Housing Corporations: Sustainability in danger?

In July 2009, the Dutch Minister of Housing, Communities and Integration, Eberhard van der Laan, presented his vision for the future of governance within housing corporations in a detailed letter to the Dutch Lower House.

“Will investors and property developers be prepared to invest in real estate with a social purpose?”

The proposals outlined should eventually become a series of regulations. The minister argued that all commercial activities should be excluded from a housing corporations balance sheet, with the exception of high rental homes. Furthermore, the investment must be done by a subsidiary of the housing corporations, whose balance sheet total should not include more than one-third of share capital from the housing corporation.

The aim of this measure is to reduce the financial risk to social capital.

This means that housing corporations will be compelled to cooperate more closely and more actively with municipal authorities, property developers and investors in order to invest in certain commercial real estate. However, municipal authorities are increasingly becoming tied to stringent regulations related to government aid.

Hot issue

Government aid is currently a hot issue for housing corporations. Specifically, agreements are in place with the European Commission to limit “the government aid” granted to housing corporations to specific societal real estate and homes with rents of less than EUR 648 per month.

The agreements that would continue the guarantee by the Social Housing Guarantee Fund (WSW) include eliminating the option of plintruimte* under the guarantee, a provision that made it possible to fund e.g. stores located beneath apartment blocks with a guarantee from the Social Housing Guarantee Fund. These types of real estate will be defined in future as “commercial activities”.

Housing corporations will no longer be able to fund these activities with a guarantee, and now have the option, to exclude them from the balance sheet if appropriate, and include them in a subsidiary or allow developers and/or investors to take over this
responsibility.

An admirable ambition

In future, housing corporations will therefore be required to fulfill their social responsibilities, while for other activities they will be compelled to establish partnerships with property developers or other external parties, such as investors.

While many believe this ambition is to be commended, what impact will this have on the quality of life in large-scale urban renewal projects, or on the future development of old industrial buildings?

A sustainable, high-quality living environment requires investment in areas other than social housing alone, but it remains to be seen whether investors and property developers will be prepared to invest in real estate with a social purpose.

In fact, a relevant question is whether these players are even able to invest in these types of projects. The timing, at any rate, is particularly unfortunate right now. Since the credit crisis has its roots in real estate appraisal, the scope of developers has been significantly curtailed, and property investors have become even more critical than before.

Quiet death

Despite the numerous good intentions, it now looks as though many of the proposed investments that have been ear-marked to improve the quality of life in our major cities – the very purpose for which the Ministry of Housing, Communities and Integration was established – will die a quiet death. As a result of the continuation of government aid for housing corporations’ core activities, all good intentions may have been in vain.

Has minister Van der Laan won a Pyrrhic victory? Minister Van der Laan has since resigned, and minister Eimert van Middelkoop, who apparently has expertise in many areas, is currently filling his position. Meanwhile, the sector is at a turning point. The question is: will it crumble or will it rise to the challenge?

* “shoe mould space”