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Source: Room151

Omar Al-Hasso, managing director of Phi Capital Investments, talks to Mike Thatcher about how local authorities are working with private sector partners to deliver more affordable homes.

Government statistics show that the number of rough sleepers in England has fallen to an eight-year low. The picture is improving in every region of the country, and ministers are committed to ending rough sleeping by the end of this parliament.

This is encouraging news, but where are the former rough sleepers now living? Official figures for the number of people in temporary accommodation show a less positive outlook. There were more than 96,000 households in England in temporary accommodation at the annual snapshot in September 2021 – a 1.5% increase on the previous year and part of a long-term upward trend.

Worryingly, those in temporary accommodation include more than 120,000 dependent children, with ‘temporary’ disguising the fact that families can find themselves living in inappropriate housing for many years.

An analysis of expenditure by local authorities in 2020/21 showed that councils spent at least £1.4bn on temporary accommodation. The beneficiaries of this expenditure are often providers of nightly-paid accommodation that, according to housing charity Shelter, are exploiting a “lucrative” private market.

So, what can be done to address the housing crisis? Omar Al-Hasso, managing director of Phi Capital Investments, has been working with local authorities, housing associations and Homes England to come up with innovative ways to deliver affordable housing. He believes that private sector solutions – such as place-based impact investment, joint ventures and partnerships – can help to move more people from rough sleeping and temporary accommodation into long-term tenancies in high-quality homes.

The task is huge. A recent report from Legal & General and the British Property Federation suggested that there were 1.2m households in England waiting for affordable housing and that 145,000 affordable homes are needed each year to meet demand. This is 95,000 more homes than recent annual delivery and would require an extra £34bn in funding each year to achieve the target.

But Al-Hasso believes that there is huge appetite from institutional investors to work with local authorities and housing associations to deliver more affordable housing.

Phi Capital Investments has itself been involved in leading-edge projects, including a long-term leasing agreement with Thurrock Council using its right-to-buy receipts and assisting Homes England to help more than a dozen councils with their Rough Sleeper Accommodation Programme (RSAP) bids. Recently certified as a B Corporation, Phi is also currently raising capital for a new social impact fund.

Al-Hasso discusses what could be done to turn things around and reduce the number of households forced to live in unsuitable temporary accommodation.

MT: How big a problem is the growth in the number of people in temporary accommodation?

OAH: I have visited a number of temporary accommodation schemes, and there are good ones and not so good ones. I have seen some poor ones, and it is certainly not a place for long-term accommodation. There are local authorities that have had families in temporary accommodation since 2011. It is an astonishing indictment of our society now.

The two biggest issues that come up when we speak to councils are the cost of their temporary accommodation and the cost of adult social care. They are the two big drains on local authority finances. Numbers in the millions of pounds are being lost every year to the private sector in nightly-rate accommodation.

Fundamentally, the connection between rough sleepers and those in temporary accommodation is that the rough sleepers who come off the streets move into temporary accommodation. It is the next stage that then becomes key – moving the temporary accommodation people into sustained tenancies.

There are local authorities that have had families in temporary accommodation since 2011. It is an astonishing indictment of our society now.

MT: What have been the most important factors in the reduction in the number of rough sleepers?

OAH: The 2017 Homelessness Reduction Act, which came into effect in 2018, changed local authority responsibilities. Prior to 2018, councils were bound to direct people to housing. After 2018, they had to be able to identify realistic housing solutions for them. Councils didn’t have to provide the housing themselves, but they had to have programmes and mechanisms to start providing the correct housing.

The act is now starting to bite, and programmes delivered. Whilst it is four years on, it does take time to get momentum.

Homes England also has the RSAP programme, with a target of 6,000 homes. There is still a shortage and work going on there. Nationally, every local authority that has needed support to deliver housing for their rough sleepers has been able to get additional support.

MT: How are environmental and fire-safety requirements affecting housing supply?

OAH: Every house in the country is being brought up to EPC level C by 2035 [to meet government net-zero targets]. The capital costs that need to go into that programme are substantial. In fact, some authorities say they only want EPC level A rated, but you can’t deliver that and provide it as affordable housing, so there are a lot of dichotomies.

Fire safety is also high up the agenda, to the extent that some local authorities do not want to take on housing over a certain number of floors.

From a local authority and a housing association point of view, between fire safety and net-zero carbon demands, the diversion of funding that is going to meet those essential programmes is restricting the growth of housing on the other side.

MT: The L&G/BPF report suggested that 145,000 affordable homes are needed in England each year. How could that happen?

OAH: The report showed that the full capacity of all registered providers, including local authorities, is in the region of 70-80,000 homes each year. So only about 50% of what we need can be delivered by the public sector using debt and grant and all the normal mechanisms.

There is a shortfall. The advantage right now is that there is huge appetite from institutional investors around investing equity and debt into social housing. There is a recognition that the demand outstrips the supply.

There are new models of structuring and delivering that are coming through. On the flipside, local authorities and the public sector generally are risk-averse bodies. They want a tried and tested system and are reluctant to be the guinea pig. So there is a lot of creative thinking going on about how you pull this together – how do you prove that it works? Who is taking the risk? Who is getting the reward?

There is huge appetite from institutional investors around investing equity and debt into social housing. There is a recognition that the demand outstrips the supply.

MT: What type of institutional investors are involved?

OAH: They are primarily pension funds and a big cohort of those is local government pension funds. Right now there is a driver for more social impact, with new regulations on pension funds having to report their social impact – so they are focused on social impact funds and how to create more housing.

Fundamentally, we need more housing. There is a lot of talk about planning and the restrictions that planning places on the delivery of more housing. I don’t know the exact statistics, but there are thousands of consented schemes out there that are not being built. I’m sure planning could be improved, but there is plenty of land out there with planning that needs the right funding structures to put in place to bring those schemes out of the ground.

When local authorities or housing associations stand behind the structure of securing that delivery of housing it takes a lot of the risk out of the piece of land being developed. It can then attract different types of capital, providing alternative ways of funding and delivering more housing.

MT: How important is place-based impact investment?

OAH: Place-based impact investing [where investments are made in local developments with the intention of gaining both financial and social or environmental returns] is a no-brainer. If you are a local government pension scheme and you are collecting premiums from local people, you can reinvest in their community. Housing is a massive multiplier – you’ve got local employment and apprentices, getting people off the streets into stable accommodation and kids into stable schooling.

Our social impact fund has been designed in the first instance to work with Greater Manchester Combined Authority and the Ethical Lettings Agency on delivering up to 1,000 homes under a leasing structure going back to the Ethical Lettings Agency. That’s ten councils and six housing associations identifying housing in the open market that will be upgraded to the right Fit to Let standards and made available on 10- to 12-year arrangements.

That would allow them to be able to move on people living in temporary accommodation into fit-for-purpose homes. But that work going into Manchester is required across the country.

Place-based investing has got to be the penny that drops for people. We are embryonic on this – it is going to take a bit of time to realise that.

MT: What other private-sector models are there?

OAH: There is a lot of innovation out there. When the conversation comes round to public private partnerships it often centres on funding and on where risk sits. Who is putting the money in, who is getting the return? But from our point of view, the funding almost comes second. There is enough funding out there if you can get the model right – whether it is public sector borrowing through the PWLB or going to institutional, LGPS or other private pension institutional investors and attracting capital there.

There are different things that are going on – including partnerships and joint ventures in development, setting up companies to buy housing and hold over the long term, short-term leasing, or income strip leasing (the 40-year leases where properties revert to the ownership of the local authority).

One key area where we have been able to help councils is leveraging technology and improving efficiencies (we have a prop-tech platform called Iris), to allow councils to transform the way they tackle the private housing market. Sometimes it is about additional resources, expertise and tried and tested processes that can make a real difference, not just capital funding structures.

From our point of view, the funding almost comes second. There is enough funding out there if you can get the model right.

MT: What will happen in the future?

OAH: It is going to take some more work to get there, but already you can see over the last two or three years there is more and more private capital coming into the affordable housing market in lots of different ways. That is only destined to grow because private capital is attracted to this market and this market needs the private capital. It is making it work in the middle for both sides that’s key.

Source: Room151

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