Feels a bit like Deja Vu, though the report doesn’t seem to highlight how funding sources might be interested, tenure spread, or the need for the viability to work whilst producing ‘truly affordable’ housing.
Housing that only a few can afford is what the developers / local authorities will provide because at least then viability works.
The government is to pool 89 existing local authority pension funds into six wealth funds in a bid to get more money invested in British infrastructure.
As part of a four-point plan to ‘get Britain building’ chancellor George Osborne (pictured) announced that existing 89 local authority pension funds would be pooled into six wealth funds, each with assets of over £25 billion.
The plan aims to change the way infrastructure projects are planned and funded.
By pooling the schemes into six wealth funds the government hopes to save millions of pounds annually in management costs and fees.
The Conservatives said the move would change the way pension savings are invested. The funds will follow international norms for investment, meaning larger sums being invested in infrastructure, the party said.
Currently, small local pension funds ‘lack the expertise’ to invest in infrastructure, the government said. Overall, across £180 billion of assets, only 0.5% is invested in such projects, it claimed.
To see how the UK’s local authority schemes are currently invested, click here.
In countries with larger pooled public pension funds, up to 8% of assets are in infrastructure and 17% are in housing and infrastructure, the government said.
Business rate revolution
The Conservative party also announced it would local councils to be in full control of business rates by 2020.
On the matter of giving local authorities the power to set and keep their own business rates, Osborne said that it was important for the government to live within its means, but that devolution reform was necessary.
‘Right now we have the merry-go-round of clawing back local taxes into the Treasury, and handing them out again in the form of a grant. In my view, proud cities and counties should not be forced to come to national government with a begging bowl.
‘So I am announcing… we’re going to allow local governments to keep the rates they collect from business. That’s right: all £26 billion of business rates.
‘Right now we collect much more in business rates than we give back in the main grant, so we will phase out this local government grant altogether, but well also give councils the power and responsibilities for running their communities. The established transfers will be there on day one, but thereafter all the real growth in revenue will be yours to keep.’
The uniform business rate will be abolished and any local area will be able to cut business rates as much as they like.
Will this provide a greater focus on UK Housing and particularly Social housing provision, when housing falls under the infrastructure investment heading?
Willmott Dixon working with Walsh Associates (structural engineers) are delivering Woolwich Central, a huge Tesco development comprising an 80,000 sq ft superstore and 259 homes, in the heart of Woolwich.
Great to see our Strategic Partners building at scale.
We’ve known Geoff a long time and its good to welcome a company with such depth and experience onto the team.
GB Card & Partners are a UK-based team of experts, working both nationally and internationally to provide solutions to complex problems in a variety of challenging terrains and social environments. As consulting engineers Geoff believes in providing pragmatic, sustainable solutions which consider the project budget and the impacts on the environment.
Dr Geoffrey B Card is an internationally recognised expert, having authored a number of key civil engineering papers as well as much of the UK guidance on ground gas and developing on landfill sites.
Geoff’s team includes in-house chartered experts in the fields of civil and environmental engineering, geotechnics, infrastructure, land and groundwater quality.
This Housing Forum inquiry into the future financing and delivery of low cost housing has, over the past six months, explored the context, current approaches and future models for provision against an increasing concern regarding affordability. This is largely focused on London and the South East where pressure is greatest but will be extended by The Housing Forum in 2014 through its theme “Building Homes for the Future” into a national study of housing markets.
What has become immediately clear is that we are in the midst of the most radical change in the way sub-market homes are provided since the creation of state supplied housing under Clem Atlee 70 years ago. The combination of Welfare Reform and funding principles embodied in the Affordable Housing Programme has created a new dynamic in the relationship between state, provider and occupant, while the impact of the global financial crash has applied a major brake on mortgage availability and prompted prohibitive deposit requirements for new entrants to the market. Moreover, while much attention has been given to the ‘squeezed middle’, there has been a serious decline in activity to support the needs of those who fall below this target group.
The Working Group believes that mixed income communities are the lifeblood of strong, sustainable communities. Our work has identified that, such are the complexities of the UK housing market, current changes in policy have the potential to effect dramatic impacts on those living in localities with high land and property values. It is for this reason that we are mainly concerned at this stage with London and the South East. Indeed, if the London property phenomenon continues as many predict, we may be witnessing the beginnings of a demographic shift in population based on economic circumstance that reverses the inward migration sparked by land enclosures in the eighteenth century. Such unintended consequences would have a profound impact on business, local economies, those in need of support from the low waged and importantly, those who provide services in locations to which those impacted migrate.
We welcomed the opportunity to contribute to this report (P35) and believe it makes a useful contribution to the housing delivery debate. We agree with the report that as many have said previously, “there’s no silver bullet” and that the issue need addressing on all fronts.
For us at C4H we believe this includes, a political will to target the needy, removing housing investment from the PSBR, getting councils building again and finding a solution to viability so that a greater investment flow can be attracted.
The security arrangements associated with your web browser may prevent you from downloading the report below. Please do not hesitate to contact us, as we would be pleased to email you a copy.
Comment: At full tilt, pre-financial crisis, the existing housing industry couldn’t deliver 200,000 homes PA, so to achieve 300,000 homes PA today, new alternatively financed delivery routes need to be opened up.
We believe our low risk, early delivery chain investment solution, that triggers new housing via a Community Interest Company (CIC) is one such route.
If you are an investor in social housing bonds, and want to access the possible yield upside from blending traditional PRS / Sales incomes with those bond type loans and want to trigger new housing. This solution is for you.
Think tank calls for huge construction drive over next five years
THE NEXT government must commit to build 1.5m homes by 2020 to stem an emerging social and economic crisis, according to a report released today.
Westminster think tank Policy Exchange has calculated that the UK desperately needs to build 300,000 houses every year between the next election and 2020, more than twice as many as were constructed during 2012-13.
Further research released this morning shows the scale of the challenge. PwC predicts that housing and utility prices will continue soaring upwards, and will take an increasing chunk of squeezed household incomes. By 2030, the firm’s researchers forecast that property and utilities will make up 30 per cent of household spending, up from 26 per cent during 2012. Only six year years ago, in 2007, the figure was as low as 21 per cent.
Yesterday, real estate firm Savills said that it expects the average UK house price to rise by a quarter over the next five years. The firm said that 50,000 homes a year need to be built in London to meet demand from a growing population, roughly twice the current rate.
Savills also projects that London renters will pay the biggest price for the chronic shortage of homes: mainstream London rents are expected to increase by 25.8 per cent by 2018. Mortgage lender Halifax also weighed in, saying that house prices across the country have already risen by 6.9 per cent between the three months to October in 2012 and the same months this year.
All four reports add to the mounting evidence that the UK’s property market is heating up, with swelling demand and limited supply, even as wages stagnate.
Halifax ascribed some of the surge in demand to chancellor George Osborne’s controversial Help to Buy scheme, in which the government guarantees riskier high loan-to-value mortgages.
Only 145,910 homes were built in 2011-12 according to DCLG, one of the lowest numbers in postwar history. Despite the dramatic shortfall of housing, official figures released yesterday by the Office for National Statistics expect that the UK’s population will grow by over six million within the next decade and a half, pushing past 70m in total in 2027. The UK population will hit 73m by 2037, up almost 10m on the 63.7m recorded in mid-2012.
Policy Exchange also said that increased property taxes are not the solution to the UK’s supply problem.
The research shows that the UK’s real estate taxes are more than twice as high when measured as a chunk of GDP than the average country in the Organisation for Economic Co-operation and Development.
Alex Morton, the think tank’s head of housing said: “Policymakers should ignore calls for a new round of property taxes, and instead commit to spreading the benefits of homeownership and stabilising the UK economy by building at least 1.5m new homes over the course of the next parliament. This means serious reform of the planning system and creating new ways to deliver housing.”
C4H Comment:It’s really great to see the pensions industry at last responding to the clarion call that the UK has been sending out by overcoming the inertia of associated market risks. We do however believe there are more secure routes for investors, that will also have a greater impact for each community. Unfortunately the Pru investment has No underwritten yield, No additional social good and does not immediately contribute to the shortfall in social housing.
Use Picture link to Online article at FT:
Summary of key points from FT article:
The Prudential is to become the first UK institutional investor to enter the UK rented housing market in recent times, paving the way for the growth of a corporate-backed letting market at a time of acute housing shortage.
The Prudential Property Investment Management division – part of M&G, the Pru’s asset management arm – is close to a deal to buy more than 500 homes from the Berkeley Group, the UK’s largest house builder by market value, which the insurer will use to seed a vast rented property portfolio.
The deal, which is expected to close this week and will value the portfolio at about £140m, will see PruPim take control of the entire rental business that Berkeley established with the Homes and Communities Agency in 2010. Savills, the property agency, will manage the portfolio, which is spread across London and the south-east, say people familiar with the matter.
The move comes as many of the UK’s largest pension and insurance companies are considering a move into the residential property market. “It is a massively important moment for the market if they get the deal done,” said Chris Lacey, a director of residential investment at CBRE, the property consultancy. “All of the large institutions are looking at residential and thinking it is the right time to get into the market.”
The UK’s insurers and pension funds were once among the largest owners of residential property in the UK, but sold off their estates in the years after the second world war due to the intensive management required.
Both Legal & General and Aviva are looking at entering the private rented sector; both are understood to have eyed various potential developments and tie-ups with housebuilders.
“The case for institutional investment in private rented sector [PRS] residential is compelling,” said Bill Hughes, head of real estate at L&G Investment Managers.
“The benefits include diversification versus other assets, including commercial property, and attractive levels of returns for the level of risk being taken. Currently the scarcity of well specified PRS makes the opportunity more appealing,” he added.
Councils everywhere are grappling with issues of ever-increasing housing waiting-lists, rising care costs and continued reduction of government funding. C4H non-executive chair Adam Sampson discusses a new investment model that could help councils push ahead with infrastructure projects despite the squeeze.
During my six year period spent as chief executive of Shelter, the country’s largest and best known housing charity, I was very conscious of how vitally important it was for the nation’s financial and social health to address the shortage of housing and long-term investment in local communities.
The recently reported need by council’s to increase bad debt provisions and the continued trend towards reduced government subsidy across the board will certainly reduce investment in housing supply and community support. There is no simple or quick fix to the ever-increasing housing waiting-lists, community breakdown and rising care needs. So we need effective solutions.
New ‘multi-faceted’ solutions are obviously needed for the positive side of this changing real-world equation, and Community Interest Company (CIC) solutions have a role to play, and more particularly our developer CIC and property trust investment combination I feel, can make a real difference.
Our CIC solution is designed, primarily to attract pension fund investment but also to act as a catalyst for build and social good, all largely independent of prevailing market conditions. Overcoming the recognised investment inertia from a “boom bust” property market, via an attractive low risk, yet high yielding fund therefore, is our key enabling factor.
We applaud the varied and innovative new financing solutions being tried to get “Britain Building”, but they are to date, relatively small scale or are having limited impact; more ambitious ideas of increasing supply via PRS investment (for profit or not for profit models), REIT possibilities, or Sale and Leaseback mechanisms are all hampered by the traditional mix of viability, scalability, high risks and low return issues.
Historically the government has contributed over £80bn+ over the last 20 years to assist housing delivery and more recently looked to apply increasingly meagre S106 commitments; housing delivery viability simply does not work. Add to this the banking sectors retreat from long term investment, persistent poor market conditions (leaving in its wake a long list of insolvent past investors) and a growing gap in the affordability of owning your own home and anyone can see that to attract investment a different mindset is required.
Our CIC solution resolves what we believe to be the two vital issues not being addressed in combination by any other solution to date. To address viability, we allow our related Property Trust (CIC-PT) to retain the profit created from development. To provide yieldconfidence we combine the traditional loans required for the social and private homes so that lower risk, lower return but secure incomes from Registered Provider (RP) bond equivalents for the social homes effectively underwrite the higher risk associated with market exposure to PRS and long term sales.
We are working with a number of RPs and councils to identify large consented sites (200+ homes) that offer the opportunity to build a mixture of social and private homes. Each investment will seek to maximise the proportion of social and affordable housing as this is where any investor will seek to increase yield surety.
As a CIC, Catalyst for Homes CIC is not seeking to extract the development profit for its work but subject to minimum investor returns, to reinvest the retained surplus held by CIC-PT back into local community investment and social enterprise.
The custom of constraining a developer’s community commitment to that defined in a S106 when planning is consented, whilst providing surety for the developer does not recognise the changing needs of each new community. The combined effects of unforeseen changing community need and support along with inadequate design are borne out by so many failed communities.
Changing the traditional delivery approach where LAs and society as a whole end up dealing with the long term consequences of the developer’s short term financial involvement, only being responsible for that defined in a S106, into a long term participation for all parties, changes the focus towards making communities work, in a fluid and thriving environment.
Our CIC, without subsidy business led solution, we believe contributes towards a rebalancing of the new community equation increasing housing supply, tackling housing waiting lists, whilst recycling the traditional development profit into providing apprenticeships, jobs, local care and long-term economic growth.
Adam Sampson, non-executive chair of C4H and former CEO of Shelter