Government must look at new forms of investment to address housing shortfall, say MPs

In its report examining the financing of new housing supply, the Communities and Local Government Committee (CLGC) said that the Government had to "look to new forms of investment and foster and environment in which innovation can be taken forward" in order to address a major housing shortage in England.

It also welcomed the release of unused publicly-owned land through Disposal Strategies published by various Government departments last year, but warned that the Government should "be mindful of other approaches" to making land available that could offer a better deal for the taxpayer, such as joint ventures or partnerships with developers. Housing Minister Grant Shapps last year announced his intention to release public land to build as many as 100,000 new homes.

"There is no 'silver bullet' - we have to muster all the resources we can," said committee chair Clive Betts. "The Government's housing strategy has made a useful start and we hope many of its measures will provide a stimulus over the short to medium term. But we need more action if we are to see significant long-term improvement in housing supply."

Betts said that the financial crisis had amplified what was already an existing shortfall in affordable housing in England. 232,000 new households are formed each year in England according to Government figures, but fewer than 110,000 new homes were built last year.

The report sets out four areas which it says could "go a long way" to raising the finance needed to meet this shortfall. It proposes large-scale investment from institutions and pension funds, changes to how housing associations are financed, more financial freedom for local authorities and the introduction of more innovative models, such as self-build housing.

Housing associations are private, non-profit making organisations that provide low-cost "social housing" to people in need of homes. They are traditionally funded through rent payments made by or on behalf of those living in their properties, together with a historic Government grant which sets as a repayable charge on housing association balance sheets.

Betts said that the Committee had heard a "number of proposals" for the future financing of housing associations as the amount of this grant has fallen, including the suggestion of writing off the grant or converting it to an equity investment from the Government. However, as the current costs of raising equity are "probably higher" than raising debt, this could lead to higher rent payments.

"This grant is potentially an untapped resource, and the Government must clarify how it can be used to best effect," said Betts.

The report also suggests that housing associations consider allowing people to invest in their local communities as well as raising finance through the sale of bonds. However, a "clear regulatory framework" would be needed to protect both housing association balance sheets and consumers, it said.

Pension funds and large institutions, which to date have only ever made "limited" contributions to new housing, could deliver a substantial number of new homes particularly in the private rental sector in exchange for a steady return on their investment, the report said. Public sector bodies and housing associations could do more to encourage this investment by expanding the range of services they provide, it said, while the Government should also look to establish a housing investment bank to channel this investment into housing.

The Committee said that it supported a pilot housing investment fund run by housing associations, ideally backed by the Government.

"The pilot should consider the viability of a fund, its ability to attract investment and any risks to the Treasury arising from Government support," the report said. Alternatively the Government could expand on the work it had already carried out on creating a Green Investment Bank (GIB) by allowing it to invest in housing as well as green infrastructure. The GIB, which was announced in 2010, will provide a Government-backed means of finance to private sector projects related to environmental preservation and improvement.

The report also proposed removing centrally-imposed constraints on local authority borrowing, which would give councils "greater freedom" to decide on locally appropriate housing solutions.

"The Government should give councils greater freedom to decide on the best housing solutions for their areas," said Betts. "Local authorities must be allowed, within prudential limits, to safely increase their capital borrowing for new housing."

The Government said this week that it will continue to release publicly owned brownfield and previously-used land for housing development and plans to extend the use of the 'Build Now, Pay Later' model to as many sites as possible,

It has identified enough surplus public land to build up to 102,000 new homes, it said. The Government's target was to release enough surplus land to build 100,000 new homes by 2015. "But we're not stopping there - I'm determined to continue looking for more sites suitable for housebuilding," said Housing Minister Grant Shapps.