Social housing and council housing are very often spoken of in the same breath but in reality they are very different. Social housing, often run by housing associations and not-for-profit groups, is effectively an offshoot of council housing finding homes for individuals and families in need. Only this week we saw Civitas Social Housing, a company listed on the stock market, announce plans to raise an additional £350 million of equity to buy stock from housing associations to provide affordable homes. It is believed the company has also earmarked in excess of £500 million of investment over the next 12 months to expand its portfolio of “social housing”.
Housing associations are desperate for liquidity
Companies such as Civitas Social Housing seem to have found a niche in the market place where they are able to buy properties from housing associations who are often desperately in need of liquidity. It would be interesting to learn whether these properties change hands at the going market rate or because of the desperation for liquidity any discount is offered. The properties are then managed on long-term leases, often through third-parties, to help local authorities meet their housing requirements.
The type of tenancy agreement signed by someone living in social housing and someone living in council housing are different. Under traditional council housing agreements there is a legacy arrangement whereby those living in the property for more than 12 months can take on the tenancy in the event of the original tenant(s) dying. It is also worth noting that social housing, whether held by the local council, housing association or a third party, is partly funded by government housing benefits. This allows the properties to be offered at below market rents with top ups from government funding.
The social housing element of the property market has grown significantly over the last few years with more and more local authorities looking to outsource their housing requirements. This takes away many of the problems and costs associated with difficult tenants, repairs and clears the path for additional investment and grants. However, these issues will be reflected in the arrangements between companies holding social housing stock and local authorities. The idea that social housing and council housing are one and the same is a myth and when you bear in mind that social housing companies are raising hundreds of millions of pounds on the stock market, they will need to recognise a profit in the longer term.
Why outsource local authority housing services?
Historically we know that local authorities are not the best when it comes to running business like affairs such as council housing, from the initial build to the management. Issues such as the “right to buy” have literally cost local authorities across the UK hundreds of millions of pounds with properties sold to their tenants at below market rates. Such arrangements are not in place where social housing is concerned and while some people may not like the idea of private run companies making money from social housing, there is a need for this type of housing to be run on a professional basis.
This is a market which is set to grow and grow although unfortunately the indications are it will not grow quickly enough to fulfil all local authority housing requirements with 4.5 million people currently on the local authority housing list. These figures will encourage social housing companies to acquire more stock and work with local authorities because in effect this is guaranteed income – part and sometimes fully funded by the state.