Improving valuations and unlocking sector capacity Speakers: Chair: Richard Petty Lead Director, Affordable Housing, Jones Lang LaSalle Carol Matthews Partner, Social Housing, Wright Hassall Andy Smith Director of Valuation, Housing Division, Savills Anthony Hilton Financial Editor, Evening Standard
40 35 A ctual Forecast 30 Number of units (0 0 0 s) 25 20 15 10 5 0 2008 2009 20 10 20 11 20 12 20 13 20 14 20 15 20 16 Completions
How to maximise Value and the S133 Issue Carol Matthews Partner, Wright Hassall
How to get maximum value from stock? Need to elevate from an EUV valuation to MV-STT by: No affordable housing restrictions on title; No personal planning permissions; S106 Agreements with acceptable mortgagee exemption provisions which are that affordable housing provisions should Not bind a mortgagee, chargee or a receiver and their successors; Any obligations to try to sell back to LAs or other RP must be within a period of three months or less.
Get your ducks in a row Work with the NHF which is pioneering new initiatives to streamline the charging process; Do a tidy of your rent roll HCA out to consultation on living wills so you have to do it; Allow twice the time you think you need to sort your property lists for in charging exercises esp Bonds and PPs; Vary your old S106 Agreements to elevate your valuation; Work with the Valuers as a team so you all use the same list; Support the initiative about the S133 restriction if you have LSVT stock!!
The current scenario the S133 Issue 2 different categories of RPS Traditional RPs LSVT RPs BUT they do not have a level playing field in asset valuation
Why is this? All RPs have a restriction on disposal under s172 Housing and Regeneration Act 2008 Consent to disposal needed from HCA This falls away from title on disposal including sales by mortgagees in possession
The S133 Restriction Feature of the LSVT regime; Local Authorities had certainty that stock would be protected as affordable housing. RESTRICTION: No disposition by the proprietor of the registered estate or in exercise of the power of sale or leasing in any registered charge (except an exempt disposal as defined by section 81(8) of the Housing Act 1988) is to be registered without the consent of the Secretary of State to that disposition under the provisions of section 133 of that Act
What is different about an LSVT RP? All properties transferring by virtue of an LSVT have the additional restriction on the title under s133 of the Housing Act 1988 RPs need consent to disposal under this restriction from the Secretary of State BUT under s133(2) the restriction does not fall away on sale by mortgagee in possession
What does this mean in valuation terms? RP stock is valued under the RICS red book as either: Market value subject to tenancy (MV-STT) stock valued subject to a tenancy but not limited to social housing; Existing use value (EUV) assumes properties will be re-let as social housing Valuers always value stock with an s133 restriction as EUV.
What can be done? Move afoot to change the impact of s133(2) restriction Supported by NHF and CIH Treasury interested in proposal Consultation promises to tenants on LSVT will not be affected Can be done by: Legislation General consent provisions
The on-going debate May not elevate LSVT stock to MV-STT Loan agreements may prohibit this valuation Funders/valuers may take the view still EUV due to size and density could be EUV basis 2 45% of MV Local authorities may object
Improving valuations and unlocking sector capacity NHF Treasury Management Conference, 30 Euston Square, London Andy Smith, Director, Valuations Savills 8 th October 2014 savills.com
UK Housing Tenure More Market Renting? More intermediate tenures? Social housing stagnant Home ownership in decline In-betweeners Market renting expected to increase Policy flexibility Opportunity for social landlords and institutions Quality product Proportion of dwelling stock in England (%) 80% 70% 60% 50% 40% 30% 20% 10% Home ownership Social housing Opportunity? 0% 1918 1940 1950 1960 1970 1980 1990 2000 2010 2020 Source: Savills, CLG, Survey of English Housing
The Housing Association world is changing HA s moving into private renting and build for sale Internal cross subsidy Becoming providers across all tenures JV s/ investment partnerships Looking at assets (honest) Bogged down in low value areas Privately Owned HA s - For Profit RP s 2013: 25 registered; 10 in pipeline, some substantial Range of innovative forms of Affordable
Change Drivers: Political Government messages to RPs build additional homes, and value for money or merge and let someone else use the asset base HCA wants a smaller number of larger partners and delivery of the agenda More Welfare Reform Additional uncertainty in HA capital and revenue income stream despite CPI plus 1% rent settlement Univ Credit cap not helpful so make max use of resources
Housing supply lessons from the past? Private Enterprise Housing Associations Local Authorities Private Completions Potential New Housing Completions in England 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 Supply gap over and above private sector construction filled with market rent & affordable housing?? 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: DCLG +Savills
Government plans to deliver 165,000 affordable homes between 2015 and 2018 Affordable Homes Programme - HCA Funding for new homes at 80% market rents. Up to 2015 allocated. 1.7bn 2015-18 To hopefully fund 165,000 new homes 75% of grant if on site pre March 2015 Affordable Homes Guarantee Programme - HCA Government debt guarantee to bring down the cost of borrowing for new homes. Approximately 220m has so far been allocated out of a 350m fund to be spent by 2017. But Starts down by 5,650 in 2014 Enthusiasm of HA players? Level of grant? Regulatory burden? Affordable Rents = more risky than Target Rents?
Are we clear about our objectives? Low and affordable rents Good quality well managed homes House maximum number of people Build more Housing Community initiatives Ok - let s use the profit approach to help us meet our objectives
Why is the profit motive good for Housing? Higher surpluses Greater financial capacity More money to spend on meeting objectives Make the right compromises Use finite resources more effectively The key is what you do with the profits
EUV-SH or MV-STT How do they differ? 300,000 250,000 200,000 150,000 100,000 VP MV-STT EUV-SH 50,000 0 New House New Flat 1930s House 1970s Flat
What does that mean in terms of s? EUV-SH MV-STT VP Asset Value 1m 2m 3m Loan to Value 1.10 1.25 N/A Amount Borrowed 909,000 1,600,000
Existing Use Value for Social Housing Key Factors Affecting Valuation Assumes sale to another RP only Social / target / affordable rent levels Rental growth Condition costs to repair / maintain Discount Rate (All Risks Yield)
Market Value subject to Tenancies Key Factors Affecting Valuation Assumes Mortgagee in possession Move from Social/Affordable to Market rent levels Active Asset Management Opportunistic sale of voids/break up Yield required by investor
Does location matter? YES! In some parts of the Country, MV-STT and EUV-SH will be the same It s all in the Rents!
Does location matter? 160,000 140,000 Average Max Bid by Local Authority 120,000 100,000 80,000 60,000 40,000 20,000 0
Price movements for VP s, MVSTTs and EUVSH - illustration 1800000 1600000 1400000 1200000 1000000 800000 600000 MV-VP MV-STT EUV-SH 400000 200000 0 1 2 3 4 5 6 7 8 9 10
Uplift above Base EUVSH by type Tenure % EUV-SH Extra Care 81% General Needs 137% Mixed Lots 130% Housing for Older People 138% Intermediate Rent 100% Shared Ownership 81% Sheltered 128% Supported 165% 127% 15k per unit released for new development
So what does this tell us? What are we being asked to value? Its all in the lotting! Market Evidence points to latent headroom in EUV-SH values MV-STT is a higher value but LTV? Funders Attitudes
Thank you Andy Smith Director, Valuations Savills, 33 Margaret Street London, W1G 0JD +44 (0) 20 7409 5993 +44 (0) 7967 555 480
Improving valuations and unlocking sector capacity Speakers: Chair: Richard Petty Lead Director, Affordable Housing, Jones Lang LaSalle Carol Matthews Partner, Social Housing, Wright Hassall Andy Smith Director of Valuation, Housing Division, Savills Anthony Hilton Financial Editor, Evening Standard