Oliver Wyman’s Government and Public Institutions Practice have contributed to the recent Public Bodies Review of Homes England led by Tony Poulter.
Homes England is a Non-Departmental Public Body (NDPB) of the Department for Levelling Up, Housing and Communities (DLUHC). Homes England is also a key delivery mechanism to achieve HMG's targets in delivering affordable, safe, and greener housing; it plays an important role in housing supply, regeneration and placemaking in challenging areas of the market.
The overall report conclusion is that England and the government need Homes England. It has the right powers and form, and most of the capability and tools to deliver better housing and better places. But, the report highlights that some changes should now be made to maximize the impact that Homes England delivers.
Oliver Wyman’s market analysis assessed the additionality, which reflects the extent to which activity takes place at all, on a larger scale, earlier or within a specific designated area or target group as a result of the intervention, and impact of Homes England’s programs as well as the organization's lending processes.
Within our review, we highlight evidence that a number of Homes England’s programs for loans and equity investment serve needs that are not largely met by the private sector market. This is particularly the case with regional junior and mezzanine loans, lending to MMC manufacturers and suppliers, long-term infrastructure lending and equity investments. Homes England often fills gaps with these products that are only served by small subsets of the market, if at all. This is because market players struggle to serve financing needs on a small scale or with complex underlying risk profiles.
There is instead partial overlap with private sector lenders on senior debt, where the agency makes loans that are similar to other providers. There is therefore lower additionality in this segment. Where this is the case, it is justified by more flexible design elements of Homes England’s products for SMEs. The flexibility includes allowing collateral against multiple sites, and allowing sales income to be recycled into further investment, which commercial banks would not usually offer.
Greater additionality, particularly for loans, could be delivered if DLUHC and HM Treasury – in setting and agreeing fund parameters – gave more consideration to factors such as the changing nature of demand from borrowers. Developers have become more price sensitive due to higher interest rates, and commercial lenders and investors have become more cautious. Homes England’s products are particularly additional when funding good projects in a counter-cyclical manner, recognizing the potential for accepting a higher risk of losses in return for generating more public benefit. To enable this, Homes England should define clear metrics and thresholds to enable successful measurement of its risk appetite and cascade it through organization.
Homes England should also ensure that its financing application and approval processes are sufficiently streamlined and efficient and approved on similar timescales to the private sector. Excessively slow and cumbersome processes would make the funds less attractive for potential borrowers, especially SMEs, for whom they represent an excessive burden.
In conclusion, the success of the recommendations presented in this report focus on the required and continued cooperation between DLUHC and Homes England.
Overall, this is a crucial report for the UK’s levelling up agenda and will help to deliver nationwide transformation.
The full report is available here: Homes England Public Bodies Review 2023.
