LONDON — Housing association L&Q is close to a deal to buy private land business Gallagher Estates for £500 million, according to the Financial Times.
The deal represents a shift in business for the housing association, a non-profit body that’s main aim is to provide low-cost housing to people who struggle to otherwise rent or buy.
Gallagher Estates, owned by Tory party donor Tony Gallagher, is in the business of what’s known as “land banking” — buying up prime bits of land and securing planning permission before selling the land, ready to build on, to a developer.
The FT reports that L&Q will continue to run Gallagher Estates as a stand-alone land banking business, supplying land to itself but also other commercial developers. It will use funds from the commercial activity to subsidise its social housing operations.
The move comes after sweeping cuts to the social housing sector that have forced many housing associations to pursue more commercial opportunities to fund themselves.
Former Chancellor George Osborne cut social housing funding by 60% in his first budget in 2010, asking renters to make up the difference by paying higher monthly fees.
Osborne then announced in his 2015 Budget that housing associations would have to cut rents by 1% each year up to 2020, in a bid to stop the government’s housing welfare bill escalating (many people in social housing receive housing benefits.)
This has the knock-on effect of making it harder for housing associations to build more social housing, as most borrow against future rents to fund their building. The Office for Budget Responsibility estimated at the time that the government’s planned rent changes would lead to the construction of 14,000 fewer affordable houses by 2020.
As well as pushing housing associations into more commercial areas, the government cuts have led to mergers in the sector as providers look to pool resources. L&Q merged with East Thames last year. L&Q owns 90,000 homes across London and the South East.