The Government has also not expressed whether it would be comfortable with grant funding being made available to private sector businesses. Some may view this as amounting to state subsidy of private sector businesses, and while this already occurs to an extent in transport and healthcare, the lack (so far) of political consensus for it in the politically sensitive area of social housing would expose prospective investors to a level of political risk that may not be acceptable.
Ion Fletcher, senior policy officer at the British Property Federation, said: “Government would like to see a greater diversity of social and affordable housing providers as well as a greater diversity of funding sources for the development and provision of new social housing, and social housing REITs may well one day form a part of this more diversified housing sector. However, the Government should not assume that the additional capital which REITs may attract into social housing will replace or make up for the expected reduction in the availability of Government grant funding.
“Replacing a pound of grant funding, which does not require any form of commercial return, with a pound of private sector money, which will only be contributed if a commercial return is being made on that investment, will mean that either fewer new homes are built than with grant funding, or that those that are built must be let at a higher rate in order to generate an appropriate return.”
“Private sector investment in social housing should be seen in the context of the wider private rented sector, because investors will often prefer exposure to a diversified portfolio that includes affordable and market rental. Discussion of social housing REITs should therefore also explore solutions to broader issues like the perennial problem of how portfolio ‘churn’, a common feature of residential investment businesses, is treated for the purposes of the REIT rules.”
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