Lock, stock and barrel’s the only way to go

MY EARS pricked up the other day when chief minister Peter Ferbrache told the Guernsey Chamber of Commerce that he’d like to hand the island’s stock of States houses ‘lock, stock and barrel’ over to the Guernsey Housing Association. Aye, aye, I thought. Movement at last on what is possibly the biggest social issue stuck for decades in government’s too-difficult drawer.

Alas not.

Predictably, a suggestion that holds the greatest promise for addressing first-time buyer and affordability issues degenerated into a turf war over who has responsibility for what as Employment & Social Security president Peter Roffey launched a ‘hands off’ salvo.

In fairness, such a response was pretty much demanded from the man who has the housing mandate and also to negate any suggestion that the team currently charged with looking after the island’s 2,400 social housing units are in some way deficient.

If you detect a degree of over-sensitivity in that, you’re right to do so. Before Deputy Roffey took over ESS last year, there had been decades of foot-dragging over the whole issue of the island’s housing market, provision of affordable accommodation and meeting the aspirations of first-time buyers.

We can say that with some certainty because the previous States commissioned consultants KPMG to analyse the local housing stock and the supply and demand factors which influence it. It’s a great body of work, revealed government really didn’t understand what it was seeking to manage, and made six headline recommendations to improve matters.

That was in August 2017 and not one has been actioned. Perhaps that explains the chief minister’s impatience and desire to get things moving. Worth mentioning also that Policy & Resources, which Deputy Ferbrache heads, has joint responsibility with ESS for regulating the GHA, so he does have a legitimate voice in the housing camp.

Plus, the whole issue of transferring what used to be called States houses over to the GHA has been raised before and the association even negotiated with local banks to borrow the cash to buy them. Economies of scale alone mean maintaining and developing the combined pool of GHA and States properties could be done more efficiently and cheaply.

The States has historically been very poor in tackling issues of housing. Apart from providing the post-war States accommodation and the (old) Bouet estate, its only other solid contribution was establishing the GHA in 2002, which went on to narrow the gap between affordable housing demand and supply. The waiting list in early 2017 was down to 281 households from a peak of 649 in 2011.

Unsurprisingly, the affordability of property is very complex – KPMG’s report is more than 100 pages – with interlinked factors like population and migration, demographics and States recruitment (key workers) that are themselves complex and interlinked coming into play.

Additionally, high property prices are in the financial interests of many, including the States themselves (document duty etc) and so-called transactional costs here are particularly high.

This extract from KPMG’s housing report gives a profile of a successful first-time buyer in Guernsey. (29208805)

But then so are land prices, developers’ margins (20-35%), the cost of building (30-40% more than in the UK) and lenders’ risk appetite (expecting developers to put up 40% of costs).

In these circumstances, it makes sense to construct the most expensive home you think you might sell rather than what the market needs. If you can’t flog it, you can always rent it to people who can’t afford to buy. Another reason why owner occupation has been falling over the years.

So why, as Deputy Ferbrache wants, hand over States houses to the GHA? Firstly, because they’re property professionals, not bureaucrats. Secondly, it would be the trigger to set it free, to release it from operating as a quasi-States department with all the red tape that entails.

Look across the water to Jersey and its nearest equivalent, Andium Homes. That’s a hugely successful independent, but government-owned, company. The States of Jersey transferred all its social housing to Andium in 2014 at no cost but with a requirement for the company to make an annual return to government – £30m. last year.

Jersey also raised a £250m. housing bond from investors in return for annual dividend payments to them. Most, £220m., was borrowed by Andium for refurbishment and development projects and it pays interest on the sums borrowed.

As executive lead, digital and strategy, Carl Mavity told me: ‘We pay that interest and also repay the capital borrowed from our rental income or from the proceeds of our affordable housing sales. The interest paid by Andium Homes more than covers the interest paid to investors by the States.’

Additionally, Andium has negotiated a revolving credit facility of £150m. for specific projects, which is why it’s able to plan for 700 new-build homes over the next three years. Again, that will be funded by rental and sale income.

That last point is important because the GHA is prevented from selling property and is therefore limited to offering partial ownership – up to 80% – instead of being able to staircase to 100% and help islanders fully onto the private market. For that reason alone, partial ownership is less popular than it was because any subsequent leap into the commercial market is still out of reach. Contrast that that with Andium Homes, which sold 54 homes to first-time buyers last year alone.

What KPMG also established is that mortgages aren’t the problem for most first-time buyers, because they can afford them. But the lack of competition among banks here means they can demand big deposits to de-risk lending. Add transaction costs and KPMG found that added an extra £53,000 for the average first-time buyer. Those without access to bank of mum and dad (average leg-up £31,500) have to stay at home or rent.

These figures will have changed since 2017 of course. KPMG was reporting as Guernsey was still recovering from the great crash of 2007/8 and we now have the pandemic affecting jobs, incomes and confidence.

What’s inescapable, however, is that carrying on as we are will do nothing to help young islanders buy a home they can call their own – irrespective of who claims responsibility for housing.

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