Jonathan Fair Chief Executive © Homes for Scotland Affordable Housing Investment Reform Scottish Developers Perspective Aug 2009

Realities of Market conditions © Homes for Scotland Bank of England estimate that foreign investors taking flight from the UKs lending market have reduced the available annual credit in the UK by £800Bn. As a result the number of new mortgage transactions has reduced from 1.6m in 2007 to a projected 400k this year. Mortgage mix has changed as well: FTB, 100% (or more) products – none today 10% Deposit – 3 approx, but not funded 25% Deposit or more – 250 approx 40% Deposit or more – 1000 approx The average percentage interest rate for a first time buyers mortgage is currently 5.7%

Future Public Spending Trends Chancellor announced in his last Budget that the UK public borrowing requirement in 2009 and next year will be £175Bn per annum. Someone will have to pay this back and UK government intends to start doing so in The last Conservative Government immediately reduced the Housing Budget spend by 68% Devolved and Local Government Funding will have to reduce as well, e.g. Revenue Funding – by up to 15% Capital investment – by up to 50%

The cash cow is dead!

Why should you care? © Homes for Scotland When resources are tight politicians always want more value There are five types of Affordable Housing, e.g. Social Rented Homes – public funded at 60% per plot Shared Equity Homes – public funded at 20% per plot Shared Ownership Homes – public funded at 20% per plot Low Cost/Discounted Homes for Sale – public funded 0% Open market Homes for Sale that are affordable – public funded 0% If you had to reduce your total spend but keep the output of homes as high as possible where would you invest your money?

AHIP PrivateWho helps or sells to these people ??

Whats going to change? Far greater use of Shared Equity, Mid Market Rental and Private Rental Investment in delivering Affordable Housing To be a permanent change it will need important procedure changes to Stamp Duty, Residential Investment Taxation terms and VAT by HMRC Large scale Private Rental Investment Vehicles are beginning now – AVIVA were the first to set one up! Private Developers and RSLs will need to work collaboratively to respond to this change.

What should Scottish Government do? © Homes for Scotland Fund and invest in all affordable housing types to provide an impetus for sustainable communities and economy Accelerate approval process for those projects that do come through the system Introduce a Homebuy Direct type product for Scotland Influence banks operating in Scotland to take a more balanced regional view of the funding risks here Continue to reform AHIP to make investment streams and funding amounts more predictable and certain

Developers have had to evolve:- New models of Mortgage created (i.e. shared, underwritten or longer) Valuation or Buy-back guarantees Greater variety in house types Bespoke ordering Private rental investment vehicles Partnership working models with HAs/Councils Land Values will stabilise, but at least half of the Q levels Infrastructure costs have become hyper critical Easier, cheaper sites are the first priority Demand is beginning to return, lets be ready for it!!!

Output Growth aspirations remain unchanged! Realism over effective land What types of land and sizes of site are still deliverable? What are barriers preventing delivery? Realism over need for product mix Mix of sizes/types/specs? Genuine partnership (public & private sector) needed Common causes - How do we meet high Infrastructure funding demands? - Must avoid further regulation creep! - Creating effective Development Consortia Securing three year development funding programmes? Joint Strategic Considerations

© Homes for Scotland (0131)