Going to Scale: How a National Housing Fund Can Unlock Britain's House Building Capacity - Thinkhouse

Page created by Josephine Hunt
 
CONTINUE READING
Prosperity     Prosperity        Prosperity

                             November 2016

                    Going to Scale:
     How a National Housing Fund Can
Unlock Britain’s House Building Capacity

 Philip Callan, Phillip Blond & Edward Douglas
About the Authors

Philip Callan is the Managing Director of PCA: following roles in the chemical industry and distribution Philip held senior roles in
the health service, the London fire brigade and the Housing Corporation before founding PCA in 1988. He has led approximately 40
mergers and advised on the creation of around 25 new housing organisations.

Philip was seconded in to government to lead the review of housing delivery that created the Homes and Community Agency and
lead a series of interventions to promote change within the housing sector.

Phillip Blond is the Director of ResPublica.

Edward Douglas is a senior policy and projects officer at ResPublica.

ResPublica Acknowledgements

ResPublica would like to thank our partners Peabody, Aster Group, Great Places and Network Homes for their kind support for this
project. We would also like to extend particular thanks to Stephen Howlett, Chief Executive of Peabody, Bjorn Howard, Chief Executive
of Aster Group, Matthew Harrison, Chief Executive of Great Places, and Helen Evans, Chief Executive of Network Homes. Finally, we
would like to thank JLL for their analysis and modelling.

About ResPublica

The ResPublica Trust (ResPublica) is an independent non-partisan think tank. Through our research, policy innovation and
programmes, we seek to establish a new economic, social and cultural settlement. In order to heal the long-term rifts in our country,
we aim to combat the concentration of wealth and power by distributing ownership and agency to all, and by re-instilling culture and
virtue across our economy and society.
Going to Scale

Contents

Introduction                                                                    2

1. The need for a fresh approach                                                4

2. The ask of Government: A new fully returnable public investment in housing   6

       The National Housing Fund                                                 6
       Structured and sustained investment                                       7
       How would the Fund work?                                                  8
       Case study: The National Housing Fund model                               9
       Building capacity, increasing production, creating new homes             10
       Case study: Operation of The National Housing Fund                       14
       How does this differ from the Government’s Home Building Fund?           15

3. What could The National Housing Fund deliver?                                16

4. Why other approaches are not sufficient                                      20

       Comparative analysis of other proposals                                  22

Conclusion                                                                      24

                                                                                                 1
Introduction

                                    The Brexit vote in June spoke to the             The challenge we face is twofold. Firstly, and
                                    deep divisions - in wealth, education and        most importantly, we need to change the
                                    opportunity - in our country. Factors such       current structure of the housing market so
                                    as class and geography interacted with           that we finally build more homes. Secondly,
                                    age and culture and produced a result that       in light of the current barriers to ownership
                                    manifests the urgent need to re-orient           we need to build good quality homes
                                    policy and priority towards those who have       for rent and give those who live in them
                                    lost out over the last 30 years.                 more long-term tenure security, as well as
    “The real problems with the                                                      a pathway to owning the house that they
    UK house building industry      Nowhere is this need for a fundamental           currently rent.
    are number, pace and scale.     reorientation of policy and direction more
    We believe we have the          clear than in housing. Home ownership            The question of course is: what policy change
                                    rates have reached a 30-year low.1 A baby        will deliver housing at the pace and scale
    answer – a guaranteed buyer     boomer at age 30 was 50 per cent more likely     we need? What we do know is that private
    each year for ten years for a   to own their own home than a millennial          sector house builders alone will not meet
    minimum of at least 40,000      today of the same age. Over 1.2 million          the nation’s needs. Over the last 35 years,
    and up to 75,000 new homes      people languish on housing waiting lists         on average, the private sector has built less
                                    in England, while more than 6 million face       than 150,000 homes a year – 50,000 short
    a year.”                        tenure insecurity and no prospect of asset       of the Government’s current target and
                                    accumulation in the private rented sector.2      up to 150,000 short of some independent
                                    Prospects for moving from renting to owning      assessments of our housing need.5 What this
                                    are now so low that only a minority of renters   shows is clear: the current housing market,
                                    under 40 are trying to save for their own        as presently constructed, cannot build the
                                    home.3 So extreme is this trend that PwC         housing the country so urgently needs.
                                    forecasts that the number of households
                                    renting privately will match the number of       If a One Nation agenda is to move from
                                    households buying with mortgages – 7.2           political aspiration to practical reality, a
                                    million – by 2025.4                              good start would be a new way forward
                                                                                     on housing and ownership. That means a
                                    The acute instabilities and pressures that the   policy intervention that delivers the types of
                                    housing crisis has brought to many people        homes we need, at the scale we need them,
                                    are well known. When your landlord can           whilst offering those on medium and low
                                    decide whether you have a home or not;           incomes new prospects for tenure security
                                    when the National Living Wage barely covers      while renting and ultimately a path into
                                    rent in houses at the bottom end of the          home ownership.
                                    market; when you no longer believe your
                                    children will one day own a home of their        The last few years have seen a range of
                                    own; then policy must change.                    schemes on both the demand and supply side
                                                                                     to address these twin interrelated problems.

2
Going to Scale

On the supply side, the Government has                  The question we need to ask is: what       (be they public or private) of enough
sought to support housebuilding across                  policy can deliver new homes at the scale  capacity who can build fast enough at a
a range of housing types and tenures –                  we need? What measure over a sustained     great enough scale. Why? Because builders
schemes such as the Build to Rent Fund,                 period of time can propel a dramatic       largely rely on sales to determine the pace
the New Homes Bonus and the Builders                    increase in house building sufficient to   of build and will only build at the rate they
Finance Fund have helped. But they have                 bridge the gap between current delivery    can sell. And though the demand for houses
not delivered at anything like the scale we             levels and the Government’s one million    is enormous those able to buy represent but
need. Last year’s housing starts reached                homes target?                              a small proportion of the overall demand.
143,500 – 56,500 less than the 200,000                                                             What can change this? We believe we
needed each year over this Parliament to hit            We believe that much of what is asserted   have the answer – a guaranteed buyer
the Government’s own targets.6                          to hold up house building, such as land,   in the form of a new National Housing
                                                        planning and finance, are not the major    Fund running each year for ten years for a
On the demand side, initiatives such as                 problems they are commonly held to be. For minimum of at least 40,000 and up to 75,000
Help to Buy have helped those eligible,                 example, across England there is currently new homes a year. What follows outlines our
buy homes. But they have been too                       planning permission for 460,000 homes that plan for a National Housing Fund that would
concentrated in one part of the market,                 are yet to be implemented, an increase of  do just that.
raising demand without sufficiently raising             25% since 2013.7
supply and thus increasing prices for the
millions of people unable to both save to               No, the real problems with the UK house
buy and pay increasingly high private rents             building industry are number, pace and
while they do so.                                       scale. We do not have enough builders

1 Clarke, S. (2016) “Home ownership struggle reaches Coronation Street”, 2 August 2016, Resolution Foundation [Online]. Available at: http://www.
resolutionfoundation.org/media/blog/home-ownership-struggle-reaches-coronation-street/ [Accessed 3 November 2016].

2 DCLG (2016) “Table 600: numbers of households on local authorities’ housing waiting lists, by district, England, from 1997” [Online]. Available at: https://www.gov.
uk/government/statistical-data-sets/live-tables-on-rents-lettings-and-tenancies [Accessed 8 November 2016].

3 PwC (2015) UK Economic Outlook, July 2015 [Online]. Available at: http://www.pwc.co.uk/assets/pdf/ukeo-jul2015.pdf [Accessed 3 November 2016].

4 PwC (2015) UK Economic Outlook, July 2015 [Online]. Available at: http://www.pwc.co.uk/assets/pdf/ukeo-jul2015.pdf [Accessed 3 November 2016].

5 House of Lords Select Committee on Economic Affairs (2016) Building more homes (HL 2016-17, 20)

6 DCLG (2016) “Housing starts and completions hit 7-year high”, 26 February 2016 [Online]. Available at: https://www.gov.uk/government/news/housing-starts-
and-completions-hit-7-year-high [Accessed 8 November 2016]. Total housing supply, including new builds, conversions and changes of use, increased by 171,000
between 2014 and 2015 – see DCLG (2016) “Live tables on dwelling stock (including vacants)” [Online]. Available at: https://www.gov.uk/government/statistical-data-
sets/live-tables-on-dwelling-stock-including-vacants [Accessed 8 November 2016].

7 Local Government Association (2016) “Mapping unimplemented planning permissions by local authority area” [Online]. Available at: http://www.local.gov.uk/
mapping-unimplemented-planning-permissions-by-local-authority-area [Accessed 8 November 2016].

                                                                                                                                                                     3
1. The need for a fresh approach

                                 On average, over the last 35 years or so         a post-Brexit economy. Repeated investment
                                 just under 150,000 new homes have                over the next 10 years would provide
                                 been built each year in England, with just       the essential stimulus for construction
                                 139,690 homes completed in 2015-16. This         infrastructure investment, the development
                                 total comprises output from all types of         of long term skill supply, innovation in house
                                 builders, but the overwhelming majority          building and it would finally unlock major
                                 were produced by the private sector house        development sites, since there would be a
                                 builders (some 111,000 homes in 2015-16)         certainty of demand to enable them to be
    “The Government has set      and housing associations (26,000 homes in        built out at scale.
    a target of building one     2015-16).
    million homes over this                                                       It would also act as a stimulus to reconfigure
    Parliament – equivalent      Projections agree that to cope with both         both the housing associations sector and
                                 migration and new household formation            the lower capacity private sector builders. In
    to 200,000 each year - but   250,000 new homes need to be built each          terms of the housing associations this plan
    on average, over the last    year. This is without addressing the 800,000     would release the embedded capacity of a
    35 years or so just under    homes shortfall in new supply that extends       sector containing, on current figures, around
    150,000 new homes have       back to the year 2000. This lack of supply has   three million homes and a total asset value
                                 a deeply adverse impact on housing costs         in excess of £138bn. This investment would
    been built each year in      and job mobility.                                substantially enhance the pace at which the
    England.”                                                                     larger associations were able to move on
                                 As stated above, we believe that contained       from being SME developers to producing
                                 herein is a clear and credible policy proposal   4,000-plus homes each annually as larger-
                                 that could, if backed by the Government,         scale homebuilders. The National Housing
                                 create at least an extra 40,000 and up to        Fund would accelerate the rate at which
                                 75,000 homes per year with a fully repayable     they could expand their development by
                                 £10 billion annually invested by the             providing them with a guaranteed purchaser
                                 Government into a National Housing Fund          for part of their building programme.
                                 created in partnership with major housing
                                 associations. We envisage this scheme            These associations would also build further
                                 running initially for ten years.                 capacity into the mid and lower tier of
                                                                                  the private house building market, being
                                 The immediate gains from this proposed           the natural partners for those developers
                                 scheme are potentially enormous: adding,         producing anything from 300 to 2,000 homes
                                 on 2010 figures, 0.4% to GDP and up to           annually. The interaction of those developers
                                 £2.4bn of tax receipts each year, as well as     with the larger associations in the Fund
                                 supporting as many as 200,000 jobs.8 The         would in turn enhance the capacity of these
                                 impact would be realised, given the swift        SME developers turning them into similar
                                 impact of housing construction, within 12        engines of housing production.
                                 months and represent a significant boost to

4
Going to Scale

         Housing Delivery Across England
                            Housing Delivery Across England
                              400,000

                              350,000

                              300,000

                              250,000
     Annual Completions

                              200,000

                              150,000

                              100,000

                               50,000

                                      0

                                                   Private                    Housing Associations                     Local
                                                   Enterprise                                                          Authorities
                          Source: DCLG, JLL

         Figure 1 - Breakdown of historical housing delivery, by sector (1946-2015)

The private sector will only build at the                scheme that seeks to build more homes                    infrastructure investment required, hence
pace that it can sell and with the market                must concentrate on housing associations                 the recently announced Government
already slowing, the future pace of                      and SME private sector builders to facilitate            fund to finance such investment is most
production will reduce further to match                  the sustained expansion of output.                       welcome. Equally estate regeneration
anticipated sales. Government-funded                      The previous five years under the Coalition             to create more economically mixed and
intervention on the demand side may help                 Government focused on support for                        sustainable communities is on the policy
to speed sales but there is scant evidence               first-time buyers through schemes such                   agenda as are issues around housing
to demonstrate that additional homes                     as Help to Buy. Housing then dominated                   conditions, availability and price in the
would be produced as a result.                           last year’s general election campaign and                private rented sector.
                                                         was followed by early action to introduce
Housing associations, on the other hand,                 Starter Homes and extend the Right to                    However, despite such measures the house
have demonstrated the ability to build                   Buy. These actions have not addressed the                building market, as currently configured,
more homes and create innovative                         fundamental issue of a lack of supply.                   will not meet the supply deficit and a new
methods of funding new homes for sale                                                                             solution is required.
and rent. Associations have the potential to             The appetite for policy-makers has now
dramatically increase production but the                 rightly shifted to supply side issues looking
fragmented nature of the sector prevents                 at for example, unlocking major housing
the effective use of associations’ embedded              sites shunned by the private sector
capacity. It is our view, therefore, that any            because uncertainty of sales prevents the

8 Savills (2010) The Case for Housing [Online]. Available at: http://pdf.euro.savills.co.uk/uk/market-insights/the-case-for-housing---spring-2010.pdf
[Accessed 8 November 2016].

                                                                                                                                                                5
2. The Ask of Government:
    a new fully returnable public
    investment in housing

                                     The National Housing Fund                       gains to the economy would more than
                                                                                     justify the Government’s investment, with
                                     This report demonstrates how the                £2.4bn in economic growth potentially
                                     Government can use historically low funding gained in the first year. The Government
    “The National Housing Fund       costs to create a functioning housing           could pace in and negotiate any return over
                                     market through measured investment              and above costs that it would look to recover.
    would provide a secure and
                                     in new supply. Its scale mirrors previous
    sustainable route to increased   intervention by Government into a series        The Fund would access funds via low-cost
    production of new homes.         of broken markets and successful past           long-term Government borrowing such
    It operates in addition to       interventions to boost housing supply;          as bonds, a route the Prime Minister has
                                     especially from 1951- 1971. But it would be     already rightly suggested the Treasury should
    the existing sales or grant-
                                     structured to support greater diversity in the examine (for example, 50-year gilts at c.1.5%).
    subsidised new homes             market and would expand building across
    market. For developers,          all types and tenures. As such, it would equip The Fund would be a joint venture
    it provides a guaranteed         the market to genuinely meet people’s           between Government and the housing
                                     needs at different points in their lives across association sector and be created through
    purchaser of new homes, and
                                     the country and across income ranges.           a traditional private company structure
    would build up the capacity                                                      with shares. These would be held equally
    of SME developers and            This intervention would be delivered through by the Government and the participating
    housing associations over the    the creation of a yearly National Housing Fund associations.
                                     formed with a group of housing associations
    long-term.”                      who would bid to join each year of the Fund.    The Government would secure the long-
                                                                                     term funding and on-lend to the Fund.
                                     The Fund would operate with Government The associations would begin to buy out
                                     providing funding through 50-year gilts         the Government’s shares (in, say, year 11).
                                     and the associations providing the exit         The share purchase would be at a nominal
                                     route for Government by agreeing to buy         value with the associations then taking
                                     out the Government’s share at an agreed         sole responsibility for the future repayment
                                     point. Adopting this financial instrument       of the initial loan of £10 billion. The Fund
                                     approach would ensure that the                  would, however, commit to continuing to
                                     intervention would not add to the deficit.      provide properties of particular tenures
                                     Moreover, the immediate and sustained           for specified groups. The Government

6
Going to Scale

would retain the option of retaining                   Structured and sustained                               rented housing. It highlights the potential
some of the shares – perhaps as ‘Golden                investment                                             gain to the public sector of utilising part of
Shares’ – to ensure the continuing mission                                                                    the output for specific groups of employees,
and social purpose of the fund, such that              This proposal envisages Government                     such as nurses, the police force, teachers, and
current funds and any surplus is available             investing £10 billion annually over the next           other key workers.
to finance on a national basis an ongoing              10 years to deliver at least 40,000 and up
social mission.                                        to 75,000 additional homes per annum                   Notwithstanding questions surrounding
                                                       into a National Housing Fund. The Fund                 the classification of housing associations as
The associations, as controlling                       would serve as guaranteed buyer for these              public sector bodies, (legislation to change
shareholders in the Fund, would be free to             homes, delivered by housing associations               this definition is currently planned), the debt
trade shares or invite additional similarly            and/or SME builders and offered as market              in the Fund, however it was classified at the
minded and suitable investors to join, such            and submarket rented homes. With a Fund                outset, would progressively move off the
as local government pension schemes.                   in place to act as a guaranteed buyer of               Government’s balance sheet from year 11.
                                                       new homes over the long-term, this would
Crucially, though, the embedded value of
                                                       provide counter-cyclical support to deliver
the Fund would be captured within the                                                                         It would not impact on the Government’s
                                                       more homes and build capacity amongst
Fund and its inherent social mission. The                                                                     current efforts to introduce new regulations
                                                       housing associations and smaller builders.
charitable status of housing associations              By raising capacity of housing associations            to reclassify housing associations as private
would prevent any leakage from housing                 and medium and small developers, it would              sector bodies because the Fund would
provision as only those upholding the                  improve the long-term health and capacity              operate as a private limited liability company
mission and purpose of the fund could                  of the housing market.                                 with an initial issue of 1,000 shares. These
retain and reinvest the ongoing returns                                                                       shares will be owned by government and the
of this investment. Hence, this approach               Our analysis shows that this could enable              founding housing association members. In
is significantly more attractive than those            national output to climb to 200,000                    the unlikely event that housing associations
based on other sources of investment that              homes per year over the next decade                    remain classified as public sector bodies in
generally leak public surplus into private             and then be sustained at that level. It                2028, government should have the ability
return. In short the surplus generated                 would be a transformative long-term                    to offer its shares to mission driven private
by the fund over its 50 year cycle would               intervention with the Government                       sector organisations or social enterprises,
remain dedicated to the public good                    investing and acting to challenge and                  (providing they abide by the founding social
and constantly replenished by rents and                change a dysfunctional market.                         ethos of the fund) ensuring that the National
sales which would be reinvested in new                                                                        Housing Fund is not classified as public
homes and/or social projects aimed at                  An intervention at this scale would give               sector vehicle at that point.9
improving the education, health and                    the Government an immediate return on
well-being of those who rent or buy these              its investment via the direct gains that flow
homes. Such an approach would speed                    from the construction of these additional
up the realisation of larger sites and boost           homes. In addition this proposal considers
regeneration, representing a massive                   the subsidiary benefits of a restructured
ongoing public endowment.                              housing market, where the additional output
                                                       positively impacts on the type and cost of

9 The Housing and Planning Act 2016 includes a number of deregulatory measures that will tackle the issues flagged by the ONS. These focused largely on the
relationship between the regulator (the HCA) and the sector. These deregulatory measures must have commenced before the ONS can reconsider the status of
housing associations. The National Housing Fund would not affect the role of the HCA nor efforts to deregulate the sector; nor would it change ownership or control
of housing associations.

                                                                                                                                                                 7
The Ask of Government

                        How would the Fund work?

8
Going to Scale

                          Case Study: The National Housing Fund model

The National Housing Fund provides a secure and sustainable        8. The national Housing Fund will provide an economic
route to increased production of new homes. It operates in            close out for the end of site development taking on the
addition to the existing sales or grant-subsidised new homes          remaining properties at the end of a development.
market. For developers, it provides a guaranteed purchaser of
new homes:                                                         9. These factors will enhance the pace of development and
                                                                      the efficiency of the capital employed. It will provide the
1. The Housing Fund does not compete for sales with                   smaller developers with a significant benefit enabling
   developers as all homes are rented for at least 5 years. This      them to grow their business. It is worth noting that most
   is a crucial positive distinguishing factor compared to the        of today’s major developers grew up as contractors
   Starter Homes initiative. And they are sold to organisations       for government in the 1950/1960s, under a similar
   who specialise and excel in successfully managing large            guaranteed buyer scheme.
   portfolios of rented homes – housing associations.
                                                                   The Housing Fund, repeated over 10 years, will foster new
2. Homes are let to economically active tenants who                supply chain capacity stepping outside of the 10-12 larger
   aspire to buy at a future date. This adds value to the rest     developers who exert profitable influence on the market.
   of the development as the homes are owned by one                This has functioned to constrain the market by limiting to the
   well managed landlord rather than an eclectic group of          business models of its dominant providers and squeezing out
   investor landlords.                                             the market needs and hence the capacity of small builders.

3. Where homes are subsidised, they are targeted at                The certainty of purchase will draw in new providers and enable
   specific client groups, such as nurses, the police force,       developers in the 11-40 range of development output to grow
   and teachers. Again, it adds value rather than detracting       over the next 3-5 years’ upscaling their output. Moreover, it will
   from the value of the stock as social rent is often viewed      provide the 3,000 or so small developers who produce 1-100
   negatively in the eyes of some external purchasers.             homes per annum with the opportunity to increase their output.
                                                                   If each produced an extra 15 or so properties this would provide
4. Therefore, the sales to the Housing Fund do not diminish        the additional 40,000 homes envisaged.
   the value or pace of the sales of the developers’ own
   sales product.                                                  In addition, housing associations have helped to produce
                                                                   around 20,000 -30,000 homes per annum. With the significant
5. Certainty of sales to the Housing Fund will enable              curtailment of grant the larger associations have sought to
   developers, especially smaller developers, to secure            become developers themselves, producing housing for sale
   funding for their sites at a lower interest rate and lower      to provide the subsidy required to sustain submarket rents.
   equity hurdle (e.g. the banks may lend them 60-70% of           The associations market has started to consolidate as the
   development finance at 3 over base rather than 40-50%           larger associations are seeking to establish themselves as
   at 4-6 over base).                                              scale developers. We believe housing associations with the
                                                                   aid of the National Housing Fund could comfortably add
6. The certainty of sales will enable developers to produce at     another 20,000 homes to their current level of construction.
   an accelerated rate. For example, rather than a production
   that allows for say 2-3 sales per month with 25 homes           In short we believe that the proposal we advocate herein
   being produced over a year the developer could produce          can rapidly grow house building capacity in two previously
   twice or three times as many homes knowing the                  dormant sectors and utterly transform the British housing
   Housing Fund will take up these extra properties.               market to everyone’s benefit.

7. This pre-sale will accelerate development as developers
   can pre-sell the first and second phases of developments
   establishing the essential presence on the site and giving
   it initial depth to the market for that development –
   thereby allowing the natural sales market to develop.

                                                                                                                                        9
The Ask of Government

               Top Housebuilders by Annual Completions
                            Top Housebuilders by Annual Completions
                               16,000

                               14,000

                               12,000

                               10,000
     Annual Completions

                                 8,000

                                 6,000

                                 4,000

                                 2,000

                                     -
                                            Barratt
                                                      Persimmon
                                                                  Taylor Wimpey
                                                                                  Bellway
                                                                                            Berkeley
                                                                                                       Redrow
                                                                                                                Galliford Try
                                                                                                                                Bovis
                                                                                                                                        Crest Nicholson
                                                                                                                                                          Bloor

                                                                                                                                                                                                                              McCarthey & Stone
                                                                                                                                                                  Miller
                                                                                                                                                                           Countryside
                                                                                                                                                                                         Willmott Dixon
                                                                                                                                                                                                          Keepmoat
                                                                                                                                                                                                                     Lovell

                                                                                                                                                                                                                                                  Hill
                                                                                                                                                                                                                                                         Avant
                                                                                                                                                                                                                                                                 Kier
                                                                                                                                                                                                                                                                        Morris
                                                                                                                                                                                                                                                                                 CALA
                                                                                                                                                                                                                                                                                        Stewart Milne
                                                                                                                                                                                                                                                                                                        Telford
                                                                                                                                                                                                                                                                                                                  Mount Anvil
                                                                                                                                                                                                                                                                                                                                Ballymore
                          Source: Housebuilder, JLL, Completions 2014

               Figure 2 - Top housebuilders by annual completions

Building capacity,		                                                                                      However, the bulk of the Fund’s activity                                                                                                 At the same time, consolidation amongst
                                                                                                          would give housing associations the means                                                                                                the larger producers has created a market
increasing production,                                                                                    to build more; and create joint ventures                                                                                                 dominated by 10 or so companies producing
creating new homes                                                                                        with private developers outside of the top                                                                                               around 67,000 homes in 2015. These
                                                                                                          ten house builders, using the skills, capacity                                                                                           companies exert considerable influence over
Crucially we envisage The National                                                                        and enthusiasm of this group of developers                                                                                               the market, too often determining the pace
Housing Fund only buying homes                                                                            to rapidly expand production. This co-                                                                                                   and the scale of output.
that are initially for rent. We want to                                                                   ordinated investment would help provide
avoid any economic displacement of                                                                        what the market has singularly failed to do
                                                                                                                                                                                                                                                   This group has been highly successful
sales activity since our intention is to                                                                  – tens of thousands of new homes on an
                                                                                                                                                                                                                                                   in lobbying successive governments
increase housing production – not                                                                         annual basis.
                                                                                                                                                                                                                                                   to provide incentives to weather their
simply buy houses that would have
                                                                                                          In terms of expanding capacity to build                                                                                                  downturns in the housing market; Help to
otherwise been bought by others.
                                                                                                          amongst the private developers, the house                                                                                                Buy is the latest in a line of such incentives.
Initially, the Fund would support
existing schemes, accelerating the pace                                                                   building market has historically been                                                                                                    However, there is little or no evidence that
of development and bringing forward                                                                       populated by many SME businesses focused                                                                                                 these incentives increase overall output.
planned phases of construction.                                                                           on their local markets; constructing homes
This would have the positive impact                                                                       that are in tune with their local area. Over                                                                                             We argue that any attempt to boost
of encouraging production to be                                                                           the last 25 years, a series of recessions has                                                                                            output should look outside this group to
maintained at current levels rather than                                                                  been matched by a withdrawal of access                                                                                                   supplement existing levels of delivery. Our
decline as the wider sales market slows.                                                                  to funding that has decimated this industry                                                                                              proposal demonstrates how sustained
                                                                                                          and seen the number of small builders                                                                                                    investment in joint ventures with the wider
                                                                                                          (building less than 100 homes each year) fall                                                                                            developer market will significantly increase
                                                                                                          from over 12,000 to less than 3,000.                                                                                                     capacity and drive up production of new
                                                                                                                                                                                                                                                   homes. Initially the Fund when looking

10
Going to Scale

               Top Housing Associations by Annual Completions
                           Top Housing Associations by Annual Completions
                             3,000

                             2,500

                             2,000

                             1,500
   Annual Completions

                             1,000

                               500

                                   0
                                        L&Q
                                              Orbit
                                                      Sanctuary
                                                                  Notting Hill
                                                                                 Affinity Sutton
                                                                                                   A2Dominion
                                                                                                                Places for People

                                                                                                                                                                                                                                                                                            Catalyst
                                                                                                                                    Peabody
                                                                                                                                              Wheatley
                                                                                                                                                         Sovereign
                                                                                                                                                                     Guinness Partnership
                                                                                                                                                                                            Hyde Group
                                                                                                                                                                                                         Aster Group
                                                                                                                                                                                                                       Circle Housing

                                                                                                                                                                                                                                                           Stonewater

                                                                                                                                                                                                                                                                                  Adactus
                                                                                                                                                                                                                                        Riverside
                                                                                                                                                                                                                                                    Moat

                                                                                                                                                                                                                                                                        Genesis

                                                                                                                                                                                                                                                                                                       Home Group

                                                                                                                                                                                                                                                                                                                                    DCH
                                                                                                                                                                                                                                                                                                                    Family Mosaic

                                                                                                                                                                                                                                                                                                                                          Paradigm
                                                                                                                                                                                                                                                                                                                                                     Wrekin Housing Trust
                        Source: Inside Housing, JLL, Total (private and social) completions 2015

               Figure 3 - Top housing associations by annual completions

at the private sector will focus on the                                                                         As the capacity of these developers                                                                                                             The Fund would provide certainty
developers ranked 11-40 in terms of output.                                                                     increased, the National Housing Fund                                                                                                            of demand that would stimulate
This group produced 25,000 homes last                                                                           could look to expand the number of                                                                                                              infrastructure investment in building
year. The variation in output demonstrates                                                                      developers it contracted with, thereby                                                                                                          components and the construction
the rapid tapering of the market, with                                                                          growing future capacity to sustain the scale                                                                                                    workforce. Producers would know that
Countryside, the 12th largest developer,                                                                        of increased output.                                                                                                                            there was a steady market seeking
producing 2,134 homes last year and                                                                                                                                                                                                                             components to produce an at least an
Springfield Properties, the 40th, producing                                                                     For the last 30 years housing production                                                                                                        additional 40,000 homes each year. The
just 455 homes.                                                                                                 has been inescapably linked to the sales                                                                                                        11-40 developers would have the
                                                                                                                market with its cyclical performance                                                                                                            confidence to invest in jobs and capacity,
We believe that these SME developers have                                                                       following the wider economy, as Figure                                                                                                          safe in the knowledge that they have
the capacity to sustain significant growth in                                                                   4 illustrates. The cyclical nature of                                                                                                           willing and able purchasers for their
output but are restrained by the structure of                                                                   the market works against sustained                                                                                                              output.
their current capital and project finance.                                                                      investment in the essential infrastructure
                                                                                                                to support house building. Each downturn                                                                                                        These additional homes would initially
The Fund would address this by providing                                                                        of the market reduces capacity as the                                                                                                           as previously stated, be for rent, with any
these developers with a secured exit route                                                                      workforce is shed, skills are lost and                                                                                                          future purchase by tenants delayed to
for their developments. It would enter into                                                                     component producers downscale. This in                                                                                                          year six or, depending on conditions, to
joint ventures, shaping developments and                                                                        turn creates inflationary pressures as the                                                                                                      year 10 (therefore not competing directly
guaranteeing to buy completed homes at                                                                          market improves, with labour and material                                                                                                       with planned sales by house builders or
an agreed price. These contracts would be                                                                       costs rising as short term demand                                                                                                               associations). The rents could range from
structured to enable these companies to secure                                                                  outstrips the much reduced supply. This                                                                                                         heavily subsidised rents for key workers
project finance for their developments and                                                                      is best illustrated by the requirement to                                                                                                       through to market rent.
build out their sites at a much more rapid pace.                                                                import bricks over the last few years.

                                                                                                                                                                                                                                                                                                                                                                            11
The Ask of Government

                                Cyclical Nature of Housing Construction in England
                                  Cyclical Nature of Housing Construction in England
                                  240,000

                                  220,000

                                  200,000
 Rolling 12 month completions

                                  180,000

                                  160,000

                                  140,000

                                  120,000

                                  100,000
                                             1979 Q1
                                             1980 Q2
                                             1981 Q3
                                             1982 Q4
                                             1984 Q1
                                             1985 Q2
                                             1986 Q3
                                             1987 Q4
                                             1989 Q1
                                             1990 Q2
                                             1991 Q3
                                             1992 Q4
                                             1994 Q1
                                             1995 Q2
                                             1996 Q3
                                             1997 Q4
                                             1999 Q1
                                             2000 Q2
                                             2001 Q3
                                             2002 Q4
                                             2004 Q1
                                             2005 Q2
                                             2006 Q3
                                             2007 Q4
                                             2009 Q1
                                             2010 Q2
                                             2011 Q3
                                             2012 Q4
                                             2014 Q1
                                             2015 Q2
                                Source: DCLG, JLL

                                Figure 4 - Cyclical nature of housebuilding in England

Although producing the extra homes each                               performance of failing schools by being able     be built, providing the essential next phase
year would have a measurable impact on                                to match a job offer to the best new teachers    of the regeneration of Manchester and
the wider market, it is contended that the                            with attractive and affordable housing.          retaining its economically active population
Fund could tackle asset inequality and                                                                                 as they move from apartments to houses.
social instability by using its scale to reset                        The Fund could provide a route to unlocking
the market rented sector. It could offer                              major housing sites that often stall as          The ability of the Fund to guarantee
five-year or ten-year tenancies that provide                          they rely on sales to fund the essential         purchase of future phases would provide
for security of occupation. Some of these                             infrastructure. As such, it could support the    developers with the certainty of income
homes could be deployed to provide steps                              Government’s provision of infrastructure         to push ahead with the infrastructure
to ownership; with options including the                              finance through the new Home Building            investment, safe in the knowledge that
ability to fix the future purchase price at the                       Fund and lock this together with sites and       it would be repaid as each phase of the
point of rental or save some of the rent into                         an accelerated scale of purchases. There are     development was delivered.
a deposit scheme.                                                     numerous regeneration sites throughout
                                                                      the country where many additional homes          Similarly, the Fund would also accelerate
In the first year the Fund would focus on                             could be delivered. Many of these sites          the pace of current building by the housing
expanding delivery and maintaining it at                              will deliver substantial benefits to the local   associations themselves. The ability of those
an additional 40,000 homes per annum                                  economy and act as a further boost to            associations to pre-sell sales products to
as a minimum. However, it would seek to                               housing and associated development.              the National Housing Fund will accelerate
work with Government and public service                               Without intervention these sites will lie        the rate at which these associations
agencies to identify where additional                                 fallow for years; examples include Holt          become established as significant
housing would assist the delivery of                                  Town and the wider surrounding district in       developers of all forms of housing. Already
wider policy goals, such as addressing the                            Manchester where up to 4,000 houses could        several associations have aspirations for

12
Going to Scale

development programmes that would                their existing programmes and would not
place them in the top 15 developers. In          consume their funding or capacity, thereby
practice this part of the market will grow       ensuring that the Fund genuinely aided the
slowly without the stimulus provide by our       production of additional homes. Along with
proposed Fund, not least if there is a housing   the SME developers the Housing Fund would
market downturn and a larger association         act as a catalyst to transform these larger
encounters difficulty. The potential exists      associations from smaller scale participants
for around 10 larger associations to fully       in the development market to mainstream
enter the developer market producing, say,       developers.
2,000 to 5,000 homes each and therefore
adding approximately 20,000 additional           Taken together, these factors will enable
homes over current output, if our proposal is    development at a higher level and pace.
implemented.                                     The Housing Fund would sit alongside
                                                 associations’ development programmes and
Although associations can access funding at      Government could look to set a scale ‘hurdle’
a much lower rate than the SME developers        when selecting the founder association
they have an understandably cautious             members of the Housing Fund.
approach to risk and funding capacity limits,
both of which constrain the overall size of      The associations would bring all of their
their development programme and the pace         patient investor skills to the fore in assessing
at which they develop out sites – especially     proposed developments and the ability
larger scale regeneration sites. The Housing     of these new homes to sustain demand
Fund would enable them to better expand          for rent or ownership over 25 years and
their risk appetite by providing a guaranteed    beyond. The associations would ensure that
purchaser for part of an expanded                the developments created economically
development programme. Moreover, the             sustainable communities.
National Housing Fund would be outside

                                                                                                               13
The Ask of Government

                    Case Study: Operation of the National Housing Fund Model

     Structure and ownership                                              Funding and life of the NHF

     The National Housing Fund (NHF) will operate as a private            The annual NHF will secure funding via government gilts with
     limited liability company with an initial issue of 1,000 shares.     the expectation that government will seek 50 year funding
     These shares will be owned by government and the founding            at circa 1.5%. Each NHF would have a target life of 50 years
     housing association members.                                         until the repayment of the gilt. It is assumed that the gilts will
                                                                          attract interest with full repayment in year 50 through the sale
     Shares will be split between the government (50%) and the            of assets at that point, or refinancing.
     associations (50%). It is envisaged that there will be 5 founding
     association members who will in total hold a 50% share in the NHF.   Government would then on lend to the NHF, with
                                                                          an undertaking from the associations to acquire the
     This model will be replicated annually, with government              government’s shares in year 11 (or enable a third party
     holding 50% of the shares in each year’s NHF and the joining         private sector body to acquire the government’s shares). This
     associations holding the remaining 50%. It is envisaged that         arrangement will provide the NHF with access to low cost
     new association members will join each year, supplementing           funding and maximise the number of homes that could be
     or replacing the founding association members.                       acquired by that NHF. It will also enable the funding to be
                                                                          classified as a financial instrument ensuring that the debt did
     Therefore, each annual HIF will be established on a separate         not count towards the government’s deficit calculation.
     basis and identified as NHF 2017, NHF 2018, etc.
                                                                          Drawdown rate
     Sale of shares
                                                                          The initial NHF will require a period of mobilisation and time
     Government will have the option of requiring the associations        to create relationships with developers. Government would
     to acquire all or the majority of the government’s shares in         raise £10bn of funding and allow the NHF to draw this down
     year 11 of each NHF. This put option will enable government          over an 18 month period as it acquired homes. Subsequent
     to dispose of its interest in the NHF at a given point. For          NHF will draw down funds over 12 months.
     illustration, the first NHF will be established in 2017 and
     government would then depose of its interest in 2028                 Operation of the NHF
     requiring the association in the 2017 NHF to acquire its shares.
                                                                          The NHF would operate with a focused management team
     The associations will have the right to acquire the shares at        and board nominated by government and association
     nominal value in year 11 of each NHF. It is acknowledged             shareholders. The management team would be responsible
     that the NHF should have greater value than the initial £10bn        for drawing up the investment criteria and tenure mix for the
     invested at the outset, however, the association shareholders        portfolio, with both being agreed by the government and
     will, by acquiring the government’s shares would be taking           association shareholders.
     on the responsibility for the eventual repayment of the £10bn
     loan in 40 years’ time. They would then have the option to sell      The management team would engage with a variety of
     down some of these shares to third parties.                          developers, agree a product specification and purchase price
                                                                          on completion. They would regularly review developments
     In the unlikely event that housing associations remain               during the construction phase and pay over funds on
     classified as public sector bodies in 2028, government will          completion. They would engage the associations to provide a
     have the ability to offer its shares to appropriate mission          comprehensive asset management service, providing for the
     driven private sector organisations, ensuring that the NHF is        management and maintenance of the homes within the NHF.
     not classified as public sector vehicle at that point.               The NHF would be accountable to government for the delivery
                                                                          of the 40,000 homes and would negotiate with government on
                                                                          the proposed portfolio mix on an annual basis.

14
Going to Scale

                                                      Case Study: Continued

    Mobilisation                                                         This team will form the mobilisation team and will start to
                                                                         recruit the board and senior executive team that will run the
    Assuming for the sake of example that the Autumn Statement           NHF. Months 4-6 will progress discussions with developers to
    initiates the creation of the NHF then a 6 month mobilisation        a formal status and identify homes that could be acquired by
    period is envisaged.                                                 the NHF within the coming 12 months.

    Months 1-3 would focus on the creation of the NHF, the               The aim will be to have a substantial programme of delivery
    establishment of the investment criteria and the initial             agreed by the end of the mobilisation period.
    portfolio mix. A small team of skilled executives and
    non executives have been identified offering substantial
    experience of establishing new enterprises, funding,
    institutional investment, property development and
    management and operating with government agencies.

How does this differ from                       Moreover, this initiative as currently outlined   them a better rate of return – which in turn
the Government’s Home                           does not address the issue of the purchaser.      would result in lower costs to the Fund per
                                                We believe that a separate, large-scale           scheme.
Building Fund?                                  intervention in the form of our Housing
                                                Fund should sit alongside the Home                Moreover, our proposed National Housing
The Government recently announced plans         Building Fund. The National Housing Fund          Fund would catalyse the growth of housing
for a new Home Building Fund. This will be      would give certainty of demand to SME             association delivery. It would encourage
worth £3 billion, consisting of £1 billion of   builders as there would be a guaranteed           the consolidation of the association
development finance to provide loans to         customer (i.e. the Government via housing         market by boosting the capacity of large
SME builders, principally aimed at increasing   associations) over a period of 10 years.          associations to rapidly expand their
diversity in the market and supporting          This would attract new entrants and allow         development delivery for homes. This will
innovation in construction; and £2 billion      existing SME builders to increase their           unleash their future potential to sustain
of infrastructure finance to allow housing      capacity sustainably, as funding would be         future development. As such, it would be
progress and prepare land for development.      repeated on an annual basis that would give       a more holistic approach to addressing
                                                SMEs certainty of sale.                           our supply needs as it would raise market
Whilst this is a very welcome step in                                                             capacity through both SME builders and
the right direction, but it is a short-term     With a Housing Fund in place, small               housing associations.
intervention at a much smaller scale than       developers could take an option on a
our proposal. Access to finance is a clear      site and then approach the fund with
issue for many smaller builders and new         a plan for development of that land.
entrants – and for builders using new           The developer would then work up an
modes of constructions, lenders remain risk     agreement with the fund on price, size,
averse in their approach to lending. But £1     layout and timing. An agreement to
billion is a comparatively small pot of money   purchase from the fund would provide the
if we are serious about sustainably building    security for SMEs to obtain development
up capacity in the market. It is likely to      finance at a competitive rate with low
largely provide help to SME builders looking    equity investment. This would free up their
to realise existing development plans.          capacity to do more schemes and gives

                                                                                                                                            15
3. What could The National
     Housing Fund deliver?

                                  In this section, we look at the potential        one bed, two bed and three bed homes
                                  buying power of the Fund, across four main       for each of England’s nine regions. The VOA
                                  scenarios: an even geographical spread; a        sample group includes a blend of flats and
                                  regional focus; and focus on London and          houses. Rental growth as forecast by JLL
                                  the South East; and a two phase approach.        has been built into our analysis.
                                  The full methodology on which this
     “The National Housing        analysis is based is outlined in JLL’s report,   Unit mix
     Fund could deliver           released alongside this publication. We find
     between 40,000 and           that the Fund could deliver between 40,000       We have used the below indicative unit
                                  and 75,000 additional homes a year.              mix, which is typical of current Built to
     75,000 additional homes                                                       Rent schemes. In reality any variation on
     a year - finally bridging
                                  Assumptions                                      this could be purchased by the Fund,
     the gap between                                                               but a weighting towards higher value
     current levels of delivery   Rents                                            two bed and three bed units would of
                                                                                   course reduce the overall buying power
     and the Government’s                                                          of the Fund.
                                  Monthly median rents were sourced from
     housebuilding target.”       the Valuation Office Agency for studios,

                                                                                                   Unit Mix

                                                     Studio                                           10%

                                                    One Bed                                           40%

                                                    Two Bed                                           40%

                                                   Three Bed                                          10%

16
Going to Scale

We have included studios because many        Scenarios                                          East. By adopting this strategy a theoretical
private rental housing development                                                              total of 593,800 units or an average of
schemes will include studios to comply       We have started by look at the buying              59,380 units pa could be purchased.
with local authority development plans.      power of the Fund across a number of
We have also looked at one scenario in       geographical scenarios. The issue of               Scenario 4: Initial London and South East
which studios are removed to assess          additionality is addressed in the following        focus followed by regional focus – 73,850
delivery potential in line with the Fund’s   section.                                           homes per annum
attempt to support the ‘squeezed middle’
and young families through the delivery      Scenario 1: An even regional spending              JLL modelled the potential buying power
of slightly larger mid-market rental and     allocation – 80,475 homes per annum                of the Fund combining an initial focus to
rent-to-buy tenures.                                                                            London and the South East in the first five
                                             JLL modelled the potential buying power of         years, followed by a regional weighting
Yield assumptions                            the Fund assuming an even allocation of the        in years 6-10. This is considered the most
                                             £10bn pa in each of the nine English regions.      sophisticated of the strategies modelled
The model is priced on a gross yield         By adopting this strategy a theoretical total of   allowing for greater power. By adopting
basis, exclusive of management and           804,750 units or an average of 80,475 units        this strategy a theoretical total of 738,500
maintenance costs. In reality, the Fund      pa could be purchased.                             units or an average of 73,850 units pa
will buy on a net yield basis, and this                                                         could be purchased. See Maps 1 and 2 on
would result in a reduction in gross rent    Scenario 2: A regional focus – 94,400              the following pages for a visualisation of this
as well as the yield. This gross-to-net      homes per annum                                    spread.
leakage, which JLL has typically found
to be 25% in the current Build to Rent       JLL modelled the potential buying power            Scenario 5 – impact of removal of studios
sector, will ultimately result in the same   of the Fund assuming the £10bn pa Fund             from scenario 4
buying power for the Fund as has been        was weighted significantly towards the
modelled for this report.                    North and Midlands. By adopting this               JLL modelled the same as Scenario 4, but
                                             strategy a theoretical total of 944,000            removed studios from the mix and re-
Transaction costs                            units or an average of 94,400 units pa             adjusted to 45% one beds, 45% two beds and
                                             could be purchased.                                10% three beds. By adopting this strategy
Agent fees, legal fees and Stamp Duty have                                                      a total of 721,800 units or an average of
been factored into the model.                Scenario 3: A London and the South East            72,180 units pa could be purchased.
                                             focus – 59,380 homes per annum

                                             JLL modelled the potential buying power
                                             of the Fund assuming a weighted allocation
                                             towards London, the South East and the

                                                                                                                                            17
What could The National Housing Fund deliver?

              Map 1: Distribution of Fund Allocations Years 1-5 (Scenario 4)

                  Key – Green 0-5% | Yellow 5-15% | Orange 15-20% | Red 20%+

18
Going to Scale

Map 2: Distribution of Fund Allocations Years 6-10 (Scenario 4)

   Key – Green 0-5% | Yellow 5-15% | Orange 15-20% | Red 20%+

                                                                           19
What could The National Housing Fund deliver?

                  Impact of the Fund on Housing Delivery
                         Impact of the Fund on Housing Delivery
                         250,000
                                                                                                                                                                                                    Forecast

                                                                                                                                                                                                                                                                                                        3
                         200,000
                                                                                                                                                                                                                                                                                                        2

                         150,000
  Annual Completions

                                                                                                                                                                                                                                                                                                        1

                         100,000

                          50,000

                               0
                                    2000-01
                                              2001-02
                                                        2002-03
                                                                  2003-04
                                                                            2004-05
                                                                                      2005-06
                                                                                                2006-07
                                                                                                          2007-08
                                                                                                                    2008-09
                                                                                                                              2009-10
                                                                                                                                        2010-11
                                                                                                                                                  2011-12
                                                                                                                                                            2012-13
                                                                                                                                                                      2013-14
                                                                                                                                                                                2014-15
                                                                                                                                                                                          2015-16
                                                                                                                                                                                                    2016-17
                                                                                                                                                                                                              2017-18
                                                                                                                                                                                                                        2018-19
                                                                                                                                                                                                                                  2019-20
                                                                                                                                                                                                                                            2020-21
                                                                                                                                                                                                                                                      2021-22
                                                                                                                                                                                                                                                                2022-23
                                                                                                                                                                                                                                                                          2023-24
                                                                                                                                                                                                                                                                                    2024-25
                                                                                                                                                                                                                                                                                              2025-26
                                        No Investment Fund (f)                                               Investment Fund Min (f)                                               Investment Fund Max (f)                                                Historic Delivery

                       Source: DCLG, JLL

                  Figure 5 - Impact of the Fund on housing delivery

How many additional homes                                                                          Based on JLL’s modelling, the realistic
would be delivered?                                                                                maximum additional housing delivery that
                                                                                                   could be created through the Fund is 75,000
As we have seen, the proposed Housing                                                              homes per annum, which is illustrated
Fund has significant potential to deliver                                                          by line 3. The minimum likely additional
new homes. We now consider how many                                                                housing delivery as a result of the Fund is
of these would be truly additional units.10                                                        40,000 homes per annum (line 2).

In order to understand the potential
housing delivery increase as a result of the
Fund, the above graph has been created.
Line 1 shows a baseline housing delivery
forecast for the next 10 years without
the introduction of the Housing Fund.
This is based upon JLL’s annual housing
completion forecasts.

10 We have taken into account current constraints on capacity, including the planning environment; labour force and delivery rates; housing association ambition
and land availability. This are outlined in full in JLL (2016) National Housing Fund: An assessment of the proposed fund’s potential to increase housing supply in England
[November 2016].

20
4. Why other approaches
are not sufficient

                               There have been a number of                   deregulation. However, this would risk
                               suggestions on how to intervene in            damaging the important social aspect
                               the housing market to increase supply.        of housing associations as it would risk
                               Below, we examine several recent and          removing the wider role that registered
                               older ideas, including proposals to           providers play in their communities and
                               invest in housebuilding at the scale          in their tenants’ lives. Our proposal avoids
“There is widespread           we are recommending. What we find             this dilemma, whilst setting out a path for
support for a major            is that there is widespread support for       a returnable investment that would bolster
intervention of this kind in   a major intervention in the housing           public finances over the long term.
                               market. Many of these overlap with
the housing market. We         our proposals – for example, Shelter’s        In the table below, we look at a range of
believe that the National      suggestion for a Growing Britain Fund         other proposals for boosting housing supply.
Housing Fund is the only       that would support housing association        This details how these proposals compare to
proposal that addresses the    development alongside large-scale             our own, with green indicating where they
                               projects such as garden cities.               at least match up to our proposal and red
problem of pace and scale                                                    indicating where they fall short.
of delivery over the long-     What our analysis reveals is that these
term.”                         ideas have merit but would not address
                               the problem of pace and scale of delivery
                               over the long-term. In addition, some
                               would require legislation that would delay
                               implementation, lack in detail, or have
                               failed to articulate how they would spread
                               ownership directly. Our proposal does,
                               and crucially we have mapped the wider
                               economic impact and benefit to the public
                               purse of it.

                               Our analysis shows that the most
                               comprehensive alternative proposal
                               would see housing association building
                               rates boosted at a lower cost to the public
                               purse. Instead, housing associations
                               would be supported through large-scale

                                                                                                                      21
What could The National Housing Fund deliver?

Table 1 - Comparative analysis of other proposals

                                                                     Funding          Requires
           Name                Funded by         Funding to                                      Returnable?   Timescale
                                                                     amount         legislation?

                                                    Housing
 National Housing Fund         50 year gilts
                                                  associations
                                                                    £100 billion        No           Yes        10 years

                                                 Private sector                                                 One-off
 Home Building Fund                                business,                                                      fund
                              Not specified                          £3 billion         No           Yes
 (Government)                                   focus on small                                                  running
                                                    builders                                                   until 2021

                                                 Not modelled,
                                                    but would
                                                include housing
                                                   associations,
 Growing Britain Fund
                               10 year gilts        large scale     Not specified       No           Yes         2020
 (Shelter)                                        projects such
                                                  as new towns,
                                                   cities, direct
                                                 commissioning

                              Not specified,     Not modelled,
                             but government         but would
                                grant and       include housing        Not                                       Not
 Homes for All (Renewal)       institutional       associations,     modelled
                                                                                        No      Not modelled
                                                                                                               specified
                                 investors        investors, city
                                suggested            regions

                               Government
                             through Help to
 Better Financing, More       Buy extension;        Housing                                          Not         Not
                                                                    Not specified      Yes
 Homes (Policy Exchange)       deregulation       associations                                    applicable   specified
                              to allow HAs to
                             raise own funds

                                  Housing
                                associations
 Housing People, Financing     raise funding
                                  through           Housing                                          Not
 Housing (Natalie Elphicke    equitisation to     associations
                                                                     £30 billion       Yes
                                                                                                  applicable
                                                                                                                5 years
 & Policy Exchange)            raise funding
                                  from e.g.
                              pension funds

 Stephen Crabb and Sajid
 Javid (Pledge during          Government
                                                 Not modelled       £100 billion        No           Yes        5 years
 Conservative leadership         bonds
 campaign)

22
Going to Scale

                                                                                  Gain to        Number          Number of
Builds capacity of    Build to    Security of     Ownership     Economic
                                                                                   public       of houses        additional
SME developers?        rent         tenure         model         benefit
                                                                                 finances       annually       homes to 2027

       Yes              Yes       Yes - 5 years      Yes         0.4% GDP       £2.4 billion   60,000-90,000   At least 400,000

Yes but only in the     Not          Not             Not           Not             Not         Annual figure
                                                                                                                 Up to 25,000
    short-term        specified    specified       specified     modelled        modelled        not set

 Direct impact not                   Not          No specific   Yes but not     Yes but not     No specific       No specific
                        Yes
     specified                     specified       model         modelled        modelled        estimate          estimate

                                                                                                               Not specified, but
 Direct impact not                 Yes - 5-10                      Not             Not         Annual figure
                        Yes                          Yes                                                       75,000 set as the
     specified                       years                       modelled        modelled        not set
                                                                                                                     aim

                                                                                                Potentially     Not modelled
 Direct impact not                   Not                           Not          £275 million
                        Yes                           No                                        100,000 per      – requires
     specified                     specified                     modelled        per annum
                                                                                                   year          legislation

                                                                                                Potentially     Not modelled
 Direct impact not                   Not                        Yes but not     Yes but not
                        Yes                           No                                        100,000 per      – requires
     specified                     specified                     modelled        modelled
                                                                                                   year          legislation

 Direct impact not      Not          Not             Not                           Not
                                                                Not specified                  Not specified     Not specified
     specified        specified    specified       specified                     specified

                                                                                                                                 23
Conclusion

                                      We are building less than half the number         50 years each round of the fund will create
                                      of houses needed to meet both population          a massive endowment that can be used to
                                      growth and tackle the backlog caused by           help address not just the housing challenge
                                      decades of undersupply; 1.4 million families      in the country but potentially the myriad
                                      sit on social housing waiting lists; private      range of other disadvantages that can hold
     “Our National Housing Fund       rents have hit a record high and the average      our fellow citizens back.
     offers the British Government    home costs 10 times the average salary.
                                                                                        A One Nation Government that is radical
     a way to finally build the
                                      This failure to meet demand is pricing            and ambitious has no choice but to
     homes it acknowledges it         people out of the housing market,                 transform the housing market and finally
     needs. Through the notion        increasing intergenerational inequality           get it to provide the homes so urgently
     of a guaranteed buyer, we        and for those for whom renting is the only        needed. Our National Housing Fund
                                      option, a record proportion of their income       represents a serious and credible way to
     reinvent the only formula that
                                      is spent on housing.                              achieve this goal by establishing a new
     has ever enabled the state to                                                      guaranteed buyer in the housing market –
     build at scale. Crucially, we    Our National Housing Fund offers the              to deliver at least 40,000 and up to 75,000
     will open up the market for      British Government a way to finally build         new homes a year to finally meet our
                                      the homes it acknowledges it needs.               housing needs.
     the millions who need it to
                                      The Fund we propose will offer full cost
     work for them.”                  recovery for the public purse, or indeed
                                      if the Government prefers it could even
                                      offer a direct return over and above any
                                      interest or management costs. Through the
                                      notion of a guaranteed buyer, we reinvent
                                      the only formula that has ever enabled
                                      the state to build at scale. Crucially, we will
                                      dramatically expand the capacity of two
                                      relatively dormant sectors, the SME building
                                      market and housing associations, such that
                                      they too can build at scale and open up
                                      the market for the millions who need it to
                                      work for them. Finally, we believe that over

24
You can also read