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RBC sees huge potential in housing rental sector
Published: 2010-05-24 13:11:50
Matthew Houseley, managing director and head of social infrastructure at Royal Bank of Canada Capital Markets, is bullish about private funding for social housing.
"There is huge potential demand in the regeneration sector," he told SocInvest. "We would welcome well-structured propositions."
As the housing sector braces itself for further government cuts and regeneration projects run out of steam or collapse, Royal Bank of Canada maintained that it has an undiminished appetite for funding schemes that meet its investment criteria. That is also good news for local authorities following the slump in land values: the bank's focus on long-term rental streams mean that these values are not a factor in the investment evaluation.
"As we are not looking for sales, we prefer to take land and sales values out of the equation," said Houseley.
"Regeneration and housing have always been a niche market for banks," Houseley added. "But RBC has been a player in this market for many years."
Fifteen years, to be precise, of funding regeneration both through capital markets and bank finance. "We led five of the nine Registered Social Landlord bonds issued in the last two years alone," said Houseley. In addition, the bank has experience of PFI schemes for schools, hospitals, offices and other regeneration schemes. "We take a view on long term revenue streams," he said.
"There needs to be an appropriate approach to risk and reward that is tailored according to the credit quality of scheme," Houseley observed. "Local authorities used to look for lump sums, but they need to be more flexible in the way they view risk and reward." This is where the European-backed JESSICA funding scheme could help, for example: "where authorities are nervous about the risks involved".
There are other factors that the bank weighs in the balance. "Building housing is not massively high risk, but it makes a huge difference having a big name contractor involved to take delivery risk out of the equation and let us concentrate on revenue risk."
Scale matters, too. The bank considers schemes involving £50 million-plus investment. "The most attractive schemes are where the rental is quasi-public sector, for key workers and other public sector employees," said Houseley. "We need to get away from business cases built on sales. We need projects where there are long-term, public revenue flows." Combining local council or NHS offices into a scheme would work well.
As well as having a direct interest in regeneration funding, RBC also supports projects in other ways. "We are happy to be in at the early stage," he said. "Our role is to help to cook the scheme so that it looks attractive to debt investors, even if it is not necessarily funded by us."
There is a lot in the current operation of the social housing market that is unnecessarily bespoke, according to Houseley. Although clearly every regeneration scheme is a local solution, the way each key aspect is dealt with could be more consistent. "We need a common way of dealing with issues such as underpinning key worker accommodation," he said. "Housing needs to be centrally co-ordinated, but recent measures such as local housing companies have failed to improve things. They have tended to be existing schemes that simply adopt the name of a central initiative."
According to Houseley, the driver has to come from government. "To bring in the scale of investment that this sector clearly needs, HCA or a similar government body will need to pull together a coherent national initiative."
Matthew Houseley will be speaking on these issues at SocInvest 2010 on June 16.