Guardian Housing Network

Financing the supply of new housing

[Originally posted at the Guardian Housing Network, 23/05/12]

We all agree that Britain needs new homes. A significant shortfall has emerged over many years and the collapse in construction simply piles on further pressure. Increasing supply is central to dealing with some acute problems facing the housing system.

Simple, but pressing questions follow. Who is going to pay? And how are they going to do it?

The Communities and Local Government select committee addressed this issue in its recent report on housing finance. The report’s premise is that austerity means there is no more public money for investment in housing, so the question is what else might be done. And while many would wish to dispute the premise, that is a debate for a different time.

The report looks across the rental tenures and owner occupation. Some potentially innovative ways are identified, and some well-established themes are reprised. The overall conclusion is that there is no single solution. A range of measures is going to be necessary, and a primary task will be to involve institutional investors who have traditionally steered clear of residential property.

The provisions for home ownership reviewed by the committee are largely those already included in the coalition’s policy agenda: NewBuy; increasing shared ownership; releasing government land; promoting self-build. The committee is broadly supportive, but suggests more could be done to encourage lending to self-builders and self-building at volume. It is proposed that NewBuy should be monitored to establish the scheme’s consequences for the rest of the mortgage market and, in particular, for purchasers who may be risking buying a one way ticket to negative equity.

The measures discussed for the rented sector are broad ranging; if money is going to come from private institutional investors then some long-standing problems need to be tackled.

In the private rented sector investment needs to be at sufficient scale and generate a satisfactory yield. The lack of sector-specific investment vehicles has arguably held back investment for 30 years. Local authority pension funds could pave the way by demonstrating the scope for investment in residential property, while putting local authority land to work in partnership schemes could increase the likelihood of achieving commercial yields.

The committee argues that housing associations have a role in attracting institutional equity investment, which could occur through a variety of routes. In terms of investment vehicles, the Committee sees Real Estate Investment Trusts, Self Invested Personal Pensions and a housing investment as routes worthy of further exploration. Yet technical development of each of these is needed.

Meanwhile, the coalition’s moves under the localism agenda, and arrival of the community infrastructure levy may well have undermined section 106 agreements, which have made a significant contribution to affordable housing provision over recent years by placing demands on private developers to meet local needs.

The self-financing Housing Revenue Account raises new possibilities for sharing and pooling headroom across local authority boundaries, if the government were to allow it. The committee viewed the Prudential Code as a sufficient constraint on local authorities’ borrowing behaviour, so raising the borrowing cap represents a relatively low risk. Here, local authorities have a real opportunity to act. This would represent good value for taxpayers’ money, because councils can raise money more cheaply than other organisations.

However, the committee’s report is interspersed with characteristic comments from our housing minister Grant Shapps. While he indicates support for several of the committee’s proposals, when his comments are taken together they constitute a near systematic rejection of any suggestion that local authorities might play a larger role in dealing with the housing crisis.

If we are seeking to maximise value for money we would look to exploit the asset base and revenue-raising potential of local authorities as fully and creatively as possible. Yet Shapps rejects such possibilities. The Thatcherite hostility to local authorities casts a long shadow; ideology trumps expediency, even in times of acute need.

Image: © illarionovdv –



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