Getting the foundations right for social housing

Low interests rates on borrowings provide a unique opportunity for Government

The recent Statement of Government Priorities 2014 - 2016, issued in the wake of the Cabinet reshuffle is to be welcomed as it places "Improving housing availability and affordability" at the heart of the Government's objectives for the remainder of its term of office.

As part of the statement, the Government commits itself to increasing the supply of social housing, and housing for those on low incomes.

There is a great deal of sense to this, as additional social housing provision will reduce spending on rent supplement, provide the long-term homes the people on waiting lists need and deliver a badly needed stimulus to the building industry.

Recent reports suggest that 30,000 social housing units are required over the next five years to meet demand. Government policy currently envisages that these will be supplied mainly by voluntary sector housing associations. Delivering an average of 6,000 houses per annum in each of the next five years is an achievable aspiration even in the context of stringent restrictions on public spending. However, in order to do so, a number of constraints on output need to be addressed.

Traditionally social house building was funded using government grants which covered the full costs of construction or purchase, but this funding was cut significantly from 2008 and instead housing associations were encouraged to borrow from commercial banks or from the Housing Finance Agency plc (HFA) – a State agency which lends for social housing provision.

Public finances

Continuing pressures on the exchequer mean it is unlikely that 100 per cent capital grants will be reintroduced and even if public finances improved dramatically there is a strong argument that loans should be the main mechanism used to finance social housing as is the case in every other western European country. Using loan finance gives the State more “bang for its buck” by delivering at least five houses for every one it would achieve using the grant route.

However, we need to ensure that, as far as possible, borrowing for social housing provision does not add to the national debt. This can be achieved through the development of new financing models and structures (such as securitisation and covered bonds) which move borrowing “off balance sheet”, as recently proposed by the HFA in its submission to the Social Housing Strategy currently being prepared by the Department of Environment. Changing to these new funding models will require some policy reforms, however, such as the appointment of a statutory regulator to protect taxpayers’ and other lenders’ investment and tenants’ rights.

The extent to which private debt financing can be accessed is totally dependent on the availability of future revenue from Government to support the ongoing servicing of the debt.

In order to prepare a comprehensive funding strategy for social housing over the next five years there needs to be a clear commitment from Government to the ongoing funding that will be available to enable the sector service its debts. This will require a multi-annual funding programme for social housing, rather than the traditional one-year budget allocation.

Since the introduction of loan financing for social housing, take-up by the housing association sector has been low. A recent NESC report states that the housing associations have delivered just 677 units in 2012 – significantly less than the 6,000 per annum required. We need to acknowledge and reward those associations which have delivered, such as Cluid, Tuath and Oaklee Housing Associations which have used HFA loan finance to deliver many badly needed dwellings. We also need to challenge other housing associations to do everything in their power to ensure the acute shortage of social housing is resolved.

Local authorities

However, a large part of the problem stems from the fact that local authorities which provided 75 per cent of output in the 1990s are no longer supplying new social housing. Local authorities urgently need to be reintroduced into the delivery process and could be reorganised to enable off balance sheet borrowing.

In summary, the Irish social housing sector is at the early stages of transition from a fully exchequer grant-funded model towards one with a greater involvement of private sector debt financing (influenced by the need to reduce Government deficits and improve efficiencies).

In developing its strategy for increasing social housing output, the Government must consider new financing models, ensure revenue support is made available to the sector on a multi-annual basis and consider broadening the delivery channels for social housing beyond the housing association sector.

Borrowing costs at an all-time low present a unique opportunity to make real progress in social housing provision – an area of huge importance to the economy and society.

Dr Michelle Norris is a senior lecturer in the School of Applied Social Science, UCD and chairwoman of the Housing Finance Agency, PLC. This article reflects her personal views