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Housing Investment Brummie Bonds – an idea whose time has come, says John Clancy

Housing Investment Brummie Bonds – an idea whose time has come, says John Clancy

🕔08.Apr 2015

City councillor John Clancy explains how ‘Brummie bonds’ can provide much needed investment and kick-start house building across Birmingham.

I’ve been banging on about Brummie bonds for well over a decade as a way of linking investment directly to assets in the city – housing, other infrastructure, and long term venture capital investment in our own people in small and medium-sized businesses.

My vision is of a 40-ward investment strategy. What’s needed is an access-all-areas investment, not just for big commerce in the city centre.

In particular, I have suggested rewiring pension fund investment into these bonds.

I’m pleased to see these ideas are starting to get traction and in particular the Brummie Bond investment issue which I have been asserting is central to all of this. Indeed, the Labour Party’s policy announcement last weekend on the Future Homes Fund is effectively the revival of the concept of housing bonds itself.

I hope that Birmingham city council will move quickly to issue housing investment Brummie bonds (HIBBs) as soon as possible. Asset swaps, asset backed vehicles and asset sales to bring the flexibility we need are needed as soon as possible.

One aspect of the policy is that anyone saving up for a house deposit can put it in an ISA (to which the Government would contribute 20 per cent). What the Labour party is proposing is that those funds would be earmarked for new house building. The banks would be directed to invest these assets into housing bonds.

Local councils and housing associations will issue bonds into which the UK’s banks would actually be required to invest. It’s a neat idea, actually, in that it keeps investment by UK citizens in the UK and, effectively, into local and regional investment.

Instead of the bank using it to go into an asset allocation to God-Knows-Where and through God-Knows-Who, we can trace the financial DNA into something real and local.

There is a virtuous circle which then operates, because once the principle is established it makes it easier for others to invest in the housing bonds, too. In particular, our UK pension funds now have much greater freedom to buy housing bonds.

And the great thing about them is that the investment is tied directly to something real and local too: bricks and mortar in your area, for yourself and your children. The council, the bank and the pension fund can see a fixed, physical asset, and with affordable housing for rent and fixed income too.

And real houses will actually be built. Not promises of building, not land with planning permission earmarked for building at some unspecified future date.

As someone who sits on this city’s planning committee I am only too keenly aware that planning permission granted for housing can mean very little. Apart, of course, from an immediate asset price spike for those holding the land.

Last month the planning committee was told that of the 6,500 houses it had given planning permission for, only about 500 had actually started being built.

Housing investment bonds will put housing investment cash in the hands of those with an interest in actually building the housing in order that the bonds can be paid out on from the physical, built asset.

And if local developers are sitting on a land bank where planning permission for housing is already given, then the “use it or lose it” principle will have to apply. If there is capital ready and willing to buy and build from housing bonds, then so be it. Positive, active creative capital will need to push out dormant, destructive, delayed capital.

When it comes to pension fund investment in housing we could now be seeing a highly serendipitous coincidence. There is now a growing consensus that investing in UK housing is the best investment strategy for the health and wealth of the funds.

They provide healthy returns on a risk adjusted basis to the pension funds.  They are strong in income generation with regular cash flows. There is strong collateral with a potential to structure investments to focus on risk control or return generation.

And if they are not diversifying into housing investment, the funds need to be asked questions about their fiduciary duty to do so.

Indeed a recent analysis by TradeRisks.com recommends hard-nosed investors (especially pension funds) to get particularly into social housing bonds rather than corporate bonds, and that now is the best time to do so. Sixteen of the biggest 60 Housing Associations have now issued own-name public housing bonds. It’s time for local councils to do the same.

And when it comes to pension funds the big players pushing the entire private pension fund industry into the shade are the local government pension funds (LGPFs). Their assets in investment now total over £230 billion.

The government has already relaxed the rules specifically to allow LGPFs to invest in housing and infrastructure. It has started, gradually, to happen in councils and from local government pension funds all over the country, most notably (and, perhaps, gallingly for Brummies) in Greater Manchester.

So now we need to kickstart the now possible into the now actual. If any local government pension fund has not laid out its 30 per cent housing and infrastructure asset investment strategy, we should ask why not. And if any local council has not set out how to bring that investment into house building and renewal in their area, they need to be asked why not.

It’s time for Bonds: Brummie Bonds.

Let’s build.

John Clancy is Birmingham Labour Councillor for Quinton.

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