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The Maths

We crunch the numbers


As part of WSP’s Big Housing Debate, our report Building Our Way Out of a Crisis  includes a look at the numbers involved in building on municipal air space, and suggests a couple of funding options, below.

The commercial and financial aspects of the concept will differ with each specific opportunity, but we believe that there are two broad themes upon which the concept can be feasibly considered:

1.  Create a long-term investment opportunity by aggregating private rented sector (PRS) income;


2.  Create an affordable housing partnerships platform between the public and private sectors, using a concession based financing model to offer affordable housing at between 50 – 80 per cent of private sector rents.

Private rented accommodation (PRS)

The solution follows the traditional PRS model but with the public sector land owner acting as the project developer working with a funding partner to forward fund the project.  Based on our initial calculations there is potential for an income yield on the development costs of around 4 per cent per annum, on the assumption of an all equity investment.  Clearly each site will have different cost, income and yield drivers but the concept is that generating rental income and balance sheet value from existing land assets within London whilst also adding to the stock of housing on the face of it seems to make obvious sense to explore in further detail.

Affordable housing partnership

The idea for this solution comes from project experience with Long Harbour Ltd, who recently delivered the first fully privately financed affordable housing solution in the UK providing 477 units in Barking & Dagenham. 

The basic theory is that the project development is forward funded by investors on a concession financing basis and once completed, each property is rented out at between 50-80 per cent of local market rates, with the investors being paid after voids, insurance, management charges, lifecycle and service charges from the net rental income generated over the concession term.

Whilst there are many commercial nuances, this model removes the construction development risks and obligations from the public sector. At the same time this enables the retention of freehold ownership of the asset for the entire investment period, together with complete control over its operation and management. In addition, the public purse will also benefit from surplus rental income after all servicing costs, including finance have been made. There is a further benefit in that when the concession expires, the residential units remain unencumbered to the public sector, retaining 100 per cent of the capital value created.

There is a potential risk that any significant changes in the rental market could reduce the rental yield for the public sector, although with the flexibility to reduce the rental discounts and move toward a full PRS model, this can be significantly offset. 

Clearly this idea requires a more complex commercial and contractual transaction, but it has already been proved to work and represents an innovative solution to the challenge of delivering more affordable housing in London.

Take a look at the housing report here and read the rest of our housing debate research using the headings below:

What Londoners think

The reality- case studies

The industry view

The design

The research

The report

The environment

The Politics