HC 1652 Communities and Local Government CommitteeWritten submission from Nigel Grainge RIBA

1.0 Summary of Main Points

Q1. How and where the more limited capital and revenue public subsidy can best be applied to provide the biggest return on the investment, in housing supply terms?

A1. Adopt an intermediate purchase mechanism that does not required public subsidy or capital, hence is not limited by the public purse.

Q2. How and where the more limited capital and revenue public subsidy can best be applied to provide the biggest return on the investment, in housing supply terms?

A2. Recycle public sector investment to generate house after house.

Q3. How long-term private finance, especially from large financial institutions, could be brought into the private and social rented sectors, and what the barriers are to that happening?

A3. Support/encourage public sector pension fund investment in housing and social infrastructure investment in their own locality.

2.0 Introduction

2.1 I am Nigel Grainge, an architect and the Affordable Housing Director working for the NPS Group, a public sector owned multi-disciplinary property consultancy that employs around 1,500 staff in 28 UK offices.

2.2 I come from a background of private sector architectural practice, have frequently led research into specific issues that inform the design and delivery of the built environment, and have specialized in working with community and other stakeholder representatives.

2.3 Since 2006, I have been focussing on research into affordable, low carbon housing. This has developed into a programme known as HEARTHuk which addresses both:

the finance and delivery mechanisms that are needed to deliver new homes in this current economic climate, and

the design and technical criteria that support affordable delivery those homes, homes that can be enjoyed.

2.4 We have successfully completed a HEARTHuk pilot scheme testing our design principles. They are CSH Level 5 homes and have achieved real value for money—built for around 80% of HCA target cost/sqm, and this has allowed them to incorporate good space standards.

The completed development has been evaluated by the Technology Strategy Board. An extract from the Executive Summary of that report follows:

“In terms of benchmarking, Malmesbury Gardens houses perform exceptionally well compared to other houses in the UK that have been evaluated through the BUS questionnaire methodology. The houses are very successful with tenants being appreciative of location, space, layout and overall appearance”

2.5 We are currently working with public sector and private sector partners to deliver homes (generally CSH level 3 and 4) in London, Norfolk, and Yorkshire. These developments are in areas of differing property values and they employ a variety of different housing finance mechanisms.

2.6 I wish to draw upon this experience in providing evidence for the Inquiry.

2.7 Due to other work commitments, I have had to limit my submission to the initial summary of points. Naturally, I will be able to provide additional information and/or attend the inquiry, if invited.

3.0 Factual Information and Recommendations

Q1. How and where the more limited capital and revenue public subsidy can best be applied to provide the biggest return on the investment, in housing supply terms?

A1. Adopt an intermediate purchase mechanism that does not required public subsidy or capital, hence is not limited by the public purse:

(a)Without first time buyers having access to an intermediate purchase mechanism and viable mortgages that require no more than 10% deposit, private sector development is likely to remain stalled.

(b)The NPS Group has devised a mechanism (HEARTHuk Intermediate Purchase mechanism) that lenders and CML reviewed favourably in 2010; it also requires no public sector capital or subsidy to make it work.

(c)We are further developing this mechanism and re-engaging in discussions with the lenders and CML.

(d)The design, space standards, adaptability, and expandability of the homes and the value for money achieved are vital components in achieving a beneficial loan to value ratio.

(e)We would be pleased to share details of this mechanism with the committee and/or its advisors. Further detail would need to be given in commercial confidence.

Q2. How and where the more limited capital and revenue public subsidy can best be applied to provide the biggest return on the investment, in housing supply terms?

A2. Recycle public sector investment to generate house after house:

(a)We are currently working with public sector partners using public sector land and capital for housing in ways that generate a return and surplus which in turn can be recycled into the next phase of the development programme.

(b)The design, space standards, adaptability, and expandability of the homes and the value for money achieved are vital components of viability and marketability.

(c)We also have a proposal that focuses the capital spend on the locality (as opposed to an imported developer), providing training in low carbon building and then employment for existing local construction workers/businesses. Building work proceeds in smaller phases, to suit the current market, allowing capital and surplus to be returned and recycled. Creation of sustainable jobs and houses fed by money cycling through the local economy.

(d)We would be pleased to share details of the processes with the committee and/or its advisors.

Q3. How long-term private finance, especially from large financial institutions, could be brought into the private and social rented sectors, and what the barriers are to that happening?

A3. Support/encourage public sector pension fund investment in housing and social infrastructure investment in their own locality:

(a)We are currently working with private sector partners that have access to private sector institutional and pension funds for development of new housing and social infrastructure.

(b)The public sector pension funds that we have contacted were, with the exception of one major fund, resistant to considering such investment, even though financial models showed there to be potential for them to meet their fiduciary responsibilities.

(c)We have introduced that one public sector pension fund into a study looking at the potential for creating a viable return from housing development.

(d)If this study has a positive outcome, as we expect it to, we advise that the Government should provide every encouragement for public sector pension funds to deploy and invest capital in housing and social infrastructure.

October 2011