Housing Investment Taskforce report

Encourage and promote new delivery partnerships

A new mindset for development and joint ventures

23. The Taskforce members shared experiences of successful partnership models and identified the critical success factors as:

a. Assets – such as land or equity, alongside track record/credentials

b. Alignment – in interests, shared vision, blend of risk appetite, local priorities

c. Transparency – on costs, expected returns, how things can flex

d. Clarity – roles, responsibilities, costs and risk, conflict resolution and exit strategies

e. Scale – worthwhile for transaction/governance costs.

24. The Taskforce recognised the role that public land can play in partnerships. The quantification of benefit through the business case noted at paragraph 45 would support the disposing body in coming to decisions on the wider social value of affordable housing. However, in many circumstances, public land being provided for housing without quantifiable return is unlikely to be appropriate and therefore a different approach should be considered for the use of public land. Rather than up-front capital receipt, equity arrangements that share risk and reward to provide an income stream over the longer term should be considered.

25. In the private housebuilding sector, ‘pay-as-you-go’ acquisition arrangements between businesses have been utilised to similar effect where rather than upfront payment, proceeds are provided over time.

26. The public sector should take a more entrepreneurial approach to development opportunities, prioritising areas where strategic economic opportunities align with areas of greatest private sector housing pressure. The assets the public sector has (land, equity or subsidy) should be leveraged through a default ‘commercial first’ and risk/reward share with the potential for cross-subsidisation of affordable homes realised.

27. Political support would be needed to shift the public sector role from one that has at times removed risk to development and investment to sharing in the return. To be successful there needs to be longevity across political cycles and clear prioritisation within local authorities to ensure that internal operational capacity is built and sustained to take this approach. There will also need to be trade-offs on both government appetite for risk and private sector consideration of profit flow. The Scottish National Investment Bank is already exploring new partnerships and utilising the starting point of strategic opportunities above, and could take a key role in bringing together private/public sector partnerships and attracting private capital.

28. More specifically, the Taskforce considers that the 20 year rule on long leases acts as a barrier to the delivery of longer-term funding models. If this were reformed it could open up new opportunities for partnership approaches, structures and income flows.

Fund-based approaches and aggregators

29. The Taskforce highlighted several fund-based approaches that act as vehicles to enable investment, blending public and private funds and providing investable structures. Different approaches have been taken; primarily in Scotland the return for public funds has been the supply being boosted, whereas examples in England see both increased supply and a return on investment.

30. Aggregators exist at a UK level for Registered Social Landlord (RSL) and SME borrowing; however, an interest has been identified through the Taskforce for an aggregator associated with pension funds for local authority borrowing, if this could access preferential interest rates and reduce the cost of existing and further borrowing. This should be explored further by local and Scottish governments and a range of investors, including whether existing aggregator structures could support this.

Homebuyers (including first-time buyers) – a shared ownership model

31. Shared ownership has had limited use in Scotland due to market demand and prior shared equity approaches in an era of higher funding availability. The Taskforce has identified that the time is right to look at this again to stimulate first time buyer activity and to increase options for affordable housing delivery. A best practice commercial model of shared ownership could play a greater role, with potential to deliver up to 2,000 homes per year. Models used elsewhere in the UK offer greater comfort to lenders in enforcement, recovery and default situations which allows them to offer loans at higher (95%) Loan to Value (LTV) rates. This is important for a product which supports first time buyer/entry level homeownership, as high LTV mortgage products support people with fewer assets into home ownership.

32. In Scotland, shared ownership has traditionally operated with a split in the ownership interest, where the occupier owns one share and a landlord owns the remaining share, which is then leased to the occupier. Without additional protections, this split means that in practice lenders must take a more cautious approach and only offer up to 75% LTV, which increases deposits required by borrowers to 25% rather than 5% elsewhere; which is a significant barrier to its use.

33. Legislative reform could unlock the investment that would support people into home-ownership, with appropriate safeguards to ensure a fair operating environment.