Tax credits could help housing associations build homes without the need for increased government grant funding according to a new report examining their successful use in the USA.
The report by Vic O’Brien, development director at GreenSquare Group, explores the potential of private investment in affordable housing supported by tax credits, known in America as Low Income Housing Tax Credits (LIHTC).
The research, which is being launched on Friday (11 July) at the Chartered Institute of Housing’s London office, concludes that the implications of a UK LIHTC programme should be assessed in detail by a tax expert, and that the Homes and Communities Agency should look at how it could get involved in administering the programme.
The USA LIHTC system works by corporations investing funds into affordable housing projects receiving tax credits over 10 years, which create a form of return on their investment.
Tax credits are given on condition that the investor ensures that the property remains affordable housing for at least 15 years.
In the UK, government grants for affordable housing have dropped substantially from around £50-60,000 per home before 2011, and the government introduced new legislation in 2013 to allow developers to more easily reduce their affordable housing obligations.
Mr O’Brien carried out his research in the USA in October 2013, after being granted a Churchill Travelling Fellowship by the Winston Churchill Memorial Trust. He said: “Even if there is a change of government in 2015, the UK’s finances will still be under pressure so affordable rents and low grant rates are unlikely to be done away with in the near future. I wanted to explore whether there are other ways that affordable housing could be funded that don’t rely on grant or planning agreements.”
The report concludes that if an LIHTC system was introduced in the UK, it would mean the Treasury forgoing some tax revenue. However, the resulting development activity and the management of the completed homes would create tax revenue, and it may also encourage the payment of additional tax revenue that some large companies are currently holding in tax avoidance schemes.
Mr O’Brien said a UK LIHTC system could be designed so that tax credits were used to create permanent affordable housing, rather than affordable housing with a 30 year restriction, as produced under the USA programme.
Gavin Smart, director of policy and practice at the Chartered Institute of Housing, who brought together an advisory group to inform the research, said: “We are currently building less than half the number of homes we need to keep up with our growing population – the result is a housing crisis in which millions of people are struggling to access a decent home at a price they can afford.
“We desperately need more truly affordable housing, and we need to look at new ways of delivering it. The U.S. LIHTC system has the potential to deliver new affordable homes – of a high quality and at low rents – without direct grant funding from the government or private developers. It has to be worthy of consideration as part of the future mix of new house-building.”