HC 1652 Communities and Local Government CommitteeWritten submission from the Confederation of Co-operative Housing

1. The Confederation of Co-operative Housing

The CCH is the national representative body for co-operative and mutual housing, a sector the Tenant Services Authority has identified as flagship performers in relation to tenant satisfaction. With a membership of over 110 community controlled housing organisations, the CCH has promoted community control since 1994, and has worked in partnership with Government, the UK co-operative movement, and other bodies to develop practical methods to implement community controlled housing. The CCH was instrumental in setting up the Mutual Housing Group which draws together organisations from the co-operative, tenant management, community land trust, self help, self build and community gateway sectors to help create a unified approach to developing new community led housing schemes.

2. Financing New Housing Supply

In the current economic reality, traditional approaches to providing the homes that people need are no longer viable. Mortgage finance for first time buyers will remain difficult for the foreseeable future, and the removal of public finance for traditional social housing and the introduction of the new model for “affordable housing” means that we are far from “business as usual”.

The CCH has been in dialogue with the Homes and Communities Agency regarding innovative approaches to financing new supply through community led housing schemes and the impending funding for empty homes, self build and community led developments are a welcome move that linked with private and institutional investment have the potential to kick start the supply of new community led homes.

It is vital to build new partnerships for the new environment. Our “Building Co-operative & Mutual Homes” scheme is a new option for financing housing development. This proposal is built on the work of the Commission on Co-operative and Mutual Housing1 which identified people who would formally have been first time buyers, elderly people looking for alternative options and others as potential markets for co-operative and mutual housing. It aims to generate the development of a large number of new co-operative and mutual housing schemes to enable more people in need of a decent affordable home to secure the additional personal and social benefits created by co-operative and mutual housing through innovative financial approaches as detailed in the report “Financing Co-operative and Mutual Housing”.2

We held wide ranging discussions with banks and other financial institutions that aimed, among other things, to identify why lenders are reluctant to lend in small quantities to community led start-up organisations; the key reasons are:

the loans involved are too small for specialist commercial lending teams and too big for the high street branches of banks;

lenders do not like lending to new organisations lacking in business and management track records;

lenders have little appetite for non-recourse loans; unless of a high credit quality;

sourcing and managing a large portfolio of small loans is resource intensive;

lenders do not want to have the resource requirement of dealing with default, which is proportionately higher for smaller loans; and

a preference to lending to regulated entities.

In general the financing terms will follow the risk profile of the underlying project rather than the strict structure of the borrower. In the current market there is minimal appetite for speculative residential development among the major lenders, outside the major house builders or very selective schemes.

The conclusions of the Commission’s work pointed towards batching or warehousing schemes in order to create sufficient scale to address the barriers identified, through a Real Estate Investment Trust, through loan or bond financing to a consortia of housing associations/private developers or by creating a savings and loans model (a housing development bank).

A proposal and expression of interest were sent to all local authorities in late 2010 in order to explore:

the level of interest, particularly in local Government, in the programme;

views on what will be needed to make the programme a reality; and

what local authorities and housing associations can bring to the table to help develop the programme and realise the Commission’s recommendation to expand the offer of co-operative and mutual housing as an option for communities throughout the country.

The key elements of the proposed programme are as follows:

establishment of a fund through bond financing and institutional investment—anticipated to be about £250 million—to enable development of co-operative and mutual housing;

the development of between 1,500 and 2,500 homes through the development of between 30 and 50 new co-operative and mutual housing organisations;

the fund will be supported by a consortium of housing associations and other organisations with assets available to secure capital at competitive rates to new organisations (asset ownership arrangements will be dependent on the structures needed to secure capital financing); and

to maximise possible cross subsidy (through making best use of available land, public grant, New Homes Bonus and other resources) to enable the greatest possible number of homes to be built—whilst making the homes as affordable as they can be.

The proposal is consistent with the Coalition Government’s aspirations. It is about generating local community vision, responsibility and stewardship of assets that they have commissioned, designed and developed.

To date we have received responses from around 30 local authorities and 10 housing associations that have identified resources which could link into the programme and we are currently in the process of drawing these potential partners together to establish the necessary governance and financial arrangements to create the warehousing vehicle the will enable the programme.

3. Conclusion

Co-operative and mutual housing has the potential to meet the needs and aspirations of many groups of people—particularly intermediate markets. It has the ability to provide a safety net in uncertain times, whilst at the same providing people with options for control over their homes and neighbourhoods. We have found that some local authorities are seeing co-operative and mutual housing options as being necessary for their housing strategies, and are prepared to provide some resources to help develop local projects. Our programme is developing a realistic and practical way to raise the funding necessary in partnership with housing associations to build co-operative and mutual homes with very limited public funding. We are seeking to work with Government to implement the programme.

October 2011