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19 Mar 2019

The need for housing associations to double their development programmes to as many as 100,000 homes per annum over the coming decade in order to meet government targets has led to a large-scale shift in focus of how those properties are funded.

Increasingly there is power in numbers. Prior to the government selling off the council houses in the 1980’s, local government was the largest and most established provider of low-cost rental housing. Today, housing associations hold that status. Individually, they can struggle to raise the funds required to build new homes due to their individual creditworthiness, but pooling their resources is working in their favour to give them access to the money required to meet their targets.

For many years housing associations have been a strong investment, owning thousands of properties that generally speaking, increase in value. As the saying goes – the investment is as ‘safe as houses’. So why then do HA’s individually struggle to get access to preferential bond rates that their corporate counterparts enjoy?  Statistics from Bloomberg have shown that HA bonds consistently trade at a discount. In some cases, housing authorities can have an excellent A1/A+ credit rating – the same as a large corporate company such as Siemens for example – but the HA will have anywhere between a 0.5 and 1% bid yield shortfall next to such a company. It happens across the board, HA’s lose out to their corporate counterparts even though they have unshakable credit ratings. The reasons for these shortfalls is much debated, but it’s encouraging to see that the sector is recognising it’s losing out and taking positive action to redress the balance.

Today there are a number of bond aggregators – the latest of which is MORhomes. It has recognised that securing preferential rates to government bonds is more successful when HA’s put their heads together. It has refocused the push for HA’s to pool their estates as resources to borrow against and secure the preferential rates many feel they deserve. Bond market access is much easier when there’s power in the numbers, and not only does it redress the balance between corporate entities and our housing associations, it also redresses some of the inequalities between the HA’s themselves. Some receiving preferential rates where others do not.

The benefits go beyond just the rate too when using bond aggregators – there is speed of access, price certainty and flexibility on amount, a transparent credit process and allocated debt limit. Further, there are no financial covenants, no rating required, security efficiency and flexibility and minimal restrictions on use of funds for HAs.

If the sector truly wants to deliver on as many genuinely affordable homes and meet government targets, it must work in unison and deliver on a strategy to raise capital collectively via bond aggregators. Only then will their strategy for funding be truly as safe as houses.

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