Out-Law Guide 4 min. read
04 Aug 2011, 10:40 am
Since the introduction of the right to buy council housing in the 1980s affordable rented housing stock has been in increasing demand and declining supply. With house prices rising exponentially at times over the last few decades there is a shortage of low-cost home provision in the UK. As it becomes increasingly difficult to borrow money to purchase a house, new solutions need to be found to address this.
Types of tenancy
Housing tenancies can be broadly divided into the following categories:
The above types of tenancy do not create a position where an occupier can ultimately own the property. To address this issue the following new types of intermediate tenure have been developed:
Addressing lack of market demand for private sale homes
There is both a lack of affordable housing available for lower income households and increasingly difficulty in obtaining mortgages. This has the unfortunate effect that many housebuilders are put off from building new residential schemes as they find it difficult to predict the level of demand for them.
Many providers are therefore now looking at a private rental fund model. This will typically involve a housebuilder engaging with a registered provider. The registered provider will take a lease of both the affordable and the private sale homes and will manage the estate, paying a rent to the housebuilder which reflects the void risk that the registered provider is taking. It will then let out all the homes - either under its own policies in the case of the affordable homes, or in accordance with a marketing strategy agreed with the housebuilder in the case of the private homes.
Local housing companies – the HCA model
The Homes and Communities Agency (HCA) is the Government's agency charged with addressing housing market difficulties in England and Wales. The HCA created a type of joint venture model aimed at increasing the supply of affordable housing. Here, the public and private sector form a partnership to deliver housing within a local area.
In this model a local authority and a housebuilder or a consortium of housebuilders will form a joint venture typically on a 50:50 basis. The local authority will 'sell' its land to this joint venture and the value of that land, or part of the value if it is in a high value area, is matched by the private sector partner with cash. The joint venture therefore holds land plus cash enabling it to carry out development works.
The private sector partner's contracting arm will be awarded the contract to build on the land, and the local authority will require a substantial amount of affordable and intermediate housing to be built. Income yielded by sales, rent and staircasing can be recycled into the joint venture and invested in future projects or, if sufficient working capital is left, distributed to the partners as profit.
Due to similarities in the inputs required from the private sector, this model is of great interest to those construction companies who were historically involved in Private Finance Initiative (PFI) projects. This is only an example of how the private sector is engaging with the public sector to deliver residential schemes - this model is being flexed and adapted to suit different locations and requirements throughout the country.