Inside Housing – Comment – New public-private financial model is needed to kick-start social housing development

The combined authority would procure a special purpose vehicle backed by stakeholders (which could include local authorities and housing associations), where each new place-based housing project would be funded through a mix of subordinated debt, equity, bank/investor loans and government support.

Schemes should be structured to allow all the relevant stakeholders to hopefully profit from their PPF3 investment by owning a stake in these housing projects, which could also be managed by housing associations, and consist of a mix of affordable, shared ownership and market sale properties, as well as build-to-rent properties.

Of course, lessons from past PFI failings would have to be addressed at the outset. PFI contracts were long-term agreements that could last for 25 years. This wasn’t a problem when the economy was performing strongly and public sector budgets were healthy, but when the economic going got tough, many PFI contracts were cut short. Terminating the contracts and their associated finance proved costly for both the public sector and the taxpayer.

“Alternatively, it might be possible to leverage public sector pension schemes to support housing projects in the local area. This initiative could be incentivised by tax breaks, and stakeholders’ interests could be protected by a government-backed guarantee or other contingent liability”

Subject to ensuring it is attractive to sufficient investors, funds and banks, perhaps the length of these contracts should be shorter, and they should be more flexible. There were also issues with the way PFI contracts were structured, which made them very expensive to vary and costly to deliver. These issues would need to be addressed.

Solving these problems and putting in place a new PPF3 framework that works would take time, but it could be worth the wait. In the meantime, the government could press ahead with tactical changes to drive investment in social and affordable housing in the near term. A new, centrally funded, grant-based scheme could be established to facilitate development activity led by local and combined authorities collaborating with registered providers that can also manage the properties once built.

Alternatively, it might be possible to leverage public sector pension schemes to support housing projects (which would include social and affordable housing) in the local area. This initiative could be incentivised by tax breaks, and stakeholders’ interests could be protected by a government-backed guarantee or other contingent liability.

With the housing shortfall widening and little money in the coffers to fund more housing development, the government knows that it needs to act quickly. This can only be achieved by bringing all stakeholders – local authorities, lenders, private investors and registered providers – together and collaborating to map out a housing strategy to meet the needs of society in the short and long term.

Jon Coane, partner and head of funding, Anthony Collins Solicitors