Economic and Financial Factors that Affect Capital and Revenue Funding For Social Housing - Coursework Example

Economic and Financial factors that affect Capital and Revenue Funding for Social Housing Introduction The programs initiated on Social Housing in different countries around the world by the housing policy initiatives taken by the governments of those countries. Apart from the influence of government actions on social housing the Social Housing programs are also governed by several external factors. Such external factors constitute social, economic, demographic, political and legal influences on such programs. The summation of the effects of all the above external factors and the policy decisions taken by the government gives shape to the features, aims and objectives of Social Housing programs for a country. Research made on the housing conditions of the European countries reflects general improvement of such in countries associated to the United Nations Economic Commission for Europe. However, with the changes in consumer tastes and preference patterns it is observed that new problems have started to crop up in spite of such developments. The effects of factors like immigration of people from different nations to European countries have contributed to altering the social dynamics of the countries. Moreover, income level of the community groups is also found to counter a growth in regards to the past. The above factors govern the changes in desire and tastes of the country’s population. The rise in the income levels in the countries is far from being an equal growth pattern. Rather it has led to widespread disparity leading to better lifestyles and slums to coexist. Entry costs being huge have led to the construction of low and middle level households. To this end, the paper endeavors to focus on the gamut of economic and financial factors, which influence the decision made on Social Housing. The study of economic factors pertaining to Social Housing programs are conducted in close relation to the models of granting housing subsidies like tax credits and housing allowances. Similarly, the financing initiatives of Social Housing programs are found to be an amalgamation of different financial instruments like loans, bonds, subsidies and private funding. (Guidelines on Social Housing, 2006: 1, 37, 45) Economic Factors influencing the Funding of Social Housing Programs The study of economic factors pertaining to social housing reflects on the effective management and allocation of public resources to satisfy the desires of communities in regards to proper housing. The demand and supply mechanisms related to public housing schemes depend on the availability and demand for housing subsidies. In fact, it is observed that a public housing policy stands on the framework of demand and supply mechanisms for housing subsidies. The Social Housing schemes of the government are based on the analysis of how to render homes for the low and middle-income groups. The government of a country makes an analysis of making investments in regards to social housing schemes and takes into account other options like granting of housing allowances. Consumption patterns of the social communities in regards to household consumption are closely dealt with before making such investments. One of the key reasons involved in the increase in the demand for social housing is the system of market failures. Market Failures are found to occur for inadequate investments made in the housing sector. The inadequacy of investments made in the housing sector owes its reason to the lack of furnishing of proper information as to the risks involved. Again, market failures are also found to occur for lack of flexibility to changing market dynamics caused due to changing demographic patterns. Moreover, a sudden rise in the flow of homeless and destitute population requires heavy amount of investments for the construction of slums. Thus, investments drained to cater such poor people also affect the needs of the community. In this context, it is found that the lack of adequacy of proper housing plans and resources constitute a long-term risk. However, changes in price depending on resource mobilization constitute short-term risk. Further, the features of Social Housing schemes are found linked with certain economic parameters. Firstly, encouragement of social housing schemes helps in reducing the cost of housing in the economy. On the other hand, the rise in social housing is found to have a close link with the rise in labor costs of the economy. Secondly, the rise in social housing activities has also a close link with the employment opportunities. It is found that previously with the loss of employment the person was bound to shift to some other location. However, the availability of houses at affordable rates has helped reduce such tensions. Thirdly, the bettering up of housing zones through the social housing schemes has helped reduce the effect of health disasters. Previously, unhygienic housing conditions led to the occurrence of fatal diseases. Finally, the use of Social Housing schemes helps reduce the fluctuations in the housing market. It is found that the economy of a country gets affected owing to housing market fluctuations. Henceforth, a healthy housing market is an important indicator for a healthy economy. (Guidelines on Social Housing, 2006: 37, 38, 39; Community and Economic Development Strategy, 2004: 10; Lusardi, 2008). Financial Factors influencing the Funding of Social Housing Programs The financial instrument used for funding of the Social Housing program constitutes of instruments like loans, securities, subsidies and granting of housing allowances. In the case of the loan market for social housing initiatives the essential factors that should be considered are that whether the loans are available at a fixed rate or at flexible rates. Again, the case of repaying the loan also needs to be observed. The loans are repaid either at constant rates or in graduated or made through index repayments. However, the loans granted for social housing needs are generally found to be of long term or of very long durations. Again, as regards to repaying the loans it is found that the loan granted for the social housing schemes depend on economic inflations which are again countered by state interventions. The security market for granting of funds for social housing programs is a packaged program, which focuses on the selling of mortgages to the consumers. Financial institutions generate funds to the social housing programs through ‘whole loan’ sales or through bonds circulated by agencies. The ‘whole loan’ sales are generally packaged mortgage products, which are sold either individually or in collective manner to lenders and investors. Agencies specializing on mortgage finance conducts sale of bonds to the investors and lenders. In regards to granting of subsidies and housing allowances, a steady comparison is drawn between the two. It is found that the demand for housing allowances surpasses the demand for subsidies for the level of housing allowance granted has a close link to the level of income of the householder. Moreover, the subject of housing allowance is found to be quite flexible in regards to the parameters of income and number of family members. This feature of flexibility of the housing allowance makes its demand increase in times of severe economic depression. However, it is argued that the level of housing allowances also helps in increasing the rents of the housing properties. Again, the housing allowances are identified as complex set of mechanisms, which becomes difficult to be properly administered. Housing allowances owing to its relation to income levels and housing consumption patterns earns this complexity. Moreover the level of housing allowances granted being closely related to the income levels and not on the housing patterns earns very less use in regards to deciding the quality and quantity of housing patterns of moderate or high income groups. On the other hand it is found that the scope of granting subsidies helps in increasing the quantity of property supply both to the general and as well as to the low-income groups. The subsidies are also flexible set of monetary instruments whose supply can be both increased and decreased depending on the circumstances. (Guidelines on Social Housing, 2006: 54, 55, 56) Moreover, the change brought in the system of Housing Revenue Account reflects that the housing subsidy is replaced by a scheme on single housing subsidy. (The Housing Finance Reforms, n.d.: 17). The subsidy system practiced in the Housing Revenue Account helps the government to rightly determine the level of housing subsidy to be granted. (SIGOMA, 2009; Reform of Council Housing Finance, 2009: 16-17). Social Housing Organizations Financing Process In the European context the government of the state helps extend financial aid to major banks in regards to social housing policies. The level of state aid extended to the banking sector helps them to continue giving loans and grants at times of severe economic depression also. Thus, any step forwarded to ban the system of letting government aid extended to the private banks is highly protested. Henceforth, in the European context it is found that the process of receiving allowances and subsidies for social housing purposes is being shifted to the grants obtained from private banks. This is being done to let the government intervene in an increasing manner to the social housing process of the country. Moreover, it is increasingly felt that the social housing schemes should not bear a direct relationship with the financial market. Rather it is recommended that they should encourage the participation of intermediaries in the financial process. The role of intermediaries is encouraged in this context to reduce the effect of harsh financial environment in the country. In this context, research conducted suggests that higher dependability of social housing organizations on the financial institutions made it difficult for the organizations to get the benefit of credits. The issue of credits if obtained turned out to be quite expensive for the social housing organizations. Intermediaries needed to fund the social housing organizations generally issue bonds or other financial instruments to render grants to social housing schemes. These set of financial intermediaries in turn are helped by state grants or through other trustees who let them gain access to proper resources. Moreover, in the context of European countries the role, played by the European Union in acting as a financial intermediary between the Social Housing organizations and the financial institution is also seen. The creation of the European Investment Bank by the different member states to grant loans and grants to Social Housing organizations is highly appreciated. It is because the investment products issued by the European Investment Bank are highly rated in the financial market. Moreover, the conditions of the investment products are made based on the decisions of the European Union and the Council of the Investment Bank. (Financing Social Housing After the Economic Crisis, 2009: 29, 30, 31) The role of privatization of social housing financing has become a controversial issue due to political and market mechanisms. The government functionaries are found not to support such initiatives. (Lomax & Town, 1996: 861; Johnston, 2009: 26; Okpala, Mangiza & Moisseev. 2006) Factors governing the demand for Social Housing It is found that the demand for social housing greatly depends on the performance of other sectors of the economy. It also depends on the set of administrative actions and on the level of rent and subsidy patterns. It is found that certain countries in which a standardized system of subsidy is followed the housing rents charged somewhat match the market rates. The matter of housing rent when dealt with in the European context reflects that it becomes higher than the market raters in certain high-pressure zones. However, in these regions it is found that the social housing system takes into account both the rented home zones and the low-cost home zones. The low-cost home zones prevalent in these areas are generally run by government subsidies. However, in the case of United Kingdom it is found that the demand for social housing is not met by the supply of such. Again, outside the premises of United Kingdom and Ireland the social housing depends on the availability of apartments and thus depends on the lease market. (Whitehead, n.d.: 6-7). Demand and Supply for Social Housing-Graphical Presentation The demand and supply for the Social Housing is given below. It is found that for a market having a balanced amount of housing subsidy the Demand Curve ‘D’ and Supply Curve ‘S’ intersect at a certain point. The intersection point extended on the Y axis renders the price point P and extended on the X axis gives the Quantity Q. However, with the availability of increased subsidy the Demand Curve D shifts to D1. Correspondingly, the amount of Social Housing also increases from Q to Q1. The availability of increased housing subsidy in the market also owes to the rise in price from P to P1. In a similar manner, the non-availability of housing subsidy results to the fall in demand for social housing. Thus, Demand Curve shifts from D to D2. Similarly, the price for Social Housing projects also shifts from P to P2. The Supply Curve owing to the rise of housing subsidy shifts from S to S1. The rise in supply corresponds to the rise in Quantity from Q to Q1. Similarly, the non-availability of housing subsidy resulted in the fall of supply from S to S2. Correspondingly, the price for social housing with the rise in supply came down from P to P1. This also shows a positive effect of the increased housing subsidies. Vice-versa with the non-availability of housing subsidies as supply falls from S to S2 the price increases from P to P2. The above discussion truly reflects that the demand and supply of social housing depends on the proper availability of housing subsidies. (Guidelines on Social Housing, 2006: 37, 38, 39) Y D S Y D1 D S P P P2 D2 Q X Q2 Q Q1 X Y D S2 S S1 P2 Q2 Q Q1 X Social Hosing Management in Ireland Effective Social Housing Management depends largely on the proper availability of funds for the same. However, a lack of focus on the capital allocation projects for the Social Housing activities shifts the responsibility on the shoulder of the state authorities. It is observed in the context of Ireland that the social housing system of the country is highly subsidized and of low rental values. However, the state authority of Ireland suffers from the lack of proper funding resources, which makes the system weak. To this extent, it is found that the state authorizes in Ireland fail to resort to any organized means in countering the problem. Whatever, is done would depend on individual actions. Thus, it becomes difficult to arrive at a common consensus regarding the amount needed for social housing schemes and hence funding gets misappropriated. (Fahey, 1999: 254). Conclusion Social Housing schemes are gaining increased popularity around the world owing to the innovations offered in the process of constructing the houses. It is leading to better health standards in the society and thereby resulting to a sustainable social environment. However, the financing of the Social Housing programs is found to depend largely on government’s financial support or subsidies. It helps to cater to the poor social base by making available low cost housing zones and in saving the social housing program from ceasing itself in times of economic depression. 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