This is the third in the series of insights looking at funding options for retrofit and regeneration works. In this insight we consider development as a method of raising finance which is particularly important because of the serious financial pressures Registered Providers (RPs) currently face.

Whilst the cost of retrofitting will vary from entity to entity, it is clear that the majority of RPs are under financial pressure to improve the efficiency of their stock to EPC C or above as part of the Clean Growth Strategy. It is estimated that the cost of decarbonising housing association stock in England by 2050 could run to £36 billion. This will naturally create a conflict between covering the costs of retrofitting and utilising the funds for more development acquisitions to meet the ever-increasing housing targets.

There are a number of different ways that development can be used as a method of raising finance to help alleviate such pressures:

• Identifying sites within the ownership of the RP that are ripe for development whether that be as bare parcels of land, disused garage sites and/or regeneration projects of existing stock.
• Obtaining full or outline planning permission for void sites and selling these with the benefit of planning permission.
• Arranging for the RP’s development arm to carry out the development work by reducing the cost of the development and using the proceeds to carry out retrofitting to the existing stock.

Obtaining planning permissions and selling land

Obtaining full or outline planning permission is an option for RPs that may wish to sell land for profit without undertaking the development of the land.

Smaller sites

It may be commercially favourable to obtain full planning permission as this will present a more straightforward opportunity for smaller developers who may not have the full expertise and in turn maximise the profits for the RP.

Larger sites

The RP may wish to obtain an outline planning permission only to provide flexibility for the buyer to submit the reserved matters application. The sale can be agreed through private treaty or auction sales and we would recommend this is discussed with a valuer to ascertain the best method to obtain the higher value for the sale of the land.

Once planning permission is granted the RP may want to pursue alternative structures for the proposed development, for example pursing a joint venture with a construction partner if the RP does not have all the required skillset within its organisation. This may prove a successful method for raising finance for both the construction partner and the RP.

Regeneration schemes

Whilst the traditional avenue is to employ an external party, there is merit in the RP carrying out the development using the RP’s development arm to execute the build to better standard and to reduce the costs of employing an external contractor. This will generate new cash receipts from the proprieties built that can be put towards retrofitting costs.

Although it may seem favourable in the short term to use funds within an RP’s organisation for retrofitting costs to deal with the immediate issue, it is clear that, for the long term to have a steady source of rental income and tackle the housing crisis, it is imperative to make sure funds are also used for the development of new affordable housing to cross-subsidise the costs of retrofitting.

Why is this important?

RPs may wish to evaluate their stock to earmark certain parcels of land for sale and/or development and/or regeneration to help boost the RP’s financial reserves. Capsticks would be happy to assist in advising on potential issues with such parcels of land and any restriction on development and/or sale.

How Capsticks can help

Capsticks aims to be the firm of choice to RPs, offering a full service across corporate and securitisation, development and planning law, housing leasehold and asset management. We can provide advice and assistance on changes discussed above and any updates that come in the future on this topic.

If you have any queries around what's discussed in this article, and the impact on your organisation, please speak to Rita Saadeh to find out more about how Capsticks can help.