Going for growth?

The Government has set great store by its housing and growth stimulus package. Christopher Munday and Christopher Proudley consider what it means for councils, registered providers, house builders and other organisations.

The Government's announcement on Housing and Growth earlier this month underlines its belief that an investment of energy and money into the housing and planning sectors will give the economy a much needed shot in the arm. At the same time the measures seek to deal with the longstanding obstacles to providing and accessing new homes.

The measures are wide ranging and positive and should be welcomed. But the overriding concern (and with much detail still unknown) is whether these measures, in whole or individually, are sufficiently radical or powerful enough to jumpstart a faltering economy. 

Affordable housing requirements

House builders will be pleased with the indication that legislation will be introduced in early 2013 to allow an immediate appeal against the extent of affordable housing required in old section 106 agreements, which make the development unviable. Effectively, it appears that this will remove the existing five-year embargo on appealing against planning obligations and will relieve the developer of the current requirement of first applying to the local planning authority before being able to appeal.

There will still be the time and cost involved in an appeal (at a public inquiry if the council and local residents wish to object?), but it will see an objective assessment of viability by the Inspector. There is a clear indication that methods of assessing viability should be rationalised, to be backed by legislation if no agreement can be reached. Going forward, this will assist in the negotiation of planning permissions and section 106 agreements for residential development in terms of both the developer and the council agreeing what is viable. It should be noted that no mention is made of the Community Infrastructure Levy and, presumably, that will form part of the viability calculation in the future.

Registered providers may see this development as unhelpful given the potential reduction in the number of units to come through section 106 agreements. However, if it means developments proceeding that otherwise wouldn't then some units will be produced rather than none. Equally those providers that have established commercial subsidiaries or are working with the private sector in joint ventures in order to generate cross subsidy from market sale housing, will benefit should there be an increase in development activity. There is nothing in the statement about relaxing section 106 obligations more widely as the recent Montague report suggested in order to assist the private rented.

Speeding up planning appeals

Another suggestion is that the planning decision-making process will be speeded up, with applicants able to take their proposal immediately to appeal if councils have a poor track record in dealing with applications expeditiously. Query how this fits into the localism agenda?

Whilst these improvements will be welcomed by the development industry, the cost and delay of an appeal, (again at public inquiry?) will be involved and it is questionable whether perceived delays in the planning system are really the major inhibitor to economic growth that the Government believes.

Councils have already seen their resources stretched by recent edicts to ensure that their own policies are compliant with the NPPF and by the preparation of neighbourhood plans. Will this further burden of dealing with applications expeditiously mean outsourcing of their planning function?

Guarantees and funding for new housing

For providers of affordable housing there is the promise of the use of loan guarantees, asset management flexibilities and capital funding suggesting an extension and development of the current Affordable Housing Programme. The extra £300m funding will be undoubtedly welcomed; the detail of how to access this funding will determine its success in providing new homes quickly.  

The proposed Government guarantees look to promote increased institutional investment by long-term fixed income investors in both the private rented sector and for affordable housing. This will be achieved by the issue of bonds to these investors by a new Government-sponsored entity, which will be guaranteed both as to principal and interest by the Government for a 30-year period.

The scheme seeks to address one of the principal issues in funding all types of new build housing, namely the availability of long-term debt finance on affordable terms.

In the private rented sector, participants will be required to commit to purchasing an agreed number of new homes and rent them out. They will have to put up their own risk capital and the balance will be funded by the Government guaranteed bonds. The availability of this long-term funding backed by Government guarantee is to be welcomed and will make a positive contribution to the viability of some new schemes of development. However, participants will still need to be convinced that investment in new build housing for private rent is suitable for them and offers the returns they require.

It also looks as if their investment would remain at risk since the Government would look to have recourse against the participants to the extent its guarantee was ever called by the bondholders and could ultimately rely upon security over the properties.

A similar scheme is open to registered providers to fund the provision of affordable housing for both rent and home ownership. They will be required to develop and manage an agreed number of new affordable housing units in exchange for the Government providing its debt guarantee. As with the current affordable homes programme, it is clear that RPs will be expected to make their own capital contribution and where possible convert additional homes to affordable rent. Limited grant funding may be available, but this is likely to be at lower rates than under the current programme. It is clear that the guarantee is only available for new debt and not for projects that are already supported by other Government schemes. The Government will also be looking for security over the new stock.  

This could prove to be an important new source of funding for housing associations, as the availability of traditional bank funding dries up. However, the sort of fixed income investors that the Government is looking to attract are likely to be the same that are already actively investing in bonds issued by housing associations. These investors already regard housing associations as an extremely good risk so it is not immediately obvious why they might be persuaded to invest in these new instruments, which backed by the Government guarantee will inevitably bear a lower rate of interest.

Responding to the Montague report

Private investors and financiers should note that the measures include a positive response to key recommendations in the Montague report on barriers to institutional investment in the sector specifically a commitment to invest £200m in housing sites to ensure that the high-quality rented homes that are needed are available to institutional investors quickly.  

The Government's intention to establish a taskforce to bring together developers, management bodies and institutional investors to broker deals and deliver more rented homes is another positive signal. The real challenge will be to convert policy into delivery in the short term given demand in this sector in an otherwise weak economy.

Christopher Munday and Christopher Proudley are partners at Trowers & Hamlins. They can be reached on 020 7423 8295 and 020 7423 8513 respectively. Alternatively, you can email them This email address is being protected from spambots. You need JavaScript enabled to view it. and This email address is being protected from spambots. You need JavaScript enabled to view it..