Since September, I have (yet again) been studying, this time for a University Certificate Professional Development in Housing Studies through the Chartered Institute of Housing and De Montfort University.
So far I’ve completed 2 assignments which considered new and emerging sources of capital funding for housing and regeneration – as this is a very current and topical issue, I thought I’d share some of the course materials and parts of my assignments.
Assignment 1 – Institutional investment
It is widely acknowledged that there is an ever-deepening housing crisis resulting from a lack of housebuilding, increasing demand for private rented sector (PRS) housing and a lack of public expenditure to support housebuilding; alternative funding models for housebuilding are, therefore, urgently needed. Institutional investment is one such alternative funding model.
In November 2011, the Coalition government announced it would be putting in place an independent review of the barriers to investment in private homes for rent. The review, referred to as the Montague Review, was published in August 2012.
The review identified several core barriers to institutional investment, which have prevented significant interest being translated into large-scale investment: the market isn’t offering what investors want; the novelty of the investment; doubts remain about yields; concerns about the planning system and availability of land at an appropriate price; and a shortage of expertise and experience.
Overall, reactions to the Montague Review were mixed, with a variety of organisations welcoming the report’s findings overall, but criticising some of the detail or extent of the recommendations. Many acknowledged the importance of the PRS in meeting housing needs, welcomed the report’s focus on the need to increase the construction of new homes and agreed there is potential for institutional investment to address these needs.
However, many organisations were also critical of the review:
- some warned that institutional investment in build to let must create additional new housing supply, rather than displace other developments, and must improve the sector in terms of quality standards and tenancy length, if it is to contribute to the housing supply problem.
- Keith Exford of the g15 group and Affinity Sutton warned the PRS offers poor value for money for the Exchequer and tenants, and that the shift to the PRS from affordable housing will result in increased benefit costs
- others commented that a review of the housing system as whole is needed, as build-to let is only one part of the solution to the chronic housing shortage; greater investment in social housing and a return to sensible mortgage lending is also needed.
The government responded to the Montague Review two weeks after its publication with an announcement on housing and growth. Following recommendations made in the review, the government announced:
- Removing affordable housing requirements from developments where the project is unviable because of them
- A £10 billion fund for government guarantees available to providers who commit to investing in build to rent
- Accelerating the release of public sector land
- Investing £200 million in private rented housing to deliver 5000 homes for market rent, financed through loan or equity finance
- Establishing a task force to bring together developers, management bodies and institutional investors to broker deals
There are a number of roles for housing associations in taking forward the build to let agenda, for example: launch or join a Real Estate Investment Trust; facilitate institutional investment schemes; manage large scale institutional funded PRS stock
Assignment 2 – Tax Increment Financing
Recent announcements from the government, including the Local Government Finance Act 2012, suggest it is likely that there will soon be opportunities for local authorities and their partners to access a ‘new’ method of funding for regeneration and housing projects: Tax Increment Financing (TIF).
Developed in the US, TIF is a mechanism to finance new infrastructure to bring forward regeneration projects. Essentially, TIF is a way to pay for growth with growth, that is, local authorities borrow money for infrastructure projects against the anticipated future growth in business rates income arising from the said infrastructure and regeneration projects. TIF will not be appropriate for all regeneration projects, only those where a lack of infrastructure is the primary barrier to growth and where there is sufficient demand from the private sector and scope to increase business tax revenues. Local authorities may choose to finance the infrastructure investment by either borrowing from public or private sources, or securing funds from a developer.
It should be noted that Institutional Investment in build to let and TIF are only two of many financing options that a housing associations and their partners may consider when looking to finance regeneration and housing projects.
The government has recently made announcements regarding other competitive bidding regimes for decentralised regeneration and housing projects, e.g. City Deals and Care and Support Specialised Housing Fund
All of these competitive bidding regimes share common factors of working in partnership to identify innovative solutions to meet the most important local needs, which can unlock significant private investment. I wonder if all future government funding opportunities will have these same requirements?