This report presents an interesting idea of a £100bn Fund to build homes for rent. This would be funded by Government borrowing on a 50-year term (gilt) and on-lent to a holding company, in which Government and a group of housing associations are shareholders. The £100bn would be added to the Government’s debt until repaid by the Company (after 50 years). The Government would exit the fund after the 10 years by selling its shares in the Company to the group of housing associations, at ‘nominal value’. The Company would have responsibility for repaying the £100bn to the Government. From onset, the Company would use the money to commission developers – including SMEs - to build homes. It would absolve sales risk to developers through pre-purchase arrangements, but would not bear development risk. The report proposes the Fund could build 40,000 homes a year over 10 years, with the rental yields sufficient to pay the Government’s interest costs, which the Company would be obliged to do. Hence there would be zero cost to Government. As well as supporting housing supply, the report argues the merits of the Fund include: enhancing developer capacity both through consistency of demand over the economic cycle and supporting SMEs through demand stimulus and nullifying sales risk; as well as creating 180,000 jobs, increasing the tax take and reducing the benefit bill (worth £3.4bn over 10 years).
The report is short and snappy and reasonably well-presented. Given the complexity of the idea, it does a decent job of explaining it though with some ‘brain-strain’ in places. The idea perhaps lacks originality as yet-another variant on a theme of “using Government’s cheap borrowing”. It is thought-provoking nonetheless. The analysis is too simplistic in places and contains some flaws. For example, the 40,000 homes would not all be ‘additional’ to housing supply, as the report suggests, because of deadweight and displacement. This would in turn reduce some of the welfare savings. Related to ‘additionality’, although the report acknowledges labour supply constraints in play, it almost glosses over these by assuming them away with an apparent downturn, which isn’t very encouraging. The prognosis that planning permissions aren’t being built out mainly because of investment (money) is also perhaps simplistic and probably incorrect – the reality is a whole host of reasons including, money / cash flow, labour shortages, utilities companies driving a hard bargain, section 106, pre-commencement conditions, the list goes on.
There are elements to like about the idea. The demand stabiliser aspect – i.e. if a downturn does happen! – and the genuinely additional supply capacity by supporting SMEs / derisking aspects. But there are probably easier ways to capture such benefits. The only real benefit of the financial arrangement - with a separate holding company and shares - seems to be that it could count as a financial instrument, and so £10bn a year over 10 years would apparently not count towards the Government’s deficit. But it would still be added to the national debt, which is slightly confusing. In sum, there is probably a more effective and transparent channel through which the Government could borrow and invest £100bn to good effect, if it were so disposed.