Has mixed tenure funding failed?

Subsidising affordable homes from private sales in mixed estates will no longer work, junior housing minister Iain Wright has told the Labour conference. He said the current business model of funding affordable houses through sales revenues and section 106 had “failed” and also predicted that new models of shared ownership would emerge. But what could take the place of section 106, cross subsidy and shared ownership? Regenerate asked a range of housing figures for their ideas.

Kate Davies, chief executive, Notting Hill Housing

“Section 106 is still happening and we are probably doing as many as ever. It does not mean there are as many [on offer from developers] as before but the price is now more realistic. Social rented housing is a very expensive way to help people. The original grant is £50,000 to £100,000, the rent is subsidised through housing benefit and usually cross subsidised by the housing association. Are there better ways to help people for shorter periods in more targeted ways? It could be through housing help or helping them back into college, work and training. That might be better investment in their future than low cost housing for life. Instead of saying those are the targets for social rented housing we could see councils building communities in a way that maximises the social benefits. Some might say they want something that produces work for everybody or fights poverty. It would be a vision beyond just providing affordable housing. If we don’t seeing the housing [tenures] remaining the same perpetuity then we have resources flexibility.”

Robin Tetlow, managing director, Tetlow King Planning

“The difficulty is there is not much housebuilding going on in the private sector at the moment. There might be isolated examples where you could get private funding in there but basically there has to be large scale public investment. Shared ownership does not fit the present market circumstances but it would be an overstatement to say the idea is completely dead. It has been around for 40 years and has stayed through various market conditions in the past.”

Glen Bramley, professor of housing and planning, Heriot Watt University

"I think everybody is looking too short term at this. While we need short term expediency to get through this for the next year or two because of the mortgage market, it is important to keep section 106 arrangements in the medium and longer term. The same goes for issues about the total size of the housing programme. There is a short run programme which needs other expedient measures, such as maybe bringing the public funding programme forward. But it would be a great mistake to not have some planning-related mechanism in longer term. It is important not to confuse the short and longer term.”

Jim Ward, director of residential research, Savills

“It all depends on who puts the land value and the equity into the deal and this is where the English Partnerships model is quite instructive. If EP do a joint venture they have the flexibility to take a lower land value if land value falls in a development. If it is public sector land, like a local housing company where local authorities take an equity stake in the development, there is flexibility to take the lower land value in order to proceed with the development. The consideration is that public sector coffers are not limitless. EP’s behaviour will be interesting: will they press forward with development and take a lower land value out to pump prime development? But there is usually a trade off between land value and contribution to infrastructure from Treasury in these big developments.”

Sarah Monk, deputy director, Cambridge Centre for Housing and Planning Research

“First of all, I think the minister is overstating the situation. At one level we have been here before, in the early 1990s, and the housing market started to pick up in 2003. So once building starts again, the potential for cross subsidy and section 106 contributions will re-emerge. The issue is whether local authorities will be ready for this, or whether they will have negotiated away all the potential during the current slowdown so that not only will the developers be laughing all the way to the bank but government affordable housing targets will still not be met, even during the upswing. The underlying long term fundamentals of population growth (longevity and to a lesser extent international migration) have not changed on current evidence.

“On models for funding mixed communities, I would agree, but there are only so many ways to fund them. They can be paid for either through government, or from land values, or out of reserves, or out of revenues/incomes. The choices are therefore quite limited.

“And on the new models for shared ownership, at present a shared ownership loan (as compared to shared equity) is secured on 100% of half the value of the property. This could be altered if subordinated loans were introduced (where borrowers take out a mortgage with one lender for part of their half of the property and a top-up loan with one or more other lenders for the rest of their half). The most important thing in my mind is to change the messages about risk to lenders. Lenders perceive shared ownership to be much riskier than it is. Risk is reduced by the fact that a housing association is a part owner of the property and also because they double vet candidates for credit worthiness and for ability to pay, and they are very risk averse.”