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Over the last year, GK have provided political, policy and regulatory risk analysis advice on several deals across the housing sector, ranging from the private rented sector to social housing. This increase in deal flow in the sector reflects that in recent years, private investment has plugged a much-needed gap in the affordable housing supply.

In light of Theresa May’s announcement at the Conservative Party conference that she would lift the cap on councils borrowing against their Housing Revenue Account, the question for investors is to what extent councils take advantage of this flexibility to solve what May has described as ‘the biggest domestic policy challenge of our generation’, and what role the private sector has to play in delivering new affordable housing.

Forty years ago, local authorities were responsible for nearly half of new house builds in the UK; over time, the proportion has decreased as government policies on social housing have changed. During the Cameron and Osborne years, the emphasis was on affordable housing and ownership schemes. So much so was the onus on the private sector to build social and affordable housing that the Coalition Government halted funding for social rent. Since then, several investment funds specifically focussed on social housing have been floated on the stock market to provide capital for registered providers of social housing, and private equity house, Blackstone, famously acquired a 90% stake in Sage, a for-profit social housing provider. Private investor involvement has arguably been encouraged by the restrictions on local authorities who have often felt constrained in their ability to respond to local housing need.

More recently, the Government has attempted to diversify the market by incentivising SMEs and housing associations through extension of the Affordable Homes Programme, set out in the ‘Fixing our broken housing market’ white paper.

However, while the local authority borrowing cap may have been lifted, it is unclear what this currently means for the market. The Office for Budget Responsibility estimates that by 2023/24, councils will be able to borrow an extra £1.2bn to deliver 20,000 new homes; exactly how local areas approach planning for and developing the homes they need with this additional borrowing capacity remains to be seen.

The fact still remains that nearly 80% of the housing budget up to 2020-21 was comprised of schemes engaging in some way with the private sector. From the Government’s perspective, private investment in developers – as long as they comply with affordable housing quotas set by boroughs – is not only necessary to provide the much needed supply of new builds, but preferable to public money going to private landlords in the form of housing benefits.

Isabelle Hillson, Policy Analyst