MHCLG officials to discuss affordable funding model proposed by Building sister’s title Housing Today

Civil servants from the Ministry of Housing, Communities and Local Government have expressed interest in discussing a new funding model proposed by Housing Today and the G15 group of housing associations.

Officials are set to meet with G15 leaders after Easter to talk about the proposals for an amortising grant funding model as the government looks for ideas to boost affordable housing in the run-up to June’s spending review.

The amortised grant funding model, just one of several ideas set out in the State of the Capital report published by Housing Today and G15 last month, could help London’s housing associations commit to development while making it easier for the cash-strapped government to invest in affordable housing.

Under the model, housing associations would receive a higher amount of development grant per unit upfront. This would mean the housing association initially needs to borrow much less money privately to make up the development costs, meaning net rent could more easily cover costs without worsening interest cover metrics.

Over time, the association would pay back some or all of the grant interest-free to government. The advantage of this for the Treasury is that the grant paid back can be classified as an investment instead of as straightforward debt or expense to the taxpayer.

MHCLG and G15 are in the process of arranging a date to talk about the proposed model, with officials keen to find solutions that could boost affordable housing without substantially impacting the public balance sheet.

In a comment piece for Housing Today last month, Paul Hackett, chief executive of G15 landlord Southern Housing, warned tweaking current grant rates “won’t move the dial” on development unless the issue of housing associations’ constrained balance sheet capacity is addressed.

He said: “We’re proposing a new model where upfront capital funding is increased to the point where rent for each new home covers operating costs and interest from day one.

Click here to access the State of the Capital report

“The benefit to government of this model – aside from getting more homes built in this parliament – is the repayment of grant once rental surpluses can cover repayments. This means instead of paying grant and then writing it off straight away as currently happens, government would have a balance sheet asset to net off public sector net debt metrics.”

The amortising grant model is seen by the G15 as a supplementary model which won’t be for everyone in the sector and is needed in addition to more “fundamental” asks around the rent settlement, rent convergence, access to the building safety fund and grant funding.

The discussions follow the launch of Building’s campaign to examine fresh ways of attracting and using finance to boost construction projects at a time of constrained public finances.

The initiative will examine options for public-private partnerships which can draw in private capital to pay for large infrastructure projects, new schools, prisons, hospitals and housing. It will also look at existing models for private and public funding and examine how these can be optimised to ensure funding leads to more shovels in the ground as prime minister Keir Starmer looks to construction to boost flagging growth.