Forget empty homes, the government's real focus this year will be on new financial models for investment in the sector
Housing professionals have always known 2012 would be a busy year, with a raft of new initiatives coming into effect as the government tries to balance the need to make savings with urgent action to address a growing housing crisis.
There has been much debate over housing minister Grant Shapps's pet issues of tenant cashback, empty homes, right-to-buy and tackling illegal subletting. But these matters only scratch the surface of change in the sector this year.
Alongside empty homes, the government's housing strategy also contained specific measures to boost the private rented sector. The vast majority of private landlords who are letting properties are individuals or small management companies rather than major institutions, a situation the government wants to change. It has commissioned an independent review of the barriers to investment in private homes to rent, and is set to introduce changes to stamp duty land tax and the taxation of real estate investment trusts (REITs) that will make the returns for institutional investors more worthwhile.
To date, the return on capital from private renting has been insufficient to attract investors, which coupled with the relatively high management costs compared with commercial property has made the sector unattractive as a financial opportunity. Whether the government's proposals go far enough remains to be seen, but there is interest and we are likely to see some new and innovative schemes this year.
We can also expect a return to local authority stock transfers, but on a different basis. When the coalition government came to power, it chose not to change the policy adopted by the outgoing Labour government of no longer supporting stock transfers financially by writing off the local authority housing debt. But the government has now confirmed that once the local authority self-financing regime is in place (from 1 April), it will actively encourage stock transfers that offer good value for money and leverage in additional investment.
The government is working on a set of transfer guidelines that will set out its criteria for supporting transfers including, in some cases, the writing off of some or all of a local authority's housing debt. Councils with arm's-length management organisations are likely to be particularly interested.
I would also expect to see further private sector involvement and investment via a new model for private finance initiatives (PFI) for housing later this year. In the past, putting in place a PFI contract was a very lengthy, complex and expensive undertaking that struggled to demonstrate value for money. However, the opportunity to get the private sector to pay for new capital works that can then be paid for by revenue payments over a period of many years is a very attractive proposition to a cash starved government which needs capital investment but has no resources to pay for it.
The government is heralding a new model of PFI, without the artificially complex and unnecessary complications of the current model, which should be easier, quicker and cheaper to put in place. Assuming they make good on this commitment, we are likely to see a substantial number of these projects in the future.
Finally, although it is the legal battle over cuts to the solar feed-in tariff that has caught the headlines, the green deal and the energy company obligation are the things to watch. Although there is still a degree of uncertainty about the extent to which social landlords will be able to access energy company obligation subsidy, these two initiatives will enable housing providers to make or facilitate tenants to receive the necessary capital investments to improve the energy efficiency of their homes upfront. There will be a lot of work on green deal schemes as housing providers seize the opportunity to make their homes much more energy efficient.
That is not to say solar panel schemes will disappear; the subsidies are still comparatively attractive and housing providers will be interested in the opportunities they afford. The big issue with solar panels will not be seen in the next 12 months, but over the next 10 to 20 years. Technological developments mean it is likely that landlords will want to replace panels in as little as five years' time, and possibly even earlier. This means that housing providers, energy companies and lenders need to think carefully as to how this is to be dealt with over the term of the contract.
Hugo Stephens is a social housing partner at Cobbetts LLP