International measures to channel investment towards affordable rental housing: English case study

Housing Rental housing England
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This research has been commissioned by the Western Australian Government to describe and assess international models for financing the supply of affordable housing that use public subsidies and incentives to attract large scale commercial finance to the supply of affordable housing. This report provides the findings of stage 2B of the research which uses expert interviews and desk research to assess the growth and effectiveness of private finance in England.

Since the introduction of private finance in England in 1988, mainly in the form of commercial loans to housing associations, the funding models of the sector have been transformed. Lenders currently provide some £50 billion ($90 billion) of facilities for associations, including a small but growing market in bonds. This has allowed governments to progressively reduce the level of grant support to the housing association sector such that it is now just below the level of private finance. During the last two decades, associations have increased their professionalisation, innovated with new housing and community development approaches, increased housing supply, and developed a relationship more at arms’ length from government. Therefore, the changes brought by private finance in England have been, within the terms envisaged by Margaret Thatcher’s government in the late 1980s, highly successful.

However, the Global Financial Crisis (GFC)—a term used to describe the turmoil in property and financial markets triggered by the US sub-prime mortgage collapse in 2008—has led to a re-evaluation of private finance. In particular, tension has arisen between the government’s desire to reduce grant assistance, and the sector’s wish to keep commercial borrowing at manageable levels. Interviewees approached for this research considered that the decline in grants may have been too great, and led to associations taking on greater risks through market-rate sales, shared ownership schemes and speculative land-banking. For many larger associations these activities have become central to their business planning. Unfortunately, they are also activities that have become problematic with the downturn in English property markets.

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