Affordable and social housing finance innovation - synthesis, reflection and implications for Scotland: international evidence

Summary

The Scottish Government’s Housing Investment Taskforce is charged to examine ways in which additional finance can be provided to augment the supply of social and affordable housing. In response, this paper has been constructed to provide a rapid review of literature, academic and ‘grey’, on models, innovations and good practice, nationally and internationally, in the period broadly since the structural break of the Global Financial Crisis. The paper draws on work completed mainly with colleagues by the author since 2010. It also draws on other international literature as well several evidence reviews and policy toolkits.

The paper noted five overriding themes:

• We should not expect a silver bullet solution or solutions, or that genuine innovation is at hand. Rather, this is about new ways of tweaking and repackaging a finite set of possible components or parameters belonging to existing models.
• Policy transfer and mobility is tricky and should not be assumed to be unproblematic or always wise (but good ideas may nonetheless be customizable or provide the germ of something that can work additionally).
• Path dependency, the constraining impact of previous choices and institutional arrangements, matters in housing systems and in considering finance and subsidy reform.
• We should not neglect the likely dominance of the existing stock over the flow of new supply, and always incorporate systemic interdependencies, feedback loops and the real-world dynamics of evolving complex systems in the design and implementation of new models supporting affordable and social housing.
• Making progress is also about operating within the political public finance context of the time, navigating political priorities and making the public spending case, perhaps through persuasive additionality, net benefit and preventative (costs avoided) arguments. Housing has much to commend itself in terms of wider public policy gains in relation to important priorities such as child poverty, health and education outcomes (Gibb, et al, 2020).

Many of these themes taken together imply that while there may be quick wins, positive change will take time to design, implement and to feel its effects - this must be a long-term game, and one that is nourished and allowed to bed in. A stark lesson from the investigations of successful national systems in Europe is that they operated on a long-term context of stability that allowed them to build up as self-financing revolving funds. While not denying the priority of looking to find short term positive advances, the Taskforce must also look to initiating new long-term programmes and initiatives that can have these beneficial (permanent) implications.

The paper finds that:

1. We should not expect to uncover radical financial innovations but may find that some reconfigurations of the Ballantyne quadrants in figure 1 may offer one of more positive contributions to support the financing of affordable supply in Scotland.

Source: Gibb, K (2019) in Maclennan, et al 2019 Shaping Future: Changing the Housing Story. See also Gibb (2018).

Plain text:

Four sources for reduced cost Affordable Housing

• Equity
• cash/operator surpluses
• capital grants
• investors/housing funds
• cash
• Land/density
• Location
• public contribution
• planning benefit
• asset re-use
• Construction costs
• built form
• construction
• in-kind contributions
• Financing
• low-cost funds
• extended amortization
• deferred capital/interest
• alternative capital sources

2. Part of the answer may lie with the devolved application of the ideas suggested by Lloyd and Grayston (2023) in changing the fiscal rules, increasing flexibility for councils, reducing the scope for HM Treasury to intervene in and interfere with conventions like the rent settlement that are so important to private investment, and, also to adopt international accounting rules regarding public corporations’ debt and borrowing with particular respect to council housing borrowing.

3. We do however need to be careful when applying English evidence to Scotland – particularly the focus on for-profit registered providers, which do not operate in Scotland. At the same time, however, there is social investment operating in Scotland to provide homes e.g. for charities who are not for profits but not registered as housing associations. Social investment has a track record but not much scale yet in the UK housing system. At the same time, debt finance and joint venture arrangements as well as different leasing models all would seem to be possible to be grown further in the Scottish environment.

4. Blended subsidies in multi-level governance systems are of considerable interest – but work better in federal systems with more well-established fiscal federalist systems of inter grant transfer, etc.

5. Guarantees and low-cost debt have a long lineage with good practice versions in countries like Finland, as well as soft loans such as those associated with Financial Transactions Capital.

6. Solidarity based approaches such as the Netherlands, and particularly Denmark (the latter is well received, much like the national wealth funds in countries like Norway) but it must be built up over time and there needs to be a ready mechanism of building surpluses and a sector acceptability to use these in a directed top-down way.

7. Many of the success stories across Europe – Finland, France, Denmark and Austria – represent long term stable and predictable successful policies which both help moderate the pro-cyclical nature of housing, insulate social housing from the market, also building up and maintain revolving funds and similar special circuits. These draw strength from the maturity of their sectors. They also indicate that moving away from ‘business as usual’ is unavoidably a long-term proposition, but that is not a good reason to fail to start down such a road. Equally, land reform is important but takes time; that is no reason not to proceed.

8. We should recognise the importance and complementarity of green retrofit to housing cost and wider household affordability, and that finding an efficient and incentive-compatible mechanism to co-fund the capital cost and running costs of retrofit is essential to sustain investment in new social and affordable housing. Find a solution to retrofit and investment because that will lighten the load on providers and in turn support make housing more affordable and reduce energy costs for those on lower incomes.

9. Path dependency is important e.g. the strength of the social housing responses in countries like Austria and Finland do not operate in a vacuum and are supported by a network of interlocking finance, regulation and strategic mechanisms, as well as long established partnerships, trust and verification. It is not straightforward to graft these models on to Scotland. This is one further reason why it will be immensely valuable to see how the Irish experiment with low cost or limited profitability rented housing works out in the coming years (as it will also with their different evolving long term leasing policies).

10. ‘Housing 2030’ establishes that developing resilient housing finance circuits specifically for affordable/social housing delivery can create durable and stable models that allow for implementation but also considerable forward planning. It also indicates that there are long established financial circuits supporting housing through state savings schemes in France, as well as interventions to encourage investment in retrofit that need not undermine new affordable /social housing supply in countries like the Netherlands and Germany. Housing 2030 also sets out a series of ways to overcome land barriers through diverse interventions like public land banking, land readjustment and taxation, as well as through measures we are more familiar within the UK concerning land value capture for social good.