- the additional borrowing capacity that can be generated from the conversion of social rent properties to Affordable Rent (or other tenures) at re-let, as well as borrowing capacity generated by the net rental income stream of the new properties developed;
- existing sources of cross subsidy, including provider surpluses, income from developing new properties for outright sale, Recycled Capital Grant Funding (RCGF) and Disposals Proceeds Fund (DPF) and s106 cross subsidy;
- HCA funding where required for development to be viable; and
- other sources of funding or means of reducing costs such as free or discounted public land, including local authority land, and local authority contributions for example from the New Homes Bonus.
- The HCA contribution is stream three. The larger future revenue stream derived from higher rents increases the borrowing capacity to help fund the project, while the HCA is looking for partners in projects to pull cash from other sources, reduce costs and contribute assets where available.
And as I type there will be a huge number of large and small projects that would be viable if there were a contribution made by the HCA. Assuming these are less viable than those already within the programme we might reckon on spending a bit more for each home than we see in the current spend.
But with £35,000 taken from the £100,000 average market value of each council house sold, in theory at least, there is enough to lever the construction of at least one new affordable rent home, even though it is not paying for the whole thing.
This mixed-funding project-based structure is, I suggest, broadly the way in which the money will be fed into the construction of new affordable homes. And with so much expertise in brokering deals it might seem extraordinary if the HCA was sidelined from a major role.
Localism be damned, the Government knows very well that potentially this centralised approach is more controllable, probably more efficient and very likely more effective at getting to where there is greatest need for affordable housing than a system that pumps funds back to the local authority that feel they have been wrested of social homes.
So when Grant Shapps suggests, as he did on BBC’s You and Yours (@24 mins) that among the options the money could be rechanneled through the HCA, it sounds to me like a dead cert. I may be wrong and there may be sops to localism, but I’d be very surprised if councils hold onto all the capital receipts generated from the sale of their council homes.
The overall goal, according to Shapps, is that the homes end up where they are required. A quick glimpse at the waiting list figures as a proxy gives a clue (a bad one maybe) as to where affordable homes might be required.
Topping the list are Yorkshire and Humberside and London in terms of the percentage of households in the region on a waiting list in 2009. If the policy is to be judged on funding affordable rent where it is needed then we should expect a regional drift of capital receipts.
What however may be more important for the Government and indeed the house building industry than simply funding affordable rent homes, is that the partnership approach to funding opens up sites that would otherwise remain unviable.
The major private house builders are currently focused on delivering improved profit margins to their shareholders, partly to restore faith, but also to provide comfort in case the market turns sour again. The result of this is that they are far more cautious than in the past about starting new schemes.
This means that any leverage funding that brings a scheme into viability generates not just affordable rent homes, but also open the way for the development of open market homes.
Furthermore the flexibility over tenure being built into the system means that the developer can phase the affordable rent, affordable sale and open market delivery to suit fluctuations in market conditions.
This can help to reduce risk and provide for a more steady production. Being able to rephrase the delivery of affordable and open market homes can be particularly helpful on phased flatted schemes, which are pretty common in London.
So on the face of it this idea might just work to generate the building of more homes. It will be interesting to see how it pans out. As for whether it is fair, whether it is the best way to fund housing and whether it is the best use of a £200 billion asset, I will leave to others to argue over.
For me one thing this notion illustrates is how we are moving ever more into the arena of financial engineering as we seek to deliver construction in a time of austerity.