Financial model ‘could deliver unlimited homes on zero-subsidy basis’

Scotland’s local authorities could build an unlimited number of homes for social rent on a zero-subsidy basis under proposals outlined by the think tank Common Weal.

In a policy document published yesterday, Common Weal said its model would use the Scottish National Investment Bank to deliver homes built to extremely high standards of thermal efficiency and on a stable finance model ensuring costs to the tenant are far lower than the private market.

The proposed methodology is claimed to be able to deliver a three-bedroom family home which has a monthly cost in rent, heating and maintenance of only £820, as opposed to about £1,400 in the current market.

Common Weal also makes the case that its model could be used as a post-pandemic stimulus scheme which will reform and secure the housing and construction sector.

“Scotland’s housing market should offer people a quality public rental option, whether for young professionals not ready to enter the mortgage market, lower-income renters who have few good rental options or families at any point on the income scale who simply don’t want their lives dictated by mortgages,” the document reads. “Public policy should also seek to constrain house price rises but also drive up the highest possible thermal performance for new build houses.”

It adds: “Scotland also needs forms of stimulus after the COVID lockdown and public rental house building linked to an industrial strategy to create many more domestic supply chains can create that stimulus.”

Common Weal said there is a financing model which means this can be achieved at unlimited scale without public subsidy, involving three steps:

  • Use ‘Land Value Capture’. At the moment the public buys land and pays for it as if planning permission had already been granted – but planning permission is a value added by the public sector and the public sector can capture that value rather than give it away by buying land only at its current use value and not its later value with planning permission.
  • Then borrow from the Scottish National Investment Bank over mortgage-style periods of time (30 years) and spread the cost of the borrowing over that period so that rents are low.
  • Finally, build in a proper maintenance budget so these remain high-quality houses in perpetuity. It is also possible to sell off a limited number of plots (for self-build) and a small proportion of the houses. This can give the public developers some additional budget to include extra public infrastructure in new developments.

To achieve this, Common Weal said the Scottish National Investment Bank should be given immediate dispensation to operate as a proper bank and local authorities should open ‘lists’ for families who want to live in one of these houses.

“Supply can then be allowed to meet demand,” the think tank added.

Tags: Common Weal

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