PWLB borrowing targeted for affordable homes
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Building capital
The Scottish Futures Trust (SFT) is exploring a number of new models to make use of local authority on-lending after closing a housing programme set to deliver more than 1,700 affordable homes.
Speaking in Dunblane at the CIPFA Treasury Management Forum, Alastair McMillen, finance manager at SFT, said that money borrowed through the Public Works Loan Board (PWLB) could be used to fund models of delivering affordable and private sector rented homes as well as enabling infrastructure.
His colleague Christine Gray said that the schemes could replace the National Housing Trust (NHT) scheme. Created by the Scottish Futures, the NHT scheme has harnessed council on-lending to build homes which are made available at affordable rents for between five to 10 years before being sold to enable developers to make a profit.
Gray said: “Times have changed and we don’t think private sector developers need the same level of intervention that NHT gave. However, the demand in the market is still there.
“NHT was of its time – local authorities were willing to forgo the idea that these homes were in perpetuity to accelerate development, but also to give tenants the opportunity to buy the homes they were in.”
New models are aimed at allowing councils to retain homes for affordable rent in perpetuity, McMillen said.
The NHT model sees councils create limited liability partnerships (LLPs) with developers. Using an on-lent PWLB loan from the local authority, the LLP pays the developer 70% of the purchase price.
The remaining 30%is funded through an equity subscription to the developer. The LLP then uses rental income to pay interest to the council at a fixed rate of 4%. After five to 10 years, the homes are sold, allowing the developer to realise a profit.
Gray said the scheme, which is underwritten by the Scottish Government, is set to deliver 1,700 homes with a value of £260m.
However, McMillen said creating new schemes to deliver affordable homes in perpetuity is more challenging due to life cycle costs. In addition, such homes had significantly lower valuations because secured tenancies mean that values cannot be easily crystalised.
However, he added that it would be possible to create “a good framework where councils feel comfortable lending”.
In addition, SFT is exploring a model to create joint ventures between councils and developers aimed at stimulating supply of private rented sector housing at market rates.
This would be targeted at areas where the private sector is not investing at the moment, he said.
Finally, the body is looking at using short-term loans from local authorities to provide infrastructure to enable smaller builders to develop sites.
McMillen said: “In return, the council can capture value as well as getting greater control over the development schemes which the funding enables, in to get social outcomes such as more homes for key workers.”
