HCA launches consultation around options for the recovery and recycling of grant funding

The Homes and Communities Agency has launched a consultation around options for the recovery and recycling of grant funding that would make it an investor in affordable housing, sharing risk with providers but also benefitting when property values rise.

A copy of the HCA consultation document can be downloaded. Partners and others can respond by writing to the Agency, by email, or online.

Such a move – allowable under new powers contained within the Housing and Regeneration Act and due to come into force from April next year – could see part of the Agency’s National Affordable Housing Programme allocated to housing associations as an investment rather than grant, resulting in a future return direct to the Agency which would be re-invested in affordable housing where it is needed most.

It would also align the rules governing housing associations with those applied to private developers and ALMOs.

Sir Bob Kerslake, chief executive of the HCA, said: 'We have been clear that in the future we will need to make our funding work harder, to do more with less, and this is one of the ways in which this could be achieved.

'Taking a return on our investment linked to an uplift in property values would maintain the value of taxpayers’ money in real terms and allow us to re-invest it in more affordable homes.

'We have absorbed upward pressure on grant rates to help meet our Partners’ needs during the downturn, and the current market conditions mean that the time is right for us to look again at the issue of recovery.'

David Montague, chief executive of L&Q (London & Quadrant Housing Trust), one of the HCA’s housing association investment partners, said: 'This would be a significant change for housing associations, but there is a need for rational debate on the nature of grant and I welcome the opportunity to respond to this consultation.'

Housing Associations receiving affordable housing grant currently recycle any receipts from staircasing and sales themselves, through the Recycled Capital Grant Fund, but only the amount of grant originally given, with no link to any uplift in value.

For other providers – private developers and ALMOs – under contractual agreements receipts are recovered direct by the HCA and linked to value.

The consultation paper, Investing in Affordable Housing: Principles for Recovery of Social Housing Assistance, outlines how the Agency would make the approach more uniform for all Partners, setting out three options for future recovery:

Option 1 – To retain the current system of recovery and recycling for the housing association sector, and for other providers through contractual agreements. The HCA would still allocate some NAHP funding as investment, but on a specifically agreed contractual basis;
Option 2 – To link recovery and recycling to uplifts (or falls) in value, but retain the current responsibility Associations have for recycling through the RCGF; or
Option 3 – To link recovery and recycling to uplifts (or falls) in value and for funding to be recovered directly by the HCA.
The document also seeks Partners’ views on the potential effects for them on their business plans, and outlines possible ways in which a link to value could be determined, acknowledging that under all three options there would still be a need for Associations to retain a proportion of the receipts.

The outcome of the consultation – due to run until 15th March 2010 – will result in a new General Determination on recovery, to be applied in the future not retrospectively; and in respect of homes for intermediate rent and low costs home ownership only. There is no current proposal to change the recycling arrangements which apply to homes for social rent.

Section 19 of the Housing and Regeneration Act gives greater flexibility to the HCA in the way in which it funds affordable housing, allowing the mix of equity, loan and gap funding being used in the Kickstart Programme to be deployed through the NAHP.