Is PF2 the answer to the UK's cronic affordable housing shortage? As published in Public Sector Build Journal
The UK is currently experiencing a surge in its population and, as a result, faces a well-publicised affordable housing shortage that is only going to intensify. A combination of solutions is required to get more housing built – particularly affordable that is suitable for the elderly and those with social needs. These solutions involve different financial models and the need to reintroduce PFI or alternative public private partnerships.
Finance is a factor
Ultimately, this demand can only be met with both government funding and private investment. Local development is currently limited by the finance available to local authorities. There is growing support for London and other cities to have greater financial autonomy – including local control of Stamp Duty Land Tax, a degree of tax devolution, and local tax assignment. Greater fiscal independence would allow for more flexibility in the approach to creating housing.
The public sector can help stimulate capital investment for 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.
So, although PFI has fallen out of favour since the financial crisis, it still remains a successful and proven method of procurement of affordable housing. Manchester, Oldham, Leeds, Salford, Lambeth and many others have all achieved large-scale regeneration using PFI credits to deliver affordable housing. 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.
Currently there are no PFI housing schemes. The few that have closed in recent years were allowed to continue post the comprehensive spending review, and included schemes which provided supported social housing for vulnerable people. The Kent Housing scheme for example was a collaboration between the County Council and the district councils, and enabled access to PFI procurement. Without PFI credits or an alternative public-private partnership model, it is unlikely this could have been delivered.
PF2 may be the answer
The Government has invested time and effort in analysing the issues with PFI and providing an alternative PF2 model – so why not use PF2 as part of the solution to delivering more affordable housing? Solving the affordable housing crisis for the elderly and vulnerable requires a mixture of approaches and the ability for the public and private sector to work together to finance and deliver significantly higher levels of suitable housing. The PFI/PPP model has been successfully used and may still be the best answer to avoid or mitigate this growing crisis.