The degree of public-private engagement will vary from project to project and reflect many factors. These include the risk profile; time horizon; sector maturity; and social, economic and political considerations.
Some social housing programs will sit more at the public end of the finance continuum, while others will be more at the private end. The closer toward the private end a program sits, the higher the level of risk transfer, capital investment and potential upside to the private sector.
The breadth of this continuum means that to deliver an outcomes-based contract effectively, social housing program owners can consider more than one public- private financing arrangement.
We’ve summarized some key models below, including potential use cases. While it’s not a definitive list, it shows some emerging and well-established funding and financing models cities could use.
Most of the models haven’t necessarily been used for outcomes-based programs. But there’s potential for governments to use them in this way, once they’ve explored the option fully.
Innovation isn’t just about using new financing models. It’s also about better integrating existing public-private financing models with outcomes-focused social housing delivery.
Potential public-private models for social housing programs
Social impact bond
An innovative way for governments to finance social programs using outcomes-based contracts. Linking payment to defined outcomes provides a big financial incentive for the project to deliver those outcomes.
Funding: Non-government investors provide the capital to pay the service provider to deliver the specified intervention. The government pays the investor the capital plus returns only when the service provider achieves the set outcomes.
Sources of alternative funding this accesses: Funding provided only on the basis of achieving set outcomes.
Financing: Investors provide the capital to finance service provision, with the expectation of getting a financial return if the outcomes are achieved.
London Homelessness Social Impact Bonds, UK; Denver Social Impact Bond Initiative for Permanent Supportive Housing, US
Housing bond aggregator
A vehicle for social housing providers to aggregate their debt financing requirements. Aggregation allows housing providers to access better pricing and longer-term debt than they could secure individually.
Funding: Obtained from the wholesale market. A specialist, independent financing intermediary coordinates across housing providers to aggregate debt needs. It then sources these total funds from wholesale markets by issuing bonds and loans the funds raised to housing providers in return for interest payments. Government guarantees the debt.
Sources of alternative funding this accesses: Private sector capital via debt markets.
Financing: Investors provide capital by investing in wholesale debt markets.
The Housing Finance Corporation, UK; Housing Construction Convertible Bonds, Austria; National Housing Finance and Investment Corporation Affordable Housing Bond Aggregator, Australia
Social housing corporations
A non- government corporate structure that’s financed independently. The corporation finances and provides social housing, using a portfolio-based approach to investment.
Funding: Independently funded (though governments have provided substantial public loans in previous decades). The sale of existing stock is major source of equity for new social housing. The profits from renting some properties at market rates can be used to cross-subsidize the portfolio, including developing social housing. State and cities can act as guarantor of last resort. Some cities also offer land at below-market prices for social housing.
Sources of alternative funding this accesses: Corporations’ own equity and profits.
Financing: New social housing financed through bank debt (70% to 80% on average) and corporations’ own equity.
Social housing approach in the Netherlands
A model to promote the redevelopment of public housing stock by using private investment. Under the trust, governments pool public housing assets to create economies of scale for management, as well as diversity in the trust portfolio. Government, or a private entity, may own the land on which the trust then builds social housing.
Funding: Cash flow from the trust’s affordable housing assets. A housing trust can make use of the equity value of the current public housing stock.
Sources of alternative funding this accesses: The opportunity for mixed development, giving private sector access to social housing asset values.
Financing: Private investors provide both debt and equity investment in exchange for expected returns (interest and dividends and capital appreciation).
Fonds de Logement Intermediaire, France; US Housing Partnership Equity Trust, US
Testing the mettle: using outcomes based models for resilient social housing
As this report shows, there are several models cities can use to design, fund and finance resilient social housing initiatives. But when it comes to applying them to address their resilience challenges around social housing, many cities are still in the exploratory phase.
Are you trying to build resilient social housing in your city? If so, which models are you investigating or implementing? And how closely are you working with the private sector to design effective programs?
To tell us about your programs, or share any comments about this report, please contact us at email@example.com.