Labour needs to develop alternative ways of funding new affordable homes that make available public funding stretch as far as possible. The Party has long supported greater investment in rented homes by large institutional investors in principle, but delivering real schemes has proved problematic in practice. Now Insurance Companies are showing interest in getting into this market and innovative ways of structuring loans may make it a realistic proposition.
Here, Red Brick guest contributor Graham Martin, a member of the Labour Housing Group Executive, describes how such schemes might work.
The credit crunch and reduced government grants are putting pressure on the finances of the country’s housing associations. Housing associations finance most of their new homes through a mixture of government grant and borrowing. Over time the rents paid by tenants are used to repay the loans used to build their home.
Since the credit crunch it has become a lot harder and more expensive to borrow money from banks and building societies. The money is more expensive, comes with stricter “covenants” or rules, and many lenders will not lend for the full 25 or 30 years housing associations plan for to pay off their debt. Additionally the amount Government pays in grant has fallen from a typical £80,000 per property (England, programme skewed to London) to just under £20,000 per property. Like home owners, housing associations struggle to get mortgages over around 60% of the value of their homes, so if grant rates are cut there is not only more borrowed money for tenants’ rents to have to pay off, but the housing associations need to mortgage rather more than one home to fund the cost of building a single property.
Over the past year or so some of Britain’s Insurance Companies have been looking at funding (or “investing in”) rented property. Some are looking at social housing (housing association properties, and possibly council housing), others at funding larger scale residential property companies (private or publicly owned commercial companies or REITS – Real Estate Investment Trusts).
The attraction of social housing is that the borrowers (housing associations) are well regulated, and have a 100% record of repaying all monies borrowed over the past 50 years. Additionally rents increase annually in line with (or above) inflation, and housing associations currently pay much more in interest to the banks than Insurance Companies can get from investing in Government Bonds. (Many associations have credit ratings much better than the big banks, and better than many Countries).
An “ideal” lending product for a UK life insurance company is one whose repayment increases annually, in line with inflation, to match the expected lifetime of the pensioner(s) whose pensions are being paid by the Insurance Company.
By favourable coincidence it is possible for the Insurance Companies to offer funding to housing associations (and potentially councils) which start much lower than a conventional bank loan, increase each year but only to take the same proportion of rent collected, and after an agreed period the funding is redeemed with the final annual payment.
This looks to have the potential to be a real “win win” situation – Insurance Companies will get a higher return on their investments, allowing pensioners to be paid a higher “annuity” on their pension savings when they retire (or working people to pay less into their pension fund for the same level of funding).
And housing associations (and hopefully in future Councils) will be able to borrow money for social housing on much more “friendly” terms than from the banks. Some simple modelling carried out by the writer indicates that social landlords may be able to build up to half as many homes again (or even more) for any given amount of grant, compared to what is possible with bank borrowing in the present climate.
If this is such a good deal, why is it only now starting to happen? In fact there has been a very small amount of activity for the past 20 or so years, but on terms not attractive to housing associations, and in amounts not attractive to insurance companies. Recently three things changed. Firstly Insurers have had to start looking much harder for good, safe, investments. Secondly Insurers appear to have had a minimum investment size of around £100m before they would consider looking at new ideas. This is too large an amount for most housing associations. Recently Insurers are offering finance for amounts of around £50 million (and perhaps much less) which makes their offer much more attractive. Finally there have been some regulatory changes (comprehensible only to those who understand such terms as BASEL III and SOLVENCY 2) which make it easier, in terms of their regulation, for Insurers to lend to social housing.
So far two Companies (AVIVA and MGN) are marketing Insurance funding to social landlords. AVIVA already has its first funding agreement in place, and MGN publicised the launch of a £200m fund on 4 December. At least six other Insurance Companies are investing in Residential Property companies, and may in time move to fund social housing.
Are Insurance Companies the answer to funding social housing? Time will tell. However banks are struggling to lend, and, for housing associations which are not able (or willing) to enter the Bond Market and issue their own bonds, Insurance Funding may be the best offer in town.
Graham Martin
10 October 2011: ‘Welfare reform – there is a choice’, David Orr for the National Housing Federation blog
This post could have come at any time during the last nine month debate over welfare and public spending cuts, but it proved poignant as welfare minister Lord Freud faced growing criticism over the impact of his reforms on the most marginalised communities.
“The problem is that the reality of the debt has become an excuse to make decisions which will have profoundly bad consequences for some of the poorest people in our society,” argued David Orr, chief executive of the National Housing Federation. “The very people the Government should be helping during these tough economic times: the disabled, foster carers and families – are exactly the people who will be hammered by these measures.”
His powerful conclusion? “Ministers will tell you there is no choice. That’s rubbish. There are always choices.”
29 July 2011: ‘From festival trash to housing stash’, The Social Issue
At a time of growing pressure on housing and support services and a pervasive mood of doom and gloom across the sector, how refreshing to hear a good news story. Saba Salman’s blog showcased a captivating example of the kind of innovative thinking that will see the housing sector not only survive but flourish despite a lack of public funding.
St Mary’s, a homeless hostel in Bangor, launched a scheme to redistribute tents, camping equipment and sleeping bags abandoned in Cardigan Bay after a music festival to hostels and drop-in centres across North Wales.
“The equipment by the housing association staff and hostel users includes some 79 pop up tents, 38 normal tents, 47 sleeping bags, 54 inflatable beds, 51 camping chairs, 45 roll mats including thermo rests, 17 pairs of wellies and eight new pillows,” Salman wrote.
We welcomed the chance to share a feel good example of the simple ways in which the housing sector can support itself, and its clients, during the coming months.
17 June 2011: ‘You can’t defeat stereotypes by repeating stereotypes’, Red Brick Blog
In June, housing veteran Steve Hilditch shared his disappointment at Labour leader Ed Miliband’s willingness to repeat the very sentiments about social tenants and their communities that can make the job of the housing sector so difficult.
“Ed makes the point that he wants to reward contribution and not punish people. But there is shortage and the people who get punished are those that won’t get a home as a result of a change in priorities – your grannie who needs sheltered housing, your cousin with a severe medical condition who can’t stay in a private bedsit in a shared house, your son or daughter who has had a breakdown and needs supported housing, your sister with 3 kids evicted from her home because she can’t keep up with the mortgage. None of them working and none of them able to volunteer. These are not tearjerkers, this is the real life business of allocating social housing.
“We fall into the hands of the forces of darkness every time we play the undeserving poor game, every time we add to the negativity around ‘welfare recipients’ without explaining who they are,” Hilditch explained.
22 November 2011: ‘The strange death of social housing’, Patrick Butler’s Cuts Blog
In an insightful post on the brave new world of social housing under the coalition government, the Guardian’s own Patrick Butler spelled out the perverse choice that the government – indeed, any government – now faces in funding homes for social rent:
“If it wants to build new properties for social tenants, it has just two options: to raise its own investment capital (by selling off a couple of its million-pound properties to bankers or city lawyers); or to apply for investment under the affordable housing programme.
“If it does the former, it knows it risks abandoning its social mission to help provide homes for low-paid young people in the areas in which it operates… if it does the latter, it knows that any homes it builds or acquires in its core north London areas will never be rented by the people it was set up to help.”
If a housing provider charges 80% of market rent under the Affordable Rent scheme, “what would be the point of its existence as a housing association?” Difficult questions that all our members now face, and no easy answer.
13 July 2011: ‘You know you’re an innovator when…’, Social Housing Comms
In tough times, how do you know when your organisation – and staff – is performing well? Kat Hughes, head of communications at Wolverhampton Homes and a prolific housing blogger, shared her top tips on how to recognise the innovators in your workplace.
You are an innovator, she claims, if:
* You have your best ideas in the shower * People describe you as tenacious – and you’re never sure if it’s a compliment * You love change * You bookmark web pages, favourite tweets or tear out pages of magazines obsessively * You talk a lot but you listen more *Your friends are all cleverer than you *You’re willing to take the hit if an idea doesn’t work out *You never feel like you’ve reached the top
But our particular favourite has to be: “You know you’re an innovator if you wake up in the middle of the night and email or text yourself.”
This content is taken from Guardian Professional. You can sign up as a member of the housing network and receive news, views and jobs direct to your inbox.
This post could have come at any time during the last nine month debate over welfare and public spending cuts, but it proved poignant as welfare minister Lord Freud faced growing criticism over the impact of his reforms on the most marginalised communities.
“The problem is that the reality of the debt has become an excuse to make decisions which will have profoundly bad consequences for some of the poorest people in our society,” argued David Orr, chief executive of the National Housing Federation. “The very people the Government should be helping during these tough economic times: the disabled, foster carers and families – are exactly the people who will be hammered by these measures.”
His powerful conclusion? “Ministers will tell you there is no choice. That’s rubbish. There are always choices.”
29 July 2011: ‘From festival trash to housing stash’, The Social Issue
At a time of growing pressure on housing and support services and a pervasive mood of doom and gloom across the sector, how refreshing to hear a good news story. Saba Salman’s blog showcased a captivating example of the kind of innovative thinking that will see the housing sector not only survive but flourish despite a lack of public funding.
St Mary’s, a homeless hostel in Bangor, launched a scheme to redistribute tents, camping equipment and sleeping bags abandoned in Cardigan Bay after a music festival to hostels and drop-in centres across North Wales.
“The equipment by the housing association staff and hostel users includes some 79 pop up tents, 38 normal tents, 47 sleeping bags, 54 inflatable beds, 51 camping chairs, 45 roll mats including thermo rests, 17 pairs of wellies and eight new pillows,” Salman wrote.
We welcomed the chance to share a feel good example of the simple ways in which the housing sector can support itself, and its clients, during the coming months.
17 June 2011: ‘You can’t defeat stereotypes by repeating stereotypes’, Red Brick Blog
In June, housing veteran Steve Hilditch shared his disappointment at Labour leader Ed Miliband’s willingness to repeat the very sentiments about social tenants and their communities that can make the job of the housing sector so difficult.
“Ed makes the point that he wants to reward contribution and not punish people. But there is shortage and the people who get punished are those that won’t get a home as a result of a change in priorities – your grannie who needs sheltered housing, your cousin with a severe medical condition who can’t stay in a private bedsit in a shared house, your son or daughter who has had a breakdown and needs supported housing, your sister with 3 kids evicted from her home because she can’t keep up with the mortgage. None of them working and none of them able to volunteer. These are not tearjerkers, this is the real life business of allocating social housing.
“We fall into the hands of the forces of darkness every time we play the undeserving poor game, every time we add to the negativity around ‘welfare recipients’ without explaining who they are,” Hilditch explained.
22 November 2011: ‘The strange death of social housing’, Patrick Butler’s Cuts Blog
In an insightful post on the brave new world of social housing under the coalition government, the Guardian’s own Patrick Butler spelled out the perverse choice that the government – indeed, any government – now faces in funding homes for social rent:
“If it wants to build new properties for social tenants, it has just two options: to raise its own investment capital (by selling off a couple of its million-pound properties to bankers or city lawyers); or to apply for investment under the affordable housing programme.
“If it does the former, it knows it risks abandoning its social mission to help provide homes for low-paid young people in the areas in which it operates… if it does the latter, it knows that any homes it builds or acquires in its core north London areas will never be rented by the people it was set up to help.”
If a housing provider charges 80% of market rent under the Affordable Rent scheme, “what would be the point of its existence as a housing association?” Difficult questions that all our members now face, and no easy answer.
13 July 2011: ‘You know you’re an innovator when…’, Social Housing Comms
In tough times, how do you know when your organisation – and staff – is performing well? Kat Hughes, head of communications at Wolverhampton Homes and a prolific housing blogger, shared her top tips on how to recognise the innovators in your workplace.
You are an innovator, she claims, if:
* You have your best ideas in the shower * People describe you as tenacious – and you’re never sure if it’s a compliment * You love change * You bookmark web pages, favourite tweets or tear out pages of magazines obsessively * You talk a lot but you listen more *Your friends are all cleverer than you *You’re willing to take the hit if an idea doesn’t work out *You never feel like you’ve reached the top
But our particular favourite has to be: “You know you’re an innovator if you wake up in the middle of the night and email or text yourself.”
This content is taken from Guardian Professional. You can sign up as a member of the housing network and receive news, views and jobs direct to your inbox.
