It’s time to look again at revenue support for new build

Doubts have existed in the past about the use of revenue support. One way to overcome these is to make it clear that it would be a supplementary programme and that capital grant would still be available in the normal way.

Other doubts have centred on the uncertainty of any government promises attached to a long-term payment scheme and the possible effects on raising private finance. Fortunately there is now some experience of revenue support, which suggests that these doubts can be overcome.

The experience, from Wales, is so far a successful one. A scheme called Housing Finance Grant (HFG) has been run by the Welsh government for three years and the aim is lifting capital investment by £250m in total. It was set up alongside capital grant funding to give a temporary boost to the Welsh new build programme.

Instead of awarding capital grant of £70,000 per unit, it makes a revenue payment of about £4,600 per year for 30 years. The notional cost is twice that of capital grant but of course by spreading it over the life of the project this can be justified in terms of ‘net present value’. Phase two of the scheme saw 32 associations sign up and start building a mix of social and intermediate rent homes.

A new paper by the CIH argues that experience with HFG is sufficiently encouraging that revenue support should be tested in England, too.

“Even the now unpopular private finance initiative schemes demonstrate that long-term revenue funding arrangements can be set up and maintained on a contractual basis”

The paper goes into some of the details that would need resolving if English housing associations are to be comfortable with a similar scheme. It argues that it is less applicable to local authorities for a mix of reasons, but given that grant budgets are tightly constrained, a scheme that avoids the upfront costs of conventional grant might be the only way of achieving a step change in output, especially if it is focused on social rented properties that require more subsidy.

There are other precedents apart from the Welsh HFG. No one would want to return to the council housing subsidy system that ended in 2012, but in the past there have been other forms of support, such as revenue deficit grant for associations and decent homes funding for ALMOs, that have been paid annually. Even the now unpopular private finance initiative schemes demonstrate that long-term revenue funding arrangements can be set up and maintained on a contractual basis.

Another advantage of revenue payments is that they show more clearly how part of the cost of building new social rented homes can be met from the savings in housing benefit or the housing element of Universal Credit if someone is paying social rather than market rent. Various attempts have been made to show what these savings might be, and a new calculation in the CIH paper shows that they could cover about half of the costs.

For these reasons, the CIH is calling for a discussion about the potential for using revenue support as a supplement to current capital investment programmes.

Does it offer the advantage as a possibly short-term boost in new build programmes, especially if it were to be focused on delivering homes for social rent? What are the snags? And could they be overcome by the sector if there was a real prospect of a step change in the output of new homes that are genuinely affordable? These are all questions we are posing to the sector.

John Perry, policy advisor, Chartered Institute of Housing