Conclusions and recommendations
Private investment
1. We
heard about a number of steps that public sector organisations
can take to encourage institutional investment in the private
rented sector, addressing the key barriers of scale, suitability
of stock and yield. We recommend that all public bodies, both
local and national, consider the potential for contributing their
land alongside institutional finance to support build-to-let initiatives.
We urge local authority pension funds to be alert to the benefits
of investment in residential property, whilst ensuring transparency
and security for their investors. We would hope that their doing
so would pave the way for private funds also to invest in residential
property. Finally, we encourage local authorities to consider
taking a flexible approach to affordable housing requirements
in planning obligations on a case-by-case basis, where this will
help to stimulate build-to-let investment and will not be to the
detriment of the wider housing needs of the area. (Paragraph 22)
2. Housing associations
should play a role in attracting institutional equity investment,
either by expanding into market renting and providing the economies
of scale required by investors or by using finance from institutions
to bring investment into social rented housing. We encourage housing
associations to explore such opportunities and to establish a
dialogue with potential investors. (Paragraph 26)
Real Estate Investment Trusts (REITs)
3. We
recommend that the Government put in place measures to address
concerns about the distinction between trading and investment
specifically in the context of residential REITs. We further recommend
that the Government allow the creation of private, unlisted residential
REITs. (Paragraph 32)
Self Invested Personal Pensions
4. Self
Invested Personal Pensions could provide another source of finance
for rented housing. We recommend that the Government look in detail
at the contribution SIPPs could make and the risks and benefits
for those investing in SIPPs. If satisfied about these risks and
benefits, it should bring forward proposals to facilitate their
investment in residential property. (Paragraph 34)
Housing Investment Fund/Housing Investment Bank
5. We
support the establishment of a pilot housing investment fund run
by housing associations, and recommend that, in discussions with
the National Housing Federation, the Government explore how it
can give its backing. The pilot should consider the viability
of a fund, its ability to attract investment, and any risks to
the Treasury arising from Government support. Subject to the success
of the pilot, the fund could be increased in scale. We further
recommend that the Government work with the Confederation of Cooperative
Housing on the Confederation's proposals for an investment fund.
(Paragraph 40)
6. We consider that
there is merit in the suggestion that a national housing investment
bank be established. In other European countries such banks have
proved effective at channelling investment into new housing development.
The work already underway to create a Green Investment Bank offers
a useful opportunity; there is a clear case for allowing this
bank to invest in housing as well as green infrastructure. We
recommend that the Government consult on proposals for the extension
of the Green Investment Bank's remit to include the funding of
new housing and, potentially, of wider infrastructure projects.
(Paragraph 41)
Private Rented Sector
7. We
recommend that the Government bring forward a set of proposals
to simplify the tax and regulatory structures that apply to private
landlords. These proposals should aim to create an environment
in which small private landlords are encouraged to expand their
portfolios and invest in new build housing. (Paragraph 46)
Affordable Housing Delivery
8. It
is important that local authorities are fully signed up to the
delivery of the Affordable Homes Programme within their areas.
The Homes and Communities Agency should work with councils to
ensure that any concerns they may have, for instance about the
affordability of rents, are addressed. (Paragraph 50)
9. We recommend that
the Government, before the end of 2012, bring forward proposals
for delivery of affordable housing post 2015. These proposals
should recognise the need for housing available at both "social"
and "affordable" rents, each with a separate allocation
system. They should aim for a rebalancing of subsidy arrangements
away from housing benefit and back towards "bricks and mortar";
this would give rise to a number of immediate problems which the
Government would need to address. Finally, the proposals should
consider how housing associations can be encouraged to invest
in new housing without stretching their capacity to the extent
that they do under the Affordable Rent model. (Paragraph 60)
Section 106 Agreements
10. We
recommend that the Government, at the earliest opportunity, clarify
the relationship between the Community Infrastructure Levy and
section 106 agreements, and how together they can be used to maximise
affordable housing delivery. It should take care to ensure that
the introduction of CIL does not lead to a reduction in the number
of affordable homes delivered through contributions from developers.
(Paragraph 66)
11. We recommend that
the Government leave local authorities to decide whether or not
to reopen section 106 agreements in cases where development has
slowed down or stalled. (Paragraph 67)
Direct Payments
12. We
remain concerned about the potential impact of direct payment
arrangements on the finances of social housing providers. There
is a clear risk that these arrangements will have a detrimental
effect on providers' capacity to invest in new housing supply.
They could also create uncertainty amongst those providing finance,
leading to increases in the cost of borrowing. We welcome the
Government's commitment to introduce demonstration projects to
consider the issue in more detail. We recommend that the Government
set out clear criteria by which the success of these projects
will be judged, and that it fully involve social housing providers
and lenders in the process. We further recommend that the Government
only proceed to direct payment to social tenants if and when any
issues identified by the pilots have been fully resolved. (Paragraph
70)
Housing Associations
13. We
encourage housing associations—individually or collaboratively—to
consider the potential of retail bonds which, as well as raising
finance, could prove a useful way of enabling people to invest
in their local community. There needs to be a clear regulatory
framework covering retail bonds both to address any risks to housing
association balance sheets and to ensure that the consumer is
properly protected. (Paragraph 73)
14. We encourage housing
associations to enter into equity sharing arrangements with local
authorities and developers where this can contribute to the building
of new homes. It is also important that financial innovation does
not become the preserve of the larger housing associations. Smaller
housing associations should consider entering into smaller scale
joint ventures and also raising finance by working together or
using intermediaries to generate scale. The Government should
foster an environment in which they can do this. (Paragraph 86)
15. We recommend that
the Government consult on proposals for the future financing of
housing associations. This consultation should invite views on
the treatment of the historic grant on housing association balance
sheets. The outcomes of the consultation should be used to inform
the Government's proposals on the future delivery of affordable
housing. The Government must also ensure that appropriate regulation
is central to its proposals. (Paragraph 87)
Local Authority Borrowing
16. We
recommend that the Government lift the cap on local authorities'
borrowing for housing, and allow councils to borrow in accordance
with the Prudential Code. We are also concerned at the Government's
warning that it will "take action" if public borrowing
increases as a result of Housing Revenue Account reform. It is
important that it does not place any further constraints upon
local authority borrowing for housing. The cap is already unnecessary,
and further borrowing restrictions would have a detrimental impact
upon the contribution councils can make to new housing supply.
(Paragraph 93)
17. We are disappointed
that the Minister has ruled out allowing local authorities to
pool or swap Housing Revenue Account borrowing headroom. Such
arrangements could help to make best use of councils' borrowing
capacity, enabling more homes to be built. In our experience,
the Government is usually enthusiastic about local authorities
collaborating, sharing services and pooling resources to achieve
better value for money; we consider that it should take a similar
attitude to joint working on housing finance. We recommend that
the Government consult on proposals to enable local authorities
to 'trade', swap and pool borrowing headroom. This should be subject
to councils' agreeing that any borrowing under these arrangements
will still be in accordance with the Prudential Code. (Paragraph
96)
18. We consider that
Arm's Length Management Organisations should be free to adopt
one of the new ownership models, subject to approval from the
council and tenants. As well as promoting the involvement of tenants
in the management of their housing, these models could also enable
ALMOs to raise additional finance for the building of new homes
(although any borrowing should continue to be affordable and sustainable).
We are encouraged by reports that Gloucester City Homes will be
consulting its residents on proposals to establish a 'community
owned, council owned' organisation. We recommend that the Government
give its support to those ALMOs wishing to adopt the new models,
which would enable them to borrow prudentially to build more homes.
(Paragraph 101)
19. We recommend that
the Government thoroughly examine a move to the General Government
Financial Deficit rules and then consult on proposals. (Paragraph
103)
20. The bond markets
could offer local authorities an alternative source of finance
from the Public Works Loan Board. We welcome the Local Government
Association's work to explore the possible establishment of a
financial institution to issue bonds on behalf of councils. There
are also good arguments in favour of local authorities issuing
retail bonds to raise finance for housing: as well as potentially
giving more authorities access to the bond market, they could
also enable people to invest their money in a way that brings
social benefits to their local area. We recommend that the Government
work with local government to enable councils to raise finance
through the issuance of retail bonds; in doing so, it should establish
whether there are any current restrictions on bond finance that
can be eased. (Paragraph 106)
Local Authority Land
21. We
urge local authorities and developers to work together wherever
possible to make land available for development in a way that
meets the needs of local people. We encourage councils to enter
into partnerships with developers, and to maintain equity involvement
in the development to secure best value for the taxpayer. (Paragraph
107)
22. The provision
of local authority land can make a contribution to the financing
of new housing supply by helping to reduce the risks of development
and to make it viable for the private sector developer and social
landlords. It can also help ensure that the maximum number of
affordable homes is delivered. We encourage all councils to consider
how they can release land to support the delivery of new homes,
whilst securing full value from the development. There are a variety
of ways to do this, in line with the localism agenda. (Paragraph
110)
The Right to Buy
23. We
recommend that the Government ensure "like for like"
replacement of homes sold under Right to Buy, so that each socially
rented property is replaced by a new home of the same type for
social rent. In order to achieve this, we further recommend that
the Government commit to making additional resources available
in the event that "like-for-like" replacement cannot
be delivered under the proposed levels of discount. (Paragraph
122)
24. We recommend that
the Government reconsider its decision not to opt for a local
model for the replacement of additional homes sold under the new
Right to Buy arrangements. We further recommend that the Government
grant exemptions from increased discounts to places such as rural
villages and other areas where social housing is limited and cannot
easily be replaced. These places could otherwise be left with
no social housing stock if there is significantly increased take-up
of the Right to Buy. (Paragraph 123)
25. Some councils
will be unable to meet the Government's requirement that Right
to Buy receipts only fund 30% of the cost of the replacement homes,
and will therefore not have the option of local delivery. This
is especially true for those authorities with limited borrowing
headroom, either because they have taken on debt under the Housing
Revenue Account reform or because, often through no fault of their
current administration, they are burdened with historic debt.
The Government must ensure that these authorities are not precluded
by their debt from replacing properties sold under the Right to
Buy. (Paragraph 124)
26. In the longer
term, in line with the spirit of localism and moves to self-financing,
we recommend that the Government give councils greater freedom
to decide on the best housing solutions for their communities.
The Government should consult on allowing local authorities to
apply to the Government for an exemption to the Right to Buy where
the council can demonstrate that housing is limited and cannot
easily be replaced. (Paragraph 125)
27. We recommend that
the Government work with housing associations wishing to introduce
the Right to Buy to explore how their proposals might work in
practice. If it is satisfied about levels of risk and value-for-money
for the taxpayer, it should allow housing associations to run
pilot projects. Any introduction of the Right to Buy should be
a matter for individual housing associations. (Paragraph 128)
Local Authorities: Conclusion
28. We
have seen that local authorities, working in partnership, have
the potential to make a significant contribution to the financing
of new housing supply. There is, however, a risk that local government
will not be able to make the most of this potential because of
constraints placed upon it by central government. The moves towards
self-financing under Housing Revenue Account reform are positive
and could significantly increase the finance available for housing
supply. However, the cap upon borrowing, the refusal to allow
councils to share headroom, and the centrally-imposed Right to
Buy proposals will all place restrictions on councils' ability
to finance the building of new homes. The local government sector
should be trusted to manage its own finances in accordance with
the Prudential Code. We urge the Government to give councils the
freedoms they need to provide finance for new housing supply.
(Paragraph 129)
NewBuy Guarantee
29. We
recommend that the Government review the NewBuy Guarantee after
the first year of its operation, to assess its impact upon mortgage
finance in other parts of the market. It should also consider
how many properties sold under the scheme have fallen into negative
equity, and the impact this has had on buyers. (Paragraph 132)
30. We recommend that
the Government bring forward changes to the NewBuy Guarantee to
allow smaller builders to become fully involved in the scheme.
In doing so, it should work closely with the Local Developers'
Forum and other smaller builders to ensure that the changes address
their key concerns. It should also promote opportunities for smaller
builders and smaller lenders to work together. (Paragraph 135)
"Intermediate" Products
31. There
may be some merit in introducing a version of the NewBuy Guarantee
to underwrite investment in shared ownership and shared equity
mortgage products as long as the individual risks are clearly
recognised. We recommend that the Government bring forward proposals
to establish such a scheme, making clear that it will only be
provided if a number of steps are followed to make the product
more transparent for the consumer. (Paragraph 143)
Public Land
32. We
welcome the Government's commitment to release land for development
and the progress it has made so far in doing this. We support
the Build Now, Pay Later initiative and recognise that it has
an important role to play in stimulating development. We would
also, however, encourage the Government to be mindful of other
approaches to making land available—such as joint ventures
or partnerships with developers—where these offer a better
deal for the taxpayer. (Paragraph 147)
Self/Custom Build
33.
We recommend that the Government work with mortgage lenders to
identify and overcome the barriers to lending to self builders.
We further recommend that the Government establish a fund to incentivise
local authorities to support pilot "volume self build"
schemes by allocating sites and taking a flexible approach to
planning (whilst ensuring continued compliance with energy and
safety regulations). We see no reason why the first pilots could
not be up and running in two years' time and ask that the Government
report back to us in 2014. (Paragraph 155)
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