Revolving funds that could ease Logjams

by Ken Gibb

There are several financing problems facing developing housing associations in the current environment. Most importantly, they often confront difficult borrowing terms and conditions at precisely a time when capital grant (e.g. in Scotland) has been reduced in size significantly and also re-profiled to making grant payments, typically, at the end of the project. This way of working means that housing associations have to manage the development finance and site acquisition aspects of building homes out of their own pockets and this risk can, at the margin, seriously inhibit new supply. 

There may be organic or bottom-up ways to reduce this logjam. Research for the Joseph Rowntree Foundation [1] suggests that where there is an environment that promotes collaboration and solidarity (a term widely used in Europe), it may be possible for associations collectively to find solutions.  While it is true that many of the larger associations are to be found more at the contestable or competitive end of the spectrum (another emerging theme of the research), this need not be the case with community-based or other well-defined specialist social purpose organisations.

We looked at a surplus fund run by Danish housing associations (the Building Fund). This is a national policy that has been in place since the 1960s with individual contributions based on a proportion of surpluses and used to help pool rents, later to fund improvements and ultimately to subsidise new build.  This later use was its undoing because the Danish government simply reduced their contributions thereby cancelling out net extra funding to social new build.

The point is that a trust run by, for example, community-based housing associations could build up a revolving fund based on an agreed levy on surpluses, which could in turn be used to meet the upfront costs of developments. This spending would be recycled back into the fund when grant payments are made on the development.  This may only be a small-scale initiative but could provide the initial funds to be ultimately self-sustaining. Tony O’Sullivan has written about similar revolving fund models in the Highlands providing land for social housing. [2]

The main hurdle concerns the politics of housing association reserves and surpluses. It is well known that there are tensions concerning the space housing associations operate in between public and private sectors. They receive public grants, they are regulated by state agencies and enjoy relatively favourable credit ratings (despite recent events) but they are legally independent, often charitable bodies. Consequently, there is much dispute over claims on their reserves or surpluses, even after we get past the proportion of those surpluses and reserves that are designated or reserved to meet future obligations.

However, in evidence from the Glasgow and West of Scotland housing associations to the Scottish Parliament [3], it emerged that community-based associations are willing to discuss voluntary proposals to use free surpluses creatively for common objectives, especially (by extrapolation) where they can retain governance control over the uses of the trust’s fund and it is for obvious community social purposes.

This will not change the world but nonetheless a modest collectivist approach through a locally controlled trust could help to unlock development finance problems in places like Glasgow.  Should the financial constraints ease in the future, there would be many other potential community uses of such a model.

  1. Gibb. K, Maclennan, D and Stephens, M (2013) Innovative Financing of Affordable Housing: International and UK Perspectives. Joseph Rowntree Foundation: York. Published March 2013 by the Policy Press.
  2. O’Sullivan, A (editor) (2010)Affordable housing in Scotland: A Radical Rethink Volume 2. Chartered Institute of Housing Scotland: Edinburgh.