Source: European Investment Bank
“Housing problems are local problems,” says the European Investment Bank’s Muent. “Lack of supply is very often due to local factors—land availability, planning, etc. What we need is a financial toolbox with generic tools and instruments which can be tailored to local needs and then scaled at regional or national level to deliver hundreds of thousands of homes, not tens.”
To create just such an instrument, the European Investment Bank has been working with the European Commission’s Directorate-General for Regional and Urban Policy on a new model financial instrument for affordable housing that national and regional authorities can use. This blueprint helps national and regional authorities, or public banks such as National Promotional Banks which often administer this kind of instrument, to channel existing public funds, including EU funds for poorer regions, into the housing sector in a way that encourages more private and public investment.
The key to the success of such financial instruments is that they allow for flexible combinations of loans and grants—for example, capital grants or interest-rate subsidies—to “de-risk” projects, making them more attractive to a wider range of investors, and to set the right mix of funding to meet local needs.
“The benefit of the financial instrument is that it introduces more favourable terms through the grant combination,” says Emily Smith, a principal advisor at the European Investment Bank. “If the projects have viability issues, then there’s the option to use some of the resource as a capital grant. You could channel some of it as an interest-rate subsidy, if you want to lower the cost of the financing. You could use capital rebate to reward the achievement of certain performance objectives by writing off part of the loan.”
This flexible approach allows Member States to adapt the model to their specific needs and market conditions, recognising that housing markets vary significantly from country to country and even from region to region.
This model financial instrument for affordable housing also aligns with the European Commission’s push to refocus its cohesion funds, which it reserves for economically disadvantaged parts of Europe, on pressing priorities such as housing. The Commission has also clarified other rules to ensure that its structural funds, which are available to all regions, can also be used for housing.