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Future of London Breakfast Seminar SeriesIntermediate Housing: what next for London?7th September 2010
Funding Affordable Housing in London7th September 2010
Presented by: Andrew Heywood, independent consultant and editor of Housing Finance International
Housing, Mortgage markets, Regulation, Governance, Europe
• Housing: finance, policy, low-cost homeownership.• Mortgage markets: trends, opportunities, threats.• Regulation: policy, practice, lenders, housing providers.• Governance: effective decision making, strategy, audit.• Europe: housing and mortgage markets, regulation.
Andrew Heywood is an independent consultant specialising in the above areas and an associate of leading consultants Campbell Tickell and Consult CIH. He was formerly Deputy Head of Policy at the Council of Mortgage Lenders. Andrew has been at the centre of housing, housing finance and mortgage market developments for many years and has unrivalled contacts amongst policy makers, housing providers and lenders. A visiting fellow of the Smith Institute, Andrew has written and spoken extensively on housing and lending issues. He is Editor of the journal Housing Finance International (www.housingfinance.org. A keen saxophonist , Andrew also runs his own jazz band Afinado (www.Afinado.co.uk)
Andrew Heywood Consulting: [email protected] , 01440 730218/07929512057
Andrew Heywood Consulting
Mixed funding regime
• The affordable housing sector has seen 2 decades of investment based on a mixed funding regime:
• Total private finance facilities:– £59.4 billion (2010)
• Total grant investment– £37 billion (2009)
Developments 2007-present
• Since the CSR 2007 a number of assumptions underpinning the funding/cross subsidy strategy have been challenged by events.
Need v. Demand
• Household projections were used to assess future housing demand.
• In doing so housing “need” was conflated with economic “demand” leading to over-optimistic assessments of demand for shared ownership and of the outlook for house prices.
• Those most in need are usually least able to muster effective demand.
Mortgage market contraction
• Source: Council of Mortgage Lenders
Mortgage market contraction
This contraction is not temporary and the outlook is particularly difficult for:
• High LTV lending
• Sub-prime lending
• Those with lower or less secure incomes.
• Those without access to a substantial deposit.
• This means those who would previously have constituted the market for LCHO
Falling prices
• Source: Council of Mortgage Lenders
Falling prices
• While there was a partial recovery in prices it appears to have stalled.
• The Halifax house price index has been negative for 4 of the last 7 months.
• There is a growing perception that prices are now falling again and that property may still be overvalued.
Falling prices
• Halifax Regional Price Index for London Quarter 2 2010:
• Average price: £263,284
• Quarterly change: -3.9% (UK -0.1%)
• Annual change: +10.1% (UK +6.3%)
Cross-subsidy model under pressure
• In April 2010 5,000 LCHO (mainly shared ownership) homes remained unsold even after widespread conversion to intermediate renting. Almost half had been unsold for over 6 months.
• Borrowing facilities arranged in 2009-10 at £3.5 billion were less than half those arranged the previous year.
Cross- subsidy model under pressure
• Lack of borrowing reflects unwillingness by HAs- not lenders.
• HAs have unused security of c. £24 billion.
• Global HA surpluses from open-market sales down by £116 million in 2008-09.
• HA starts have been dropping rapidly with shared ownership development down by over 50%.
Cross-subsidy model under pressure
• Even before the General Election HA confidence had eroded and the cross-subsidy model was no longer viable outside certain localities.
• This is a crisis of confidence in the strategy and development model. It is not a result of any shortage in finance at sensible rates.
• A drop off in the supply of affordable housing had become inevitable regardless of action by the new Government.
• How true is this of London? What about 30,000 homes by 2012? (London Overcrowding Action Plan)
The New Government
• Cuts of around 25% by 2014-15- housing is not privileged or ring-fenced.
• Large rise in VAT; could eliminate half the sector annual surplus?
• Will grant still exist in any quantity?• Housing Benefit reform could undermine
lender/investor confidence and HA financial capacity.• If abolition of the TSA/Audit Commission weakens HA
regulation then the availability and cost of private finance (new and existing loans) will be affected.
Bridging the gap; towards an alternative strategy
• While further decline in development is inevitable the aim must be to mitigate this decline by seeking alternative models for development involving low/no grant, and by seeking to persuade Government of the need to pursue “acceptable” ways to reform Housing Benefit and regulation.
• For this presentation I shall briefly touch on two alternatives: market renting and intermediate renting.
Market renting
• The private rented sector (PRS) is the growing tenure at present.
• Government sees the PRS as integral to its overall housing policy.
• There are a growing number of low income families, recent immigrants, single parent households, students and others for whom home ownership and social renting are inaccessible.
• Buy-to-let lending is currently impaired.
Market renting (cont)
• Attempts to bring in institutional investors have largely failed.
• HAs have the infrastructure and property management expertise.
• Developing good value/quality homes for market renting is a valid objective.
• Property management costs would have to be competitive with private corporate landlords.
• Lack of regulation is helpful in keeping costs down and options open.
• New development for market renting is a low/no grant option.
Market renting (cont)
Market renting should be pursued but is not a panacea:
• The transition from benefits to work will be more difficult.
• The working poor will be hard hit.• The offers to different tenants become more complex• It won’t work in all areas (especially with Housing
Benefit caps)• Mixed community aspirations could give way to
construction of mono-tenure blocks/developments.
A future for intermediate renting?
• Intermediate renting has so far tended to function as a grant funded expedient to deal with unsold HA properties for a limited period.
• There are policy issues about subsidising the housing of those not in greatest need.
• Without grant intermediate renting probably only works if there is an expectation of eventual sale; increasing the risks for landlord and tenant.
• There can be issues for private finance where the need for sale is built in- especially if housing markets are falling again.
A future for intermediate renting?
• A three tier housing offer on similar properties could be difficult for landlords to justify.
• Intermediate renting can offer possibilities in certain markets and circumstances (e.g. L & Q Up to You).
• A move from general needs to intermediate renting within some existing stock might increase HA financial capacity (but not as much as a move to market renting)
• Overall, intermediate renting is probably not the way forward though careful analysis of some local markets may point to opportunities.
The way forward
• These are just two out of a number of possible ways forward; there is no single panacea.
• My report for the Smith Institute, Rhetoric to Reality- a report on affordable housing prospects in an age of austerity, will be launched on 15 September.
Funding affordable housing in London
Thank you.
Andrew Heywood Consulting
01440 730 218/07929512057
How does intermediate housing fit into our overall goals?7th September 2010
Presented by: Brendan Sarsfield, Family Mosaic
Comment from panel members and questions:
Alisdair Chant, Berkeley Partnership HomesJeremy Stibbe, Homes and Communities AgencyMark Baigent, London Borough of GreenwichChaired by Toby Lloyd, Navigant Consulting
Family sized intermediate homes7th September 2010
Presented by: Jeremy Stibbe, Homes and Communities Agency
Thriving communities, affordable homes
Family Sized Intermediate Homes
Jeremy Stibbe
Special Projects
Thriving communities, affordable homes
Strategy
Market Customer
Local Authority
Thriving communities, affordable homes
Improve
Product
Targeting
Marketing
Thriving communities, affordable homes
Small change…
…Big impact
Thriving communities, affordable homes
HCA Sites
Call for partners
Seminar 20th September
Thriving communities, affordable homes
homesandcommunities.co.uk
Greenwich’s intermediate housing deliveryVehicle
7th September 2010
Presented by: Mark Baigent, London Borough of Greenwich
New Housing Initiatives in Greenwich:New Housing Initiatives in Greenwich:
Housing Delivery VehicleHousing Delivery Vehicle
Summary LB Greenwich is establishing a wholly-owned
subsidiary company to provide intermediate rented homes to working families
The company will receive an initial asset input of 28 properties (valued at c.£6M) plus £50k to cover set-up costs
In August we secured Secretary of State’s consent and are now proceeding to establish the company and transfer properties
What is it? Company Limited by Shares Initially 100% shares owned by LBG Over time private investors could buy shares
in the company Company can borrow, buy homes, take
transfer of homes, let homes, possibly build homes in future
Currently on public sector balance sheet so prudential borrowing restrictions apply
What isn’t it? Not a housing association or Registered
Provider of social housing: no grant, no regulation, no rent control
Not Council housing: no secure tenancies, no Right To Buy, etc.
Not route for large scale stock transfer: only transferring empty homes
Not lettings for people in acute housing need or on Housing Benefit / LHA
HDV Business StrategyPortfolio growth options: (a) “trickle transfer” of vacant HRA homes (b) LBG cash investment to acquire homes (c) provision of cash or property assets
through s106 developer contributions (d) new build development through LBG
land/investment and/or private capital investment (debt and/or equity)
Why do this? Growing need for “intermediate” rented
housing: for people who can’t afford to buy, can’t get into social rented housing and find it hard to sustain private rented housing
Policy aim is to support people on low incomes to encourage social mobility, providing a bridge between social renting and market renting or home ownership
Targeted initially at working families
Success measures Commercial outcomes:
secure income minimize costs deliver surplus asset value growth
Social outcomes: working families assisted moves into ownership options sustained in work health and educational achievement
What happens next? Register the company and appoint Board Inject cash to cover start-up costs Transfer to the company:
5 houses bought recently on the open market 23 HRA houses (ex-temporary accommodation)
Agree marketing, lettings and management arrangements
Market and let the homes
New Housing Initiatives in Greenwich:New Housing Initiatives in Greenwich:
Housing Delivery VehicleHousing Delivery Vehicle
Any questions…?Any questions…?
Next breakfast seminar: Tuesday 19 October
Same time, same place!
http://www.future-of-london.blogspot.com/
