Innovative financing for social enterprises Strasbourg January 2014 Gene Clayton Irish Council For Social Housing CECODHAS Housing Europe

What are Bonds ? Bonds are a debt investment in which an investor loans money to an entity that borrows funds for a defined period of time at a fixed rate of interest. Bonds are used by governments, municipalities, companies and social enterprises including social housing companies to finance a variety of projects and activities. The estimated size of the global bond market is €58 trillion with 20% of that in Europe.

What are Housing Bonds Housing bonds are issued by housing companies to raise finance to build new or refurbish existing housing. Housing companies use their existing housing stock as collateral or security and their rental income to pay the interest on the loan and repay the capital at the end of the term. Bonds can be long-term investments more suited to financing needs of housing sector

What are Social Impact Bonds Social Impact Bonds (SIBs) are a similar debt investment to Housing Bonds The return or interest rate on SIBs is directly related to improvements in defined and agreed social outcomes For example; how many ex-offenders will be housed by a social housing company and remain out of prison after 1 year, 3 years, 5 years. The rate of interest paid to the lender is linked to the success of reaching the defined objective.

Why the interest in Housing Bonds? 2008/09 Credit Crunch: sudden withdrawal of normal availability of finance Worldwide inability/unwillingness of banks/finance houses to lend Affected some countries/sectors worse than others “A” Countries: France, Germany, UK, Holland, Nordic countries; business as usual (more or less) “B” Countries: Spain, Portugal, Ireland, Greece; very difficult or impossible to raise finance from banks

Impact on social housing sector in Europe For A countries: some effect, but housing companies continue to develop and meet housing need Tighter bank lending led to increased use of bond finance esp. in U. K. using The Housing Finance Corporation (THFC) For B countries: total or near collapse of state funding systems, little or no access to private finance: near or complete collapse of social housing provision, Dysfunctional housing market, increased mortgage arrears, negative equity, potential increase in foreclosures, growing housing need Diminished ability of central & local governments & social housing sector to meet growing housing need

CECODHAS Response Recognition that existing financing only works for some members in some countries Following success of housing bond issues esp. in UK, idea for transnational European Housing Bond put forward Proposal that social housing companies that are capable of participating come together across Europe to issue bonds Bond aimed at Pension Funds, ethical investors, those wishing to meet Corporate Social Responsibility requirements for modest, safe return.

Access to Finance Working Group Working Group set up in CECODHAS to establish feasibility and see what investors want Investors want to see all aspects of company performance in a transparent, comparable way Working Group looked at ways of meeting this demand

Main Activities to be measured Financial Performance: All aspects of financial performance which impacts risk & return Management Performance: How efficient is the company in providing homes and services Environmental/Energy Performance: How green /energy efficient is the housing stock Social Return on Investment: What additional (measurable) benefits does it bring to neighbourhoods and society

Potential Benefits Less reliance on hard pressed individual national banking sectors Large pool of investors /current low return investment environment Potential to create a niche market for a new financial product Potential to secure access to sources of secure, long- term funding at reasonable rates Longer term potential for risk sharing to enable B countries to access funding to continue to meet housing need

Short, Medium & Longer Term Aims Short Term Identify CECODHAS members willing to take part in pilot project leading to the issuing of European Social Housing Bond Medium Term: Look to establish a Financial Intermediary (like THFC) Establish a credible track record for social housing companies with investors by raising funds on a regular basis by issuing European Housing Bonds Longer Term: Build reputation as solid performer to attract investors and enable qualifying social housing companies from B countries to access funds and build solidarity

Conclusion Housing Bonds are: A prudent recognition of changed financial environments in a number of member countries An additional source of finance not a replacement of existing funding systems in member countries An opportunity to create a financial product specifically for the social housing sector across Europe A way of meeting growing housing need across Europe A long term project with long term benefits

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