A meeting of the LIHTC Project Advisory Group was held on 20th September

A meeting of the LIHTC Project Advisory Group was held on 20th September. The Advisory Group consisted of Finance Directors and Development Directors from a number of leading Housing Associations together with Gavin Smart of the CIH and Tim Brown who is leading a significant academic research project that covers the operation of LIHTC. Tim's research project is being undertaken by DeMontfort University and supported by Places for People.

Minutes of the meeting of the LIHTC Poject Avisory Goup held at the Chartered Institute of Housing, 236 Gray’s Inn Road at 11.00am 20th September 2013

Present
John Brace, Aster Group
Tim Brown, De Montfort University
Mike Donaldson, London and Quadrant Housing Association
Martin Huckerby, Sovereign Housing Association
Tim Jackson, GreenSquare Group
Mark Jones, Derwent Living
Colin Lissenden, Town and Country Housing Group
Vic O'Brien, GreenSquare Group
Gavin Smart, Chartered Institute of Housing
Apologies
Mark Allnutt, Thames Valley
Steve White, The Hyde Group

Tim Brown, De Montfort University, is part of a team working on a significant research project funded by the ESRC looking at ways of boosting the supply of affordable housing in the UK. It involves reviewing the affordable housing finance system in 9 other countries. The work is principally focussing on the US and French systems which appear to have the most promising and replicable funding systems for the UK. Both are based on tax incentives with conditions. The research is to be undertaken over a six month period and will employ the equivalent of £150k of ESRC funding. The research is being undertaken as part of the knowledge exchange in conjunction with Places for People between July and December 2014. The final report will be produced by January 2014. The research will be reviewed in December 2014 to measure the policy impact of the research. A challenge of the ESRC research is to determine how ideas can be transferred from other countries that are politically acceptable in the UK.

Vic O’Brien US LIHTC research

1. There are a number of areas/questions that the advisory group thought should be considered within the research:

i) The operation of the US LIHTC system should be understood
ii) What challenges would a LIHTC system need to overcome to operate properly in the UK
iii) Discuss the potential for investment in affordable housing in the UK under a UK version of a LIHTC system with potential investors.
iv) What are the key issues and challenges of the US LIHTC system?
v) Develop clarifications of the LIHTC system within the research
vi) Who should Vic be talking to: Any further suggestions from the group?

Questions and Clarifications of the LIHTC system:
Low Income Tax Credits support long term funding.
Tax credit figures cover 33%. 40-45% are development loans. Usually, 20-25% from other subsidy
What happens to the homes developed using LIHTC funding after 15 years?
How do investors determine the quality of the revenue stream?
What happened during 2007/8 with the LIHTC system with AIG and Lehman Brothers failing. How did the system recover?
UK – bond purchasers take a view on rating. How are ratings and pricing arrived at in the US?
What is the level and percentage of fees and other costs earned by the various professionals and investors in the LIHTC system?
There is £2.5 million affordable homes in US – what is this as a percentage of the total.
100,000 affordable homes built last year. What was this as a percentage of total house production.
Research should review and compare how the relationship of EIB/THFC operate in the UK and the way in which US syndicators work
Can/does LIHTC work with REITs?
How much tax is foregone by US treasury because of the LIHTC system?
Can more properties be produced compared to present grant for the tax forgone if a LIHTC system was introduced to the UK?
There is a general dislike of public housing in US. There is political consensus in US to support LIHTC. What are factors behind this?
Vic to talk to Piers Williamson of THFC for there view of the US LIHTC system
Argument for tax foregone important to HMRC. Work is required on what is the real rate as many companies who might invest in LIHTC in the UK would move their money off shore as an alternative. Also the tax credits will support economic activity by generating house building.

How are tax credits allocated?
What is the scale of schemes funded under LIHTC?
How do States establish a pipeline of projects?
Mixed income housing – not much of it as most LIHTC is 100% low income and are located in poorer areas. What are the reasons behind this?
Eric Belsky at Harvard has undertaken work on the question of preservation of Low Income Housing in the US. Vic to review his work in this area.
Review a scheme/schemes. How did they pan out? What was the impact on the scheme from US planning and development regulations?
What is the level public support for affordable housing (rather than political support by politicians)?
Positioning of the research e.g. HMRC positively support the rent deposit scheme as the UK Government’s ceases to retain a financial commitment when the rent deposit paid. But quality of outcome and its effectiveness is important.
Assess the effectiveness of the LIHTC scheme in terms of additionality and displacement of existing homes.
There has been some research into the PRS market in the US by L+Q and Savills. The Montague report revealed that there a number of US pension funds looking to invest in UK rented housing. Vic to establish contacts with US financial institutions who are involved in LIHTC in the US but have existing financial operations in the UK.

Risks and Challenges
1. How is a pipeline of schemes established
2. The high level of fees creamed off by agents and consultants
3. Trading LIHTC – how does the market work, who is involved, how large is the market and how regularly are LIHTC schemes traded?
4. Rent control within the LIHTC system how does this work?
5. LIHTC is bureaucratic and complicated. But if it is taken out of its context what is its cultural portability? Does the whole LIHTC system need to work like this? Research to take LIHTC out of its cultural context and determine the essence of it.
6. DCLG were interested in changes in taxation to support social enterprises for investors. Are there mechanisms within this that could be used to support a UK LIHTC system?
7. There is evidence of QAPs being influenced politically. How prevalent/significant is gerrymandering
8. Group are to meet at the end of November/December and report back in February/March
9. LIHTC is a potential source of funding for affordable housing. CIH’s are interested in ways of increasing the supply of affordable housing. CIH have identified a major source of potential funding of affordable housing. This is the equity contained within UK council housing.