting forward deliverable schemes that demonstrate value for money and align with the objectives of the programme. Legal due diligence will continue to play a critical role in determining which projects reach completion. At Stephens Scown, we are already advising many RPs, local authorities and housing delivery partners and have a vast amount of specialist social housing sector knowledge. Whether acquiring a single site, negotiating a strategic land transaction, securing funding requirements or managing a large development programme our Social Housing team help our clients address title issues, structure acquisitions, negotiate development agreements and satisfy funding requirements. We help to identify risks early, find practical solutions and keep projects moving to enable RPs and others utilising the funding to meet their targets. We recently got into contract on a scheme within six weeks of instruction demonstrating our ability to deliver efficiently when timing is critical. Please do get in touch with us if you would like to discuss further.
This article was written jointly by Kate Westlake, Partner and Jess Lewis, Associate in our Social Housing team.