Public funding for housing and infrastructure – a new golden age?


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The Government's commitment to increased housing supply was driven home by the Prime Minister's attendance at the National Housing Federation Summit, the announcement of £2 billion in funding for long-term strategic partnerships and the commitment to remove the HRA debt cap for local authorities.

The availability of new or enhanced public funding streams is often critical to "unlocking" key sites, supporting housing led infrastructure and driving more challenging delivery targets. Surprisingly, however, market awareness of the available funding streams, how and where they can be used and the terms for their use is perhaps not as widespread as one would imagine.

What is available?

We set out below a "snapshot" of some of the primary public funding streams available for housing delivery.

  • Housing Infrastructure funding – £2.3 billion is available to help "unlock" challenging sites.
  • GLA Affordable Homes Programme 2016 - 21 - £3.4 billion investment through a wide variety of funding models to meet a range of London-specific delivery objectives.
  • Homes England Shared Ownership Affordable Homes Programme 2016 – 21 – £4 billion is accessible to non-profit registered providers (including Strategic Partners), for-profit registered providers, local and combined authorities and private developers.
  • Home Building Fund - £3 billion in debt finance for private sector development and infrastructure.

Of course public funding is not limited to Homes England or GLA - in particular, there are a wide variety of local authority funding sources already "in play" in the market to help stimulate housing delivery at a local level, such as:

  • Grant funding – in particular, many Councils are sitting on "war chests" of Right to Buy receipts which they are keen to see used by delivery partners within their areas before the three year deadline;
  • On-lending – Council have the power to lend funds (either current reserves or Public Works Loan Board funds) for purposes which comply with their statutory duties; and
  • Alternative forms consideration – Council subsidiaries and/or delivery partners may benefit from innovative funding arrangements, such as where equity shares or land forms part of the "payment".

In addition, certain combined authorities have been established with a specific mandate to provide housing investment in their areas and they are in an ideal position to use Homes England, and/or local authority funding practices as a basis for developing their own innovative models which respond to local market needs.

Who are the recipients?

Public funding is relevant to all those engaged in housing delivery.

Whilst local authorities (including some combined authorities) and housing associations are the obvious recipients, private bodies may also "access" funding, either directly or indirectly through partnerships and consortium arrangements with registered providers. In any event public monies (and the conditions on which they are available) will inevitably be passed down contractually to private sector partners (e.g. contractors, developers).

Local authorities are under significant pressure to accelerate delivery in their areas and so are increasingly open to negotiating bespoke funding arrangements with housing associations or private developers as part of an overall delivery "package".

How to use public funding for housing and infrastructure?

Getting the right tenure balance can directly influence the rate of build out and scheme success. Grant funding has, in numerous cases, supported affordable housing provision to sufficient levels to persuade planners to allow consent to be given.

In order to enhance supply, thought should be given to how to maximise the impact of available public subsidy by combining it with other potential sources of private and public investment. Layering funding streams will be driven by specific objectives and we have advised on a wide variety of options, including:

  1. An entity that is land "rich" but cash "poor" may wish to invest equity into a development vehicle in the form of land or shares;
  2. Accelerated delivery can be driven by up-front grant funding arrangements which include a form of overage to share market uplift on a completed housing project;
  3. On-lending arrangements with local authorities will be welcomed where these can provide a revenue stream and create a crucial income to its general fund; and 
  4. The establishment of development vehicles (companies or limited liability partnerships) to build capacity and maximise the use of funding streams (e.g. Right to Buy receipts, Community Infrastructure Levy funds);

Key issues

Although each development is unique, there are certain key legal principles which should be considered in any transaction which involves public funding, including:

  1. State Aid – in order to come within the State Aid rules, funding will need to be structured so that it is State Aid compliant or falls within one of the "exemptions" – this should be done at the scheme's conception to avoid "nasty surprises".
  2. Procurement – public bodies will need to satisfy themselves that the manner in which funding is provided as part of the overall development programme is compliant with (or outside of) public procurement law. 
  3. Legal restrictions – local authorities and charitable housing associations (and their partners) will need to ensure they have sufficient powers (both constitutionally and under relevant statute) in order to undertake funding and investment activities.
  4. Security – if funds are being passed on consideration should be given to security measures (for loan) or recovery events (for grant) which may be necessary to safeguard public monies and incentivise delivery and on-going use. If an equity investment is contemplated, have sufficient protections been integrated into the constitutional / governance arrangements of the recipient?

Conclusion

There is of course no "one size fits all" funding model but what is clear is that public funding is now available at a significantly increased scale. Securing and effectively using such funds will be critical to unlocking development and maximising supply now and in the future.

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