City urged to invest in affordable housing schemes

Coalition fears current levels of building will not meet the demand for properties, particularly in south-east England

The government is to announce a "wide-ranging" review to examine how to encourage City investors, insurers and pension funds to put up cash to build affordable housing schemes, designed to help poorer people get a roof over their heads.

Ministers admit decades of missed targets for housebuilding have left the UK – and especially in increasingly expensive London – significantly short of affordable homes. Danny Alexander, the Lib Dem chief secretary to the Treasury, will say the coalition has attempted to turn the tide – pointing out that 170,000 affordable homes should be completed by 2015, with another 165,000 are slated to arrive by 2018.

However, the coalition is concerned that these levels of building will not meet the demand for properties, particularly in south-east England where outright normal home ownership is not an option for many. So Alexander and his Tory cabinet colleague Eric Pickles will announce a review that will examine how "innovative financing mechanisms" could be used to raise the rate of affordable housebuilding.

Alexander is keen to see whetherthe 89 local government pension schemes, which together owned £148bn of assets, could act collectively and use their cash to provide significant investments in housing in England and Wales.

The review will be chaired by Natalie Elphicke, the wife of a Tory MP who founded the housing charity Million Homes, Million Lives, and Keith House, Lib Dem leader of Eastleigh council which has just started a company to build 200 homes on the south coast.

House told the Guardian that "local government pension funds are risk averse. They are cautious beasts and don't like doing new things. They want to see examples of where returns have been generated before. Out task is to shine a light on this area and identify barriers to investment".

The review will also consider whether selling off the most expensive council properties when vacant to pay for more homes was feasible.

Policy Exchange, an influential right of centre thinktank, pointed out last year that such a policy could raise about £4.5bn a year, leading to the construction of tens of thousands of extra homes each and every year.

Sources in the Treasury were keen to stress that the review would not be able to recommend measures that breached the government's strict borrowing rules, seeking to contrast this with Labour's "borrow to invest" political rhetoric.

The government's affordable rent scheme will see housing associations and councils offer rented homes to social tenants at a maximum of 80% of market rent rather than the 30% offered by traditional council housing. Accompanying changes to the way tenancies are offered will allow housing providers to offer more flexible leases, some as short as two years.

Alexander, who has successfully fought for more focus on social housing, said that the coalition was "determined to do even more to support affordable and good quality housing in the UK". He said that the amount of social stock fell by 420,000 from 1997 to 2010.

In last year's autumn statement, the chancellor, George Osborne, announced that councils would be able to bid for a share of £300m of extra borrowing to build 10,000 affordable homes.

Labour have countered this by pointing out that there was a net loss of 796,000 social homes under Margaret Thatcher's Tory givernment, mainly because of the aggressive right-to-buy policy.

The opposition has accepted its mistake in not building enough housing, but says that of the 170,000 homes the government says it will build under the affordable rent programme, 72,000 were already committed by the last Labour government. © 2014 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

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