How do we increase housebuilding in the short term?

The first was a new sub-market mortgage product to help existing shared owners staircase to higher percentages of equity and eventually to outright ownership. This would be funded by government guarantees and subsidies to reduce monthly mortgage costs to roughly what shared owners currently pay in rent on their unsold equity.

The model could be administered by the new Homes England bank announced earlier this year. This would provide an instant shot in the arm for housing association capacity.  

“By making staircasing a more affordable and attractive proposition, a new mortgage product would help increase satisfaction with shared ownership”

The second idea combined the corporate tax credit model proposed in a recent Grainger-led report, and the low-interest loan or amortised grant model which Southern Housing has advocated for.

Michael Keaveney, Grainger’s land and development director, suggested the government could sell tax credits to private sector companies and use the proceeds to subsidise new social housing.

The panel agreed this could be a good way to fund and expand the low-interest loans the government pledged as part of June’s Spending Review. The loans are targeted at housing associations such as Southern Housing whose development capacity is temporarily constrained by limited cash interest cover.

Both ideas could play a key role in accelerating housebuilding in the short term, while having clear benefits to residents, housing associations and government. A government-backed staircasing mortgage product would help achieve the original vision for shared ownership – that shared owners would acquire 100% ownership over time.

There are clear benefits to outright ownership including no longer needing to pay rent and greater choice when it comes to selling. But the proportion of shared owners staircasing to 100% has declined to about 2% of all housing association low-cost ownership homes. By making staircasing a more affordable and attractive proposition, a new mortgage product would help arrest and reverse this decline and increase satisfaction with shared ownership.

An increase in staircasing would also provide a timely increase in capital receipts for housing associations. The impact would be most notable in London, which has more shared ownership homes than any other region and is also where housing associations happen to face the greatest EBITDA-MRI cash interest cover constraint. This could make a real difference.

Facilitating staircasing would release more than quarter of a billion pounds for Southern Housing alone. Recapitalising housing associations in this way would provide a great stimulus for land-led development and improve our ability to acquire homes through Section 106, helping to unblock the current logjam.

Using tax credits to fund low-interest loans or the amortised grant model we’ve developed also ticks several boxes. The £2.5bn in low-interest loans announced in the Spending Review are very welcome. But it’s clear they will only go so far, given Southern Housing is far from alone in having constrained EBITDA-MRI interest cover.

Using income derived from tax credits to increase the overall pot would help unlock further development by financially constrained housing associations over the course of this parliament.

“Recapitalising housing associations through staircasing would provide a great stimulus for land-led development and improve our ability to acquire homes”

For government, the tax credit funding mechanism should have several attractions. Firstly, tax credits don’t require the government to raise taxes or increase debt, and it would forgo a proportion of future corporation tax revenues.

Secondly, using tax credits wouldn’t score against the public sector net cash requirement, so would be helpful in accounting terms.

Thirdly, following recent changes to public accounting rules, part of the face value of low-interest loans can be treated as an investment in the government’s books, and so would be treated more favourably under the chancellor’s fiscal rules. This is unlike conventional grant, which is expended and written off in the year it is allocated. Moreover, under this model, the funding is eventually paid back to government, so is very much an investment rather than a cost.  

Necessity is the mother of invention. And invention is much easier when people come together to share knowledge, experience and ideas. The two ideas presented above would help catalyse the delivery of affordable housing and do so without the inflationary or deadweight drawbacks of demand-side interventions.

These ideas are proof of a sector that is willing to innovate and collaborate in support of the government’s ambitious housing targets.  

Paul Hackett, chief executive, Southern Housing