It is acknowledged by the Government that there is a "Housing Crisis" in the UK which, if not tackled, will severely limit the economy's growth and the Government's objective to reduce the economic deficit.
The Housing Crisis is not just about the need for more general housing, housing for first time buyers or housing to rent it includes all types of tenures and in particular affordable housing for the elderly and vulnerable. The answer of course is to increase the supply of housing but the more difficult question for the Government has been how to achieve this. A combination of solutions is required to ensure more housing is built – particularly affordable housing that is suitable for the elderly and those with social needs. These solutions will involve different participants, different tenures and different financial models.
Traditionally housing supply was either delivered by the housebuilders, or by Housing Associations/RSL's. It is apparent from the limited housing built to date that neither of these are providing sufficient housing, albeit they will remain part of the solution. The larger Housing Associations have separate non charitable developer subsidiaries that develop housing for sale as well as affordable to rent. Housebuilders in the current market will continue to provide houses for sale, at the right price, providing the required returns.
One of the well-publicised difficulties has been the inability of first time buyers to secure finance to enter the housing market. As we now have a Conservative Government, home ownership is at the heart of what they believe. Consequently, the Government continues to focus on providing incentives and assistance to these house purchasers. This includes the Help to Buy scheme which enables people to buy a home priced up to £600,000 with a deposit of as little as 5%. The Help to Buy scheme also includes:
- Help to Buy: equity loan - the government lends up to 20% of the value of a new build home, along with an extended scheme for Londoners to be loaned up to 40% the price of a newly-built home from early 2016 to 2012
- Help to Buy: mortgage guarantee - will run until 2016 and enables lenders to offer homebuyers 80% to 95% mortgages
- Help to Buy: NewBuy - aims to help buyers who have a deposit of at least 5% to buy a new-build home (working with the Home Builders Federation and the Council of Mortgage)
- Shared ownership: aimed at social tenants and other first-time buyers. These allow people to buy an initial share of a home and pay rent on the remainder, usually to a housing association. From April 2016, the current restrictions on who can buy a home through the scheme will be removed so that anyone who has a household income of less than £80,000 outside London or £90,000 inside London can buy a home through shared ownership.
Separately there is also
- a Rent to Buy scheme which is a £400 million programme that allows tenants to rent affordably for a period, save for a deposit, and then either buy the home or a different home at a later stage and
- Cash incentive schemes: a grant is issued to tenants to help them to buy a home on the open market, thereby freeing up a social rented home for new tenants
However none of these incentives provide affordable housing for the elderly and those with social needs. There is the potential to use receipts from housing for sale to cross subsidise, also for delivery through the planning framework, or through the Disabled Facilities Grant which is expected to fund around 85,000 home adaptations and prevent 8,500 people from needing to go into a care home but none of these are likely to deliver the quantity required.
Devolution and local delivery
What is of more interest is the Chancellor's devolution plans which will enable housing solutions being driven at a local level. The devolution agenda is gathering pace.
In November 2014 the Manchester devolution agreement was signed which gave £1billion of spending and power over transport, education, welfare and health and social welfare to the Greater Manchester Authority and the start of the 'Northern Powerhouse'.
The Northern Powerhouse in March 2015 was extended to Leeds as the Leeds city region were the second group of predominantly Labour-led councils to agree to cooperate with the Chancellor’s devolution plan. The Leeds city region covers the West Yorkshire districts of Bradford, Calderdale, Kirklees, Leeds and Wakefield plus the North Yorkshire districts of Craven, Harrogate, Selby and the City of York. The West Yorkshire economic area would represent the UK’s largest city region economy outside London.
In October 2015 the Chancellor also confirmed the Sheffield devolution deal. This builds on earlier Growth Deals and gives the Sheffield area more freedom to tailor services to local needs, support local businesses and create jobs.
Cornwall, North East Combined Authority , Tees Valley, Liverpool City Region and West Midlands Combined Authority have also entered into Devolution Deals with Whitehall. There are in addition 33 further devolution proposals which have been put forward from cities, towns and counties across the UK and the Government's devolution secretary has announced that Greater Yorkshire across the West, North and East, will be the next to sign a Devolution Deal, obtaining power to control over spending, transport and skills from 2016.
What does devolution mean for affordable housing? Essentiallly a significant amount of new housing projects will be procured and delivered locally, following the Localism Agenda and the previous establishment of the Local Enterprise Partnerships. Through the Decentralisation and Localism Bill, the devolved powers to Local Authorities will include much greater fiscal autonomy. Following the 2015 Comprehensive Spending Review and Autumn Statement, Local councils will retain 100% of the funds received from their asset sales to enable them to improve the services they wish to provide and will receive £10m to help the homeless. Councils with responsibilities for social care will also be able to levy a new precept of 2% on council tax to fund care services. Finding a housing solution at a local level makes sense, as this should help combat nimbyism by ensuring that local communities accept affordable housing needs (the shocking provision of elderly care affects most people) and local authorities have the power and financial muscle to deliver.
Combined Housing and Health
In Manchester, devolution has included the joinder of the local health budget with the local authority. The current situation where the budget is divided between social services and the health service creates costly bureaucratic overlap which is of little benefit to patients and householders. By combining these budgets the Greater Manchester area can look at housing and healthcare needs holistically and ensure that there is suitable provision for those elderly or vulnerable with more complex housing and healthcare needs.
George Osborne signed a health devolution deal for London on 15 December 2015. The agreement will see the launch of five pilot schemes designed to transfer power over NHS services from Whitehall to local groups, which includes the combination of health and social care budgets to ''transform its services'' in Hackney.
The Chancellor will force every part of the country to have a plan for integration between social care and the NHS by 2017, to be implemented by 2020. This combination of budgets should be one of the key solutions to delivering suitable affordable housing for the elderly and vulnerable, as well as more general housing needs. Manchester has to be the leader in this area, and if it can find a solution, others will follow.
Private Rented Sector
Separately there has also been a drive to deliver greater private rented sector accommodation. In the UK, the PRS market has been fragmented and largely unfit for purpose. This is in contrast to other European countries and the US where there is a well-developed PRS market.
Taking a leaf from the student accommodation model, a good location with good transport links, superior design quality with a good management/concierge offering, in an area where there is a shortage of suitable housing will fit the PRS model, which has the potential to deliver large quantities of good quality housing. The PRS model also appeals to institutional investors as this is long term and stable income flow, with a social purpose.
The PRS model can equally be used for good quality affordable housing for those with health and social needs. Mixed tenures are often appropriate and Housing Associations or local authorities can underpin rental streams. Any regeneration package cannot ignore the housing needs of some of the most vulnerable members of the community. The PRS is a model that can be used, bringing in new participants from institutional investors, overseas investors, and new developers – all are welcome.
Alternative procurement models
What we are now seeing is therefore a significant change in the way affordable housing is being procured and delivered. Fiscal devolution will allow Cities and Local Authorities to meet their local needs. Greater fiscal independance – such as local control of Stamp Duty Land Tax, and local tax assignment will allow far more flexibility in the approach to creating housing. Local Authorities will increasingly be seen as a Housing Delivery Enabler and with devolved power they can borrow and access investment opportunities.
The growth of the Private Rented Sector model means that institutional and overseas investors are increasingly comfortable with this long term guaranteed income stream. The increased use of public private partnerships, strategic partnerships or alternative joint venture models, and by using a model that will attract the local pension funds or other institutional investors is the way forward.
Local Authorities can help stimulate capital investment for affordable housing by exploiting the inherent value of their asset base. One method of raising debt finance has been through joint venture models or Local Asset Backed Vehicles (LABV). However, this model relies on the underlying land having a certain value and often require cross subsidy from housing sales to underpin their success. This is often not suitable for large-scale affordable housing requirements in difficult locations or where significant amounts of capital/investment are required.
Another model that could be considered at a local level would be PF2. The Government invested time and effort in analysing the issues with PFI and providing the alternative PF2 model. PF2 does not have to be seen as a central Government tool, the same principles of only paying for the delivery of services can be used by a Local Authority with devolved powers. Although PFI has fallen out of favour since the financial crisis, it still remains a successful and proven method of procurement of large scale affordable housing. Manchester, Oldham, Leeds, Salford, Lambeth and many others have all achieved regeneration of their social housing and associated community by using PFI credits Prior to the comprehensive spending review in October 2010, there were £1.6bn of PFI credits available for social housing schemes, which were massively oversubscribed by local authorities desperately in need of this money to deliver affordable housing or regenerate large estates in their area.
The Housing PFI projects that have closed in recent years have largely been schemes which provided supported social housing for vulnerable people. Without PFI credits or an alternative public-private partnership model, it is unlikely this could have been delivered.
However with devolved budgets, particularly as others will follow the Manchester example of combing health and social care budgets, there is the potential to consider PF2 or similar to deliver large scale regeneration of an area, with affordable housing and housing that is suitable for those with health and social care needs.
The Prime Minister has recently stated his focus is to 'rebuild Britain' as a 'Smarter State' which 'delivers the key services people need and advances our progressive goals of increasing opportunity and real social mobility'. This focus on increasing key services that people need through devolution, efficiency and reform, means private sector partners working with Local Authorities and using alternative delivery models.
Solving the affordable housing crisis for the elderly and vulnerable will require a mixture of approaches, a mixture of housing solutions and the ability for the public and private sector to work together to finance and deliver significantly higher levels of suitable housing. The public private partnership model has been successfully used and is still be part of the solution to avoid or mitigate the 'Housing crisis' .