TY  - RPRT
AU  - Berry, Mike
AU  - Whitehead, Christine
AU  - Williams, Peter
AU  - Yates, Judith
CY  - Melbourne
KW  - Housing affordability 
L1  - internal-pdf://0756490914/Â鶹Éç_Final_Report_No072_Financing_affordable_.pdf
M1  - 30206
M3  - FR
N1  - Berry, Whitehead and Yates (2004) reviewed existing literature and policy documents relating to financing the affordable housing sector in Australia and the UK. They report that the UK approach had been successful in encouraging private investment and halting the decline in social housing stock.
Their analysis of the UK experience identifies some of the barriers to private investment in affordable housing and the strategies that were used to successfully overcome them.
The social housing sector in the UK is composed of public (municipal) housing and community housing. Since the early 1980s total social housing stock has been declining. At its peak, local councils and community housing associations owned 33 per cent of all housing in the UK, which has since declined to 21 per cent (22).
The community housing sector has rapidly expanded since the 1970s and is largely funded by government grants (23). However, increasingly smaller budgets resulted in organisations needing to introduce a greater mix of income tenures in order to maintain financial viability. During the late 1980s housing associations began to look beyond government grants and leverage private funds.
The
re was considerable interest from the private sector because the government was able to provide implicit guarantees [i.e. policy mechanisms] that lessened the investment risk (24). The government did this in four ways:
1.
Provided a secure revenue stream by continuing to invest in demand-side subsidies for low-income households.
2.
Granting housing associations the right to raise rents up to market levels in some instances to ensure financial viability.
3.
Granting financiers preferential treatment on asset repossession in case of liquidation.
4. Maintaining a strong regulatory framework through the Housing Corporation (24-25).
The Housing Corporation also had to take on an education and marketing role to encourage lenders into the market. In 1987, the Housing Corporation appointed a private finance advisor and ultimately established the Housing Finance Corporation which provided an intermediary to access the wholesale finance market for smaller associations (25).
Over time, initial caution and conservatism amongst lenders reduced and loan terms became more attractive caused by unfamiliarity and uncertainty with the asset class. Similarly, as housing providers became more experienced, their confidence increased and they began re-financing to create a balanced portfolio using a range of financial options. Some housing providers grouped together to form clubs and make larger aggregated funding requests for which there is more competition (27). The UK experience identifies that organisational capacity development is critical for enabling housing providers to secure private finance. Berry et al. (2004) find that the 35
experience and professional skills of Housing Association management and Boards had to change to facilitate the use of private finance.
With the maturing of the policy direction, Berry at al found that:
a system of relatively careful lenders and conservative borrowers is in place. Debt and bond finance is now widely available (Berry et al. 2004 26).
Although history suggests, as noted in Dixon (2009) below, that somewhat higher-risk financial innovation occurred in subsequent years.
One feature of the UK lending market is that private finance is oriented toward debt funding of housing provider organisations (hence privileging its management strength and financial position in assessments of loan risk) rather than investment in specific projects on a project by project merit basis (27). Berry et al. comment that as the sector matures there will be increasing differentiation of credit conditions based on the performance of different housing providers, placing greater demands on the regulatory systems (50).
Berry et al. discuss the relative merits of bond and debt financing mechanisms arguing that competition between these options is likely to be a key driver of the UK finance market. Bonds eliminate the relationship between borrowers and investors, and are also exposed to the strength of investor appetite at the moment of issue.
This research also identifies a consequence for government of encouraging large-scale private investment: the risk of deterring private investment leads to constraints on government housing policy interventions. For example (27):
NV  - RMIT
PB  - Australian Housing and Urban Research Institute Limited
PY  - 2004
RP  - Berry, Whitehead and Yates (2004) reviewed existing literature and policy documents relating to financing the affordable housing sector in Australia and the UK. They report that the UK approach had been successful in encouraging private investment and halting the decline in social housing stock.
Their analysis of the UK experience identifies some of the barriers to private investment in affordable housing and the strategies that were used to successfully overcome them.
The social housing sector in the UK is composed of public (municipal) housing and community housing. Since the early 1980s total social housing stock has been declining. At its peak, local councils and community housing associations owned 33 per cent of all housing in the UK, which has since declined to 21 per cent (22).
The community housing sector has rapidly expanded since the 1970s and is largely funded by government grants (23). However, increasingly smaller budgets resulted in organisations needing to introduce a greater mix of income tenures in order to maintain financial viability. During the late 1980s housing associations began to look beyond government grants and leverage private funds.
The
re was considerable interest from the private sector because the government was able to provide implicit guarantees [i.e. policy mechanisms] that lessened the investment risk (24). The government did this in four ways:
1.
Provided a secure revenue stream by continuing to invest in demand-side subsidies for low-income households.
2.
Granting housing associations the right to raise rents up to market levels in some instances to ensure financial viability.
3.
Granting financiers preferential treatment on asset repossession in case of liquidation.
4. Maintaining a strong regulatory framework through the Housing Corporation (24-25).
The Housing Corporation also had to take on an education and marketing role to encourage lenders into the market. In 1987, the Housing Corporation appointed a private finance advisor and ultimately established the Housing Finance Corporation which provided an intermediary to access the wholesale finance market for smaller associations (25).
Over time, initial caution and conservatism amongst lenders reduced and loan terms became more attractive caused by unfamiliarity and uncertainty with the asset class. Similarly, as housing providers became more experienced, their confidence increased and they began re-financing to create a balanced portfolio using a range of financial options. Some housing providers grouped together to form clubs and make larger aggregated funding requests for which there is more competition (27). The UK experience identifies that organisational capacity development is critical for enabling housing providers to secure private finance. Berry et al. (2004) find that the 35
experience and professional skills of Housing Association management and Boards had to change to facilitate the use of private finance.
With the maturing of the policy direction, Berry at al found that:
a system of relatively careful lenders and conservative borrowers is in place. Debt and bond finance is now widely available (Berry et al. 2004 26).
Although history suggests, as noted in Dixon (2009) below, that somewhat higher-risk financial innovation occurred in subsequent years.
One feature of the UK lending market is that private finance is oriented toward debt funding of housing provider organisations (hence privileging its management strength and financial position in assessments of loan risk) rather than investment in specific projects on a project by project merit basis (27). Berry et al. comment that as the sector matures there will be increasing differentiation of credit conditions based on the performance of different housing providers, placing greater demands on the regulatory systems (50).
Berry et al. discuss the relative merits of bond and debt financing mechanisms arguing that competition between these options is likely to be a key driver of the UK finance market. Bonds eliminate the relationship between borrowers and investors, and are also exposed to the strength of investor appetite at the moment of issue.
This research also identifies a consequence for government of encouraging large-scale private investment: the risk of deterring private investment leads to constraints on government housing policy interventions. For example (27):
ST  - Financing affordable housing: a critical comparative review of the United Kingdom and Australia
T2  - Â鶹Éç Final Report No. 72
TI  - Financing affordable housing: a critical comparative review of the United Kingdom and Australia
UR  - /research/final-reports/72
ID  - 30
ER  -