US-style finance model could replace social housing grant

Funding Affordable Housing, written by Vic O’Brien development director at Greensquare Group, looks at the system of Low Income Housing Tax Credits (LIHTC) in the US.  Under this system, private corporations invest funds into affordable housing projects and receive tax credits over 10 years, creating a return on investment.

The report, produced with the help of an advisory group set up by the Chartered Institute of Housing, suggests this avoids the present difficulties caused by low grant rates and the need for developers of affordable housing to have enough asset cover. The LIHTC model means providers do not need to make repayments from rental streams within the project.

‘LIHTC does not involve direct public subsidy rather it relies on private equity investment supported by tax credits,  the report said. It said however that the Treasury would lose tax revenue if the system was introduced in the UK.

The report, sponsored by a grant from the Winston Churchill Memorial trust, recommends that a tax expert assess the likely net tax effect of the proposal. It calls on the Homes and Communities Agency to look at how it could direct and support a LIHTC system and calls on housing associations to develop investment funds that do not rely on recourse to assets.