Not many spare a thought for those of us who serve the lenders and borrowers in the rather less glamorous world of social housing finance, but as a result of the announcements made by the Office of the Deputy Prime Minister (ODPM) in early February, we may soon be claiming our share of the legal limelight.
As part of the Government's plan for providing balanced, sustainable communities populated by a flexible and dynamic workforce, on 5 February the ODPM announced that a £22bn package will be made available to provide, among other things, new and affordable housing and housing for key workers. It also pledged to bring all council housing up to a decent standard. There will be a new focus on private home ownership and new proposals to bring empty properties back to use. What was of most interest to those of us working within the social housing finance sector were the measures that the ODPM will be implementing to increase the flow of public and private funding in the sector.
Since the late 1980s, Registered Social Landlords (RSLs), often referred to as housing associations, have been drawing increasingly heavily on private finance to fund the purchase and development of low-cost and market rented properties. RSLs are non-profit making bodies, usually either industrial and provident societies or companies limited by guarantee, which provide or encourage the provision of housing for rent or sale. Most RSLs are formed when a newly-created RSL purchases all or a substantial part of the housing stock of a local council, using private sector funding, to redevelop and rent to the local community in what is referred to as a large scale voluntary transfer (LSVT). Every year, the Government issues consents for a limited number of LSVTs. In 2002-03 nearly £3bn of private sector loan funding will have been arranged for LSVTs, and approximately 300,000 homes transferred to RSLs in England, Scotland and Wales. The ODPM announcement promised to make LSVTs accessible to more councils by removing many of the barriers that prevent them from being used.
Equal encouragement was given to those involved in the public sector provision of housing – local authorities will benefit from £658m of further credits for refurbishments using private finance schemes. In addition, further investment for local authority-owned social housing will be supported through a promise of £2bn for Arms Length Management Organisations (ALMOs). Under the ALMO scheme, local authorities can transfer all or part of their housing function to an ALMO – a separate legal entity which has operational independence but which remains under local authority ownership. Upon satisfaction of certain performance criteria, ALMOs are entitled to a share of government funding.
While the Government appears to be attempting to pursue a policy of providing equal encouragement to both public and private investment, it has been reported recently in the housing press that ODPM encouragement of ALMO and housing PFI has prompted many UK councils and tenants to drop LSVT plans, leading to a lower expected private sector funding requirement for 2003-04 of £1.15bn, down from £3bn. It would be a shame if the progress being made by RSLs, private sector funders, the Housing Corporation (the body responsible for the registration and supervision of RSLs) and their lawyers in meeting the challenges of the increasing funding needs of RSLs, was to be hindered by policy, especially as the technology is now in place to deliver sophisticated low-cost funding structures from the syndicated loan and capital markets through the LSVT route. As is the case for lawyers acting in any rapidly developing practice area, success will depend on blending past experience with the opportunities presented in the future and adapting accordingly.