London Social Housing Bond/ Housing Savings Bonds

We recognise at the Financial Inclusion Centre that London isn’t the only region in the UK facing a housing crisis. But, for a number of reasons, the crisis does seem particularly acute in London and requires special interventions. We take the view that four policy interventions are needed to tackle the housing crisis in London:

  • Efficient funding mechanisms to fund the necessary increase in supply of housing in London;
  • Targeted rent controls to protect renters, reduce the amount spent by taxpayers on housing benefit, and to address the high rent/ buy-to-let/ high house price spiral (this could also be addressed through prudential regulation of buy-to-let mortgages);
  • A decent consumer protection regime for renters with similar rights and protection available to financial consumers; and
  • Reforms to property and land taxes, and the planning system.

In this discussion paper, we summarise some of the key problems facing people wanting to get access to a decent home and focus on the need for efficient funding mechanisms to fund new supply of social housing.

We have published a paper setting out the case for a Renters and Leaseholders Protection Agency (RLPA) and outlining how this would work see: Renters and Leaseholders Protection Agency

This particular paper outlines the idea of developing a London Social Housing Bond to raise funds from large institutional investors through the bond markets and ordinary Londoners to build new social housing. The retail bond is also designed to help savers being hurt by the low interest rates on savings accounts.

It is also worth noting that this model could be replicated in other regions of the UK. But, it could also be replicated on a national level by the Government issuing special gilts or issuing Housing Savings Bonds through National Savings and Investments (NS&I). These HSBs could pay pensioners 2-3%  (depends on funding requirements) on their savings which could give hard pressed pensioners some respite from low interest rates and allow them to help fund decent homes for rent for younger generations. This would also be a much more cost effective way of funding affordable homes than relying on pension funds and insurers to take on more responsibility for funding homes for rent.

These are very much preliminary ideas. More work needs to be done to develop the legal structure of the LHA Social Housing Bond, how the bond would be marketed and distributed, pricing and, most importantly, estimating more accurately how much could be raised from institutional investors and ordinary households.  But, we think it is critical to start a debate on how to fund the necessary housing in the most cost effective way.

We are concerned that, for whatever reason, more expensive options such as relying on pension funds and insurers to fund homes for rent are being heavily promoted. This will be to the detriment of ordinary households (who could foot the higher costs) and/or renters who could end up paying higher rents than is necessary. It would also simply result in huge fees being generated for City advisers – money which should be going to fund affordable housing.

We would very much welcome collaborating with interested parties on developing the bond and investigating other ways of addressing the housing crisis in London.

The discussion paper can be found here:

Financial Inclusion Centre-London Social Housing Bond

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