HCA considers move to equity model
The Homes and Communities Agency is proposing to take an equity stake in homes funded through the National Affordable Housing Programme.
At present the agency gives grant to housing associations to build homes, but a consultation issued yesterday suggests in the future it could put in money as an investment.
This would allow it to make money if the property increased in value, which would be reinvested in affordable housing.
The move would be permitted under powers in the Housing and Regeneration Act that are due to come into force next year. The HCA already recovers receipts linked to value from arm’s-length management organisations and private developers, but has not been able to do so from housing associations.
Instead developing associations recycle funding themselves, through the recycled capital grant fund, but returns are limited by the original grant and are not linked to value.
Sir Bob Kerslake, chief executive of the HCA, said: ‘We have been clear that in the future we will need to make our funding work harder, and to do more with less, and this is one of the ways in which this could be achieved.
‘Taking a return on our investment linked to an uplift in property values would maintain the value of taxpayers’ money in real terms and allow us to re-invest it in more affordable homes.’
David Montague, chief executive of housing association L&Q, said: ‘This would be a significant change for housing associations, but there is a need for rational debate on the nature of grant and I welcome the opportunity to respond to this consultation.’
The consultation paper, Affordable housing: principles for recovery of social housing assistance, suggests three options for future recovery of funding:
- Option 1 – To retain the current system of recovery and recycling for the housing association sector, and for other providers through contractual agreements. The HCA would still allocate some NAHP funding as investment, but on a specifically agreed contractual basis;
- Option 2 – To link recovery and recycling to uplifts (or falls) in value, but retain the current responsibility associations have for recycling through the RCGF; or
- Option 3 – To link recovery and recycling to uplifts (or falls) in value and for funding to be recovered directly by the HCA.
The consultation is due to run until 15 March, and will result in a new general determination on recovery, which will apply to homes for intermediate rent and low-cost homeownership rather than those for social rent.
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Readers' comments (2)
Len White | 18/12/2009 5:08 pm
This is a welcome change. Housing associations like to boast about their independence and that they should be free from interference, but their assets and their strength as organisations are built on public subsidy. Most HAs sit on their huge assets and many do not use them to the full extent to create more homes. It is right that some of the additional value should be pulled back to the public sector for reinvestment - to meet public priorities not the often warped priorities of unaccountable associations. Recyling of grant should also be done by the HCA and not the individual association, again so it can be allocated to the highest priorities.
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B.A.L. Sheet | 30/12/2009 8:36 pm
Correctly designed, this could be an interesting innovation. All of us running RSLs budget for contingencies and risk, many of us are probably over cautious in this, for very understandable reasons, which means that there could be scope to boost capacity and output by running our businesses to much tighter margins. The cost to the HCA, if the desired outcomes are to be achieved, will be the occasional need to inject more grant (possibly also revenue grant?) to avoid loan covenant defaults, in situations where this is not just down to poor management - the quid pro quo for reaping upside dividends from property value growth (will the HCA have sufficient funding capacity for this in future?). The real challenge will be to structure all this so as to leave sufficient upside benefit with RSLs and thereby ensure the incentive to outperform remains strong. Those RSLs that aren't making effective use of their balance sheets & potential need to be challenged to do so, or partner with another player that can; given the UK's financial outlook we can't afford this wasted resource any longer.
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