The struggle to entice institutional investors into private rented housing appears little closer to success than a decade ago. But these same reluctant debutantes have quietly built a massive stake in the seemingly less attractive social housing sector.
Nearly 7.5bn pounds of private finance has been raised to back the transfer of more than 480,000 homes from local authorities to new landlords and the pace of sales is accelerating almost monthly
Two massive transfers involving almost 16,500 homes recently kicked in at Tameside in Manchester and Newcastle-under-Lyme. Another 23 are planned by the end of next year, ranging from almost 30,000 homes in Walsall to just over 600 in Barnsley.
Even this fails to show the tremendous potential, says Jeremy Wood, divisional director at the Nationwide, which is backing the Tameside deal with loans of up to 250m pounds. 'It might appear that a lot has already been done but only around a third of social housing has been transferred,' he says.
Outsiders might wonder why anyone would be interested. Council housing has been a black hole for decades, soaking up any amount of money government throws and still ending up castigated for poor management and living conditions. It is the main reason New Labour has been so enthusiastic about reversing its traditional arguments against stripping councils of their assets.
But to banks and building societies, these chunky deals are made in heaven. They are almost guaranteed income earners. 'If you assume that 65% of tenants will be receiving housing benefit, that produces a quality cashflow underwritten by government,' says Wood.
In other words, lenders will receive rents if tenants are employed and benefits if they are not. In the unlikely event that a social landlord goes bust, there is still the bricks and mortar, which in a rising market will be worth far more than the price local authorities are getting for their stock.
It was the logic that drew lenders into housing association funding as government grants were gradually withdrawn. The last detailed breakdown of lenders produced by the Housing Corporation showed NatWest heading the league for 1997/98 with 1.83bn pounds, followed by the Halifax (1.4bn), Nationwide (1.35bn) and Abbey National (1.3bn).
Now registered social landlords have added another layer of activity, taking on council housing as well as developing their own. Some are existing HAs although ironically, many are being spun off from the very local authorities that are selling out. In Coventry, for instance, the city council is providing the core staff for Whitefriars Homes, which is scheduled to take over more than 22,000 homes later this year.
The big lenders are not concerned about who runs these bodies, however - merely that they are efficient and income is soundly based. Top banks like NatWest, Barclays and the Halifax have already committed more than 3.5bn in loans, with building societies producing another 1.7bn, according to the annual private finance monitoring bulletin produced by the National Housing Federation and The Housing Corporation. More than 100 institutions have become involved, with the capital markets providing a quarter of funding for traditional social landlords and 5% of the funding for social transfers. Total bond issues have exceeded 3bn pounds, of which 440m was raised in the year to March, says the bulletin.
The Nationwide and Halifax alone have invested around 2.5bn pounds each in social housing. This compares with Nationwide's commercial book of around 6bn pounds - which is an apt comparison, says Wood, as these loans are run within his commercial department rather than lumped in with conventional residential mortgages.
The Halifax was joint backer with Barclays of the Newcastle-under-Lyme deal. Head of housing finance Ceri Richards agreed with Wood that stigma about council housing plays no part in the process. 'This is a very low-risk sector,' she says. 'There has been major loss in ten years. Perhaps the only one is that people may not wish to live in certain parts of the country.'
But this can be fed into assessments. Portfolios are analysed like any other, she says, with valuers deciding the rates based on hard evidence of condition and cashflow. Repairs can be a significant factor. The Bradford & Bingley, for instance, is reported to be lending 173.5m pounds to fund Richmond Council's transfer of almost 9,000 homes, of which 100m is said to be for repairs. The building society is unusually coy about revealing details of its activities, however.
The best indication of how attractive lenders find these deals is the paper-thin risk margin they apply. Premiums on loans run at only 50-60 basis points above base rates even in major northern cities one might think are blighted by unemployment. A Home Counties transfer might carry no premium, says Wood.
The NHF/HA bulletin found that new variable-rate loans in the year to March averaged 0.534% above base and fixed rate borrowing was charged at an average 6.7% (long-term), 6.6% (medium) and 6.5% (short) - figures that would dismay neither an owner-occupier nor prime commercial property investor.
Putting this enthusiasm for investment together with the still-untapped residue of social housing shows the potential for a massive new finance market. Robert McDowell, a director of DTZ Pieda, which has been advising around a dozen councils in Scotland, points out that part of the iceberg spreads north of the border. Housing transfers have still not started there, as the Edinburgh Parliament's consultative Green paper was launched only a couple of months ago.
If tenants give the go-ahead in ballots over the next year or so, a potential 600,000 homes spread across more tan 30 Scottish councils could be sold. This would require between 2bn and 4bn to finance, says McDowell. Wales has also barely scratched the surface, with only a few smallish transfers under way. Wood estimates that across the county some 30-35bn pounds worth of property is still to come to the market.
Councils have not always welcomed the idea of giving up their last major assets, says McDowell. But even the die-hards are crumbling under the difficulties of maintaining stock when borrowing is restricted by central government. They can also write off hefty historic housing debt by these transfers - and still retain a role by setting up their own RSL to bid for their own property.