Financing the new housing supply

Written submission from the Regenda Group

It is clear that action needs to be taken to increase new housing supply as currently supply is not matching demand. Evidence would show that rates of new build housing have been on a downward trajectory. Also the restriction in government funding to support the affordable housing programme is a factor that contributes to the generation of new housing supply particularly in the affordable housing sector.

We welcome this inquiry and are pleased to contribute. Our submission focuses on 3 areas which are particularly pertinent to the affordable housing sector;

· Affordable Rent proposals

· Increasing the amount of private finance into new housing supply in the affordable housing sector and new forms of investment

· Access to home ownership

Affordable Rent proposals

It is our view that the Affordable Rent proposals will only play a role in increasing the funding available for new supply over a limited period i.e. 2011 to 2015. The proposals effectively mean that the providers of affordable housing will have to meet an increased proportion of the cost of the new housing supply that they develop. Providers will have to use private finance to bridge the gap of the reduced amounts of grant available for funding affordable housing and it is doubtful whether this is sustainable across the sector beyond 2015. It is therefore important that consideration is given to levels of capital and revenue subsidy and also increasing the amount of investment in new affordable housing supply from the private sector.

Increasing the amount of private finance into new housing supply and new forms of investment

It is apparent that traditional sources of lending to the affordable housing sector have become restricted clearly linked to global and national economic issues despite the sector having a long history as a low risk investment proposition.

There is obviously a need for a larger scale of long term investment into the sector. Potential options include bond finance, lease backed funds, investment by sovereign wealth and developer led lease arrangements.

In terms of attracting investment into the sector we would welcome action by the government to support the low risk perception of the affordable housing sector. In particular we are concerned that the welfare benefit reforms may have an impact on the perception of the sector and the sound investment proposition that it has been viewed as historically.

Another area which could positively benefit investment in the affordable housing sector is the write off of historical social housing grant. Under current rules, landlords cannot borrow against social housing grant held on their balance sheets because the government could under certain circumstances ask for it to be returned. Consideration should be given to the write off of this historic grant which would enable Registered Providers potentially to borrow against the value of this grant and potentially contribute to the funding of new affordable housing supply.

Access to home ownership

We understand that unlocking the stagnant housing market is an important issue; however as a provider of low cost home ownership products i.e. shared ownership/shared equity we are aware of the negative impact of constricted mortgage availability in restricting access to home ownership. This is exacerbated by the restrictions attached to available mortgage products.

We would ask the government to consider how it could work with lenders to return to a balanced view of lending. One potential area is an offer by the government to guarantee to bridge the gap between 90% and 95% mortgages. Albeit we accept some risk in these proposals consider that it warrants further analysis. Another option is to look at how the government could support public bodies in providing mortgage products. There are examples of highly successful local authority mortgage schemes which have seen high levels of demand which we would also suggest warrant further consideration in terms of government support.

Increasing the availability of mortgage finance is critically linked to the issue of housing supply as building rates will only increase if there is confidence that sales will take place post completion.

In this section we have focused on access to home ownership as it remains the case that many people aspire to home ownership; however it is important that there are options available in terms of good quality affordable rented accommodation. It is therefore imperative that there is an appropriate level of investment in rented models and would request that this is kept under review as part of a wider package of housing offers.

October 2011