How developers could help house the most vulnerable

UK concept could provide a blueprint for Cayman

An artist’s impression of a new joint venture housing project in Romford, Essex.

Joint venture partnerships between developers and government could be a means to help create low-cost housing in the Cayman Islands.

The concept, used in the UK to regenerate run-down urban areas, involves creating new neighbourhoods with a mix of subsidised properties and middle-class homes. Profits from houses sold on the open market – typically around 60% of the development – help fund affordable homes within the same community.

Sam Story, head of corporate finance at KPMG, believes it could be the perfect model for Cayman. Story, who was formerly head of finance for UK building firm Wates Residential, helped structure partnerships with local authorities in London.

He said the model relied on a developer who was willing to accept slightly lower profits in order to help solve a social problem.

“The biggest challenge is to get developers to buy in,” he said. “There has to be a moral element to it, because the profit margin is usually lower than it is for developments targeting the higher end of the market.”

- Advertisement -

He said the beauty of the model is that the developer and government agree on the margin up front and split it evenly, with both providing equal funding to the scheme.

The developer usually takes a fee for managing the design and planning – and overseeing construction and financing – while government receives much-needed affordable housing for its residents, often at a subsidised rate.

The concept in the UK typically involves government putting in the land and the developer matching the value with a comparable cash investment. A joint venture partnership, with three board members from each entity, is then tasked with steering the project to completion.

Typically, these are ‘mixed tenure’ developments with 40% affordable housing split among three categories:

  • Affordable rent – Government retains ownership and rents the units at a cut rate, calculated based on the average income of the target group.
  • Social rent – These units are rented at a ‘peppercorn’ amount to people who qualify via social services.
  • Shared ownership – Government retains 60% of these properties and first-time buyers get a mortgage to own 40% of their home.

Story said the shared-ownership concept allows young people, who may not qualify for a large enough mortgage or be able to afford a significant down payment for a home, to get on the property ladder. These owners are often given flexible terms by the government to try to buy the full property over time, or to sell their stake and move elsewhere.

With few homes in Cayman on the market below $300,000, he believes this method would lower the bar for entry to home ownership.

Sam Story

Affordable rent would be aimed at lower income workers while the social rent units would be specifically reserved for people who are reliant on government services like the Needs Assessment Unit. The rest of the homes in the development would be sold on the open market.

Good design is essential

Story said a well-planned, well-designed development can create a mixed community of families and individuals from different backgrounds.

“The right design is crucial because you are bringing together a diverse group of people,” he said. “You have lower income families who can live in nicely designed and beautifully maintained communities. Specially in the Cayman Islands, the safety aspect of providing hurricane-grade homes to those families who might otherwise not be able to afford it, would also be a significant benefit.”

The open-market properties would have to be competitive in terms of price, he said.

“You are talking about decent, affordable accommodation at a lower price than what is available elsewhere on the market.”

Even with those elements he believes it is possible for a joint venture to make a reasonable return.

“The purpose is not to maximise profit, but to maximise the number of affordable homes, having essentially fixed the profit margin upfront. You have to have a really efficient design to bring down construction costs – there are no wide corridors, large empty spaces and grand entrances, for example.”

Further cost savings could be achieved through economies of scale in the supply chain for basic fixtures and fittings – and appliances – as well as through tax breaks for partner developers, he said.

In Greater London, joint venture partnerships had been used to regenerate run-down areas.

Typically, a handful of dilapidated tower blocks were bulldozed and the residents rehoused into the newly developed community. Story believes the Cayman Islands government could look for vacant buildings or dilapidated areas – for example, the site of the old government building – as possible locations.

“It is proving to be very successful in London and I really believe it could work here as well,” he said.

For developers, he added, it was a chance to be part of the solution and build a working relationship with the authorities. “When house prices are going crazy,  it is difficult to not want to take advantage of that. Government and developers working alongside each other on specific residential developments could be a very effective way of delivering the affordable housing requirements of the Cayman Islands.”

- Advertisement -

Support local journalism. Subscribe to the all-access pass for the Cayman Compass.

Subscribe now

5 COMMENTS

  1. In principle a good idea, and many, many caveats.

    As a Caymanian who has been based in London for four years and with a strong focus on equity and inclusion, these ideas have been tried in London and the U.K. for sure.

    However, in practice it is very reasonable to summarise that in many cases they have only a) made developers even richer (such as the £70m earned by one CEO of a developer) and b) reduced truly affordable housing stock.

    Cayman has a burgeoning crisis on growing inequality, so I applaud the Compass for looking at every angle. Let’s be sure to get very clear on what we are seeking to achieve as a country though, before grabbing an idea as it sounds good (as your headline suggests.)

  2. This is a unique solution to one of our housing problems. Perhaps Govt should take advantage of Mr Story’s expertise in this type of development and have him liaise with local builders/developers to see if this concept could work in the Cayman Islands.

  3. I am familiar with residential developments in the UK and how the local authorities extract money from developers to fund low income housing, which should be their responsibility.

    My son bought a new apartment in London a few years ago. It is his first home . He saved up for years to afford his deposit and his monthly mortgage payment. Directly beneath his apartment is an identical one occupied by a family of out of work immigrants who have never had a job and live off the British taxpayer. They pay nothing to live in the same home as my son. NOT RIGHT.

    Don’t be fooled. It’s creeping socialism and a hidden tax that pushes up the price of homes for those who are using their hard earned money to pay for them.

    If you have land that is properly zoned for development then you should be able to develop it, provided your plans meet current building code.

    That does not mean that developers should be able to develop too close to the sea or damage the environment such as Fin on South Sound Road.

    But there SHOULD be government help for young Caymanians to buy their first home. Such as down-payment assistance. Another idea is shared equity. This is where a private person puts up the down payment in return for a partial interest in the house. They get their money back plus interest when the house is sold.

  4. Good ideas. Behind every big developer stands an array of investors who are more mindful of the returns they will receive on their investment than they are about solving social problems. The developer stands as the ringmaster and takes the heat and the blame but the investors who decide whether or not to fund a project are often the drivers of the ‘greed’. One practical approach that may work here would be for developers to get creative with government and ask for a trade. For example entitlement for a greater density on a project with the resultant gain to be shared between government the developer. For example say a developer wanted to gain approval for a 100 lot subdivision. The government could offer 140 lots if the developer also offered some of those lots to government for the development subsidized housing. In the US, the Department of Housing and Urban Development is an administration that straddles the line between government and business. It provides rental assistance and local public housing .. Cayman could create a streamlined version of that administration which offers incentives and higher density to developers in exchange for a unit or units in a new development. It works in the US and should be easier to implement in Cayman because there are less people and less collective need.

  5. Another way could be Community Land Trusts (CLT) . These are primarily setup and run by ordinary people to develop and manage homes, as well as other assets like community enterprises, food growing areas and workspace, recreation centres etc. This is a long term option and prices for homes would remain stable based on how much people earn in that area.

    In this way social housing is not seen as purely a fiscal issue but instead seen as a human opportunity to house people and create a long lasting community. In this way the stigma attached to social housing can be altered and the people put first.

    This is another way for design to occur. You have many able Architects on island (who are not developers) who can be agents for change as a mediator between community, developer and government. All can be involved in the design making it a richer project, but also by involving the community in design, the project becomes a better representative of people’s needs in the hear and now. People will live in these places for many years and they deserve the same dignity, rights and access as everyone else has on these islands.