Impact of Brexit on the Funding Perspectives of Affordable Housing Providers

Housing Europe facilitates exchange between members on what works at local level, for example by working on land allocation policies or ‘housing first’ capacity building, while also engaging with the global policy community.

Housing Europe Member, the National Housing Federation (NHF) from the UK assessed the most important aspects of exiting of the Single Market for the housing sector which include:

• the OJEU public procurement procedure: it remains an integral part of EU competition law and tends to be the quid pro quo for trading with Europe

• Building new homes: construction skills shortage are already present and will probably grow
• Cost of materials imported from Europe: free movement of goods will no longer be in place and costs are likely to rise.
• Investment: housing associations will not be able to access a number of current EU funds (in particular Structural Funds, AMIF) but there may be some benefits as state aid rules are no longer applied.
• Housing demand: immigration is likely to create great uncertainty without any immediate effect on demand.

Our 4 Federations in the UK would like to continue to invest new affordable homes of all tenures and deliverer services. It is also clear that the risks would need to be clarified on the skills shortages in construction and social care. And in order to continue to further provide livable communities, our Members need long-term certainty and control over business costs, as well as alternative funding to replace Structural Funds.

If uncertainty is prolonged, then inflation takes hold, and targeted investment to less economically competitive communities is lost and not replaced. It also means higher cost of borrowing for housing providers.

How does the future of EU funding look like in the UK?

There are several funding programmes and sources that will be impacted by Brexit including Structural Funds, sources from EIB, H2020, AMIF, or EaSI.

With regards to the EIB lending, the main problem for affordable housing providers is that UK has no national promotional bank and relies on EIB funding for investments in infrastructure and other projects.

Article 50 is not applicable in the relation with EIB, however, we should note that after the leaving point, the UK

• will not be part of the Governance Board,
• will get less money allocation, but will still have access to the loans based on an agreement.
• The terms of the already signed contracts do not change.

Concerning the potential agreement with EIB, there are two scenarios:

1. either the UK remains shareholder (Now the UK is a 16,1 % shareholder meaning that €39.2 billion locked up in the institution) which needs to be approved by the UK and by the other 27 Member States,
2. or the UK withdraws from the Bank which means that it would have to negotiate with shareholders about the continuation of financing.

According to the published Draft position papers of the European Commission on Article 50 negotiations and the financial settlement (June 2017), the first scenario is likely to happen and the Commission has also clearly stated that the United Kingdom should cease being a member of the EIB.The UK’s ‘liability resulting from the guarantee for the financing made by the EIB while the United Kingdom was a Member State should be maintained and decreased in line with the amortisation of the EIB portfolio outstanding at the time of United Kingdom withdrawal’.

Overall, both scenarios are quite problematic for our sector due to the potential long uncertainty.

A. Remaining shareholder

Decided likely at the end of the Brexit process

• Long uncertainty still impacts the sector | ‘EIB is committed to doing business in the UK’- President of EIB, Jan 2017
• Full access to funding before and after Brexit
• Only possible if EIB changes statute – This would need approval from the UK and the other EU27
• Share would remain but decreased proportionally

B. Withdrawing from the Bank

• Would be discussed at the end of the Brexit process. Problematic due to uncertainty
• All of the existing projects will be honoured, including those signed until 2019 that the UK is a member. | Difficult legal challenges when finalising contracts which potentially run until 2050’-President of EIB, Oct 2017
  • After withdrawing completely: UK can continue to benefit without being a shareholder but the amount is likely to be much smaller | “…energy and transport infrastructure would be damaged by ejection from the EIB, as […] the bank would take a larger role in future in financing eurozone projects.” – President of EIB, Oct 2017
• The UK would have to negotiate with shareholders – difficult process
• Expensive (right to receive its share but also responsible to cover its portion of the bank’s debt)

The situation of the ESI Funds is the most problematic because housing providers use ERDF and ESF as an essential part of their budgets (5 Operational Programmes in the UK have foreseen allocation). Currently, the UK benefits of £10 billion of overall EU funding (3.1%) and the biggest support is allocated to Wales, Northern Ireland & North East England and South West England.

Until the leaving point (March 2019), UK is entitled to use ESI Funds, however, after 2020, the UK stops benefitting from it as it will not be a Member State anymore.  Therefore, the great question is how the UK can replace these strategic investment tools in social infrastructure and in skills training? John Bachtler, Director of the European Policies Research Centre, Glasgow says (2017) that in order to continue this level of spending, UK should double the current domestic funding.

Concerning other programmes (such as H2020, AMIF, EasI), the UK can have access to them in case it stays in EEA, however, in this case, it should respect the ‘aquis communautaire’ and pay a fee to access the EU economic area and funding programmes. The paid fee is used for different funds such as http://eeagrants.org/ (contribution from Iceland, Norway, and Lichtenstein).

Source: housingeurope