News analysis Its crunch time for social housing funding

31 Jul 08
Joint ventures in which the public sector provides the land and funds and the private sector the expertise may be the key part of a government package to boost the building of affordable homes

01 August 2008

Joint ventures in which the public sector provides the land and funds and the private sector the expertise may be the key part of a government package to boost the building of affordable homes

When Gordon Brown pledged to build 3 million homes by 2020 within days of becoming prime minister, he could not have foreseen that 12 months later the housing industry would be creaking at its foundations.

As private builders in particular reel from the credit crisis, Caroline Flint seems to have spent most of her first six months as housing minister trying to revive the industry. Two separate packages of measures were announced in July alone, just ahead of the parliamentary recess [see box].

But what do they all add up to in terms of making sure that councils, housing associations and private developers provide more homes for social renting and low-cost ownership?

Some initiatives, such as the introduction of joint venture local housing companies and the phasing of the 2008-2011 National Affordable Housing Programme (NAHP), were signalled in a green paper last year. Other schemes, however, might easily be interpreted as the government firefighting.

By allowing the Housing Corporation to give housing associations and other developers up to 80% of grant upfront (instead of 50%), ministers are almost returning to the pre-2006 system.

In May, the corporation was told that it could use £200m from the NAHP to buy unwanted homes from private builders on behalf of registered social landlords. By July, Flint was insisting this sum could be exceeded.

Meanwhile, there is the sorry tale of Open Market Homebuy, aimed at first-time buyers, which has been relaunched so many times that few people can remember how it began in the first place.

And as if these schemes are not confusing enough already, the Rent to Homebuy initiative will soon join them. This will allow would-be buyers to rent at discounted rates for up to three years prior to buying a property.

Richard Capie, director of policy at the Chartered Institute of Housing, says it is important to distinguish between programmes that were already in the pipeline, for example in the green paper, and those designed to tackle the credit crunch. It was 'fortuitous', he says, that ministers decided to allocate the NAHP in tranches over three years.

'The government can look at how and when it invests its money and respond to changing market conditions,' he adds. 'Upfront payments recognise the problems that people in the sector are having and what can be done in the system to improve that.'

The corporation had already introduced quarterly bidding from April and is now inviting bidders to apply for funds. David Orr, chief executive of the National Housing Federation, says the grant rate changes seemed designed to prop up house builders, but adds that regular or continuous bidding for grants should have been introduced years ago.

The federation also supports giving would-be homeowners the opportunity to 'try before they buy' through Rent to Homebuy and is keen for RSLs to head a national mortgage rescue scheme. 'This is the wrong time for the strategic interventions,' says Orr. 'It makes sense to test things out and be flexible, because we don't know what's going to happen next.'

But the Home Builders Federation, representing private developers, wants the government to go further in helping first-time buyers. Suggestions include a 'holiday' on stamp duty and a savings scheme to help people raise deposits. 'There is no single one knockout thing you can do to solve the current problems,' says John Slaughter, the HBF's director of external affairs. 'We need a package that balances action in a number of areas.'

The launch of the first four local housing companies, joint ventures between local authorities and developers, will give councils more say over where homes are built – providing they can generate enough private sector interest in developing public sector land.

Barking and Dagenham expects to announce the name of its private partner by mid-August and has permission to start building 500 homes in the centre of Barking this autumn. Over the next 12 years, it expects to build about 8,000 homes in east London.

Ken Jones, head of housing strategy, says the company will be crucial for regeneration. 'It will ensure that we get more affordable homes for the community and gives greater certainty in the current housing market,' he adds.

The other three councils poised to launch local housing companies are Manchester, Newcastle and Nottingham, with a further ten in the pipeline. Alan Clark, portfolio holder for neighbourhood regeneration at Nottingham, says private builders are keen on LHCs because of the close involvement of councils. 'They can use our capacity [as landowners],' he adds.

The LHC scheme is being overseen by English Partnerships. Duncan Innes, EP's director of strategic land, says councils and developers would be 'mad' to ignore what is going on in the financial markets but adds: 'If anything is going to be developed, it's something where there is a joint venture between a public sector landowner and the private sector.'

Launching the most recent package of measures, Caroline Flint stressed that long-term housing needs had not gone away: 'We are determined to continue to do everything possible to promote long-term stability and fairness in the housing market.'

As EP and the Housing Corporation prepare to pass their development and regeneration work over to the new Homes and Communities Agency in early December, they could be forgiven for flinching at the thought of private builders downing tools just as the Treasury is willing to help fund the largest house building programme for decades.

But Peter Marsh, the corporation's deputy chief executive, says it is important to keep a sense of perspective. The HC has already received 'significant interest' from developers wishing to sell on homes to RSLs, and paying more grant upfront can only help organisations cope in the financial climate.

'This year we will fund significantly more housing through the private sector than we have ever done,' says Marsh. 'We have got £8.4bn at our disposal and will use those funds to help meet the government's targets, providing it's the right property in the right place.'

Whether that adds up to anything like 3 million homes by 2020 remains a moot point.

 

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