Government Bonds to Finance Social Housing
Financing of social housing must be made cheaper and more transparent. The government therefore proposes that renovation and construction of social housing in the future shall be financed through the issuance of government bonds.
21. Jun 2017
Minister for Transport, Building, and Housing Ole Birk Olesen remarks:
- Financing renovation and construction of social housing through government bonds instead of mortgages will result in cost reductions. In addition it will increase the transparency of the government’s liabilities.
The proposal will be a part of a proposition that seeks to amend the social housing act and which will be presented in the Parliament’s autumn session.
A change to the social housing act will make it possible to utilize government bonds to finance construction of new social housing and to finance renovation projects supported by Landsbyggefonden. Today these are financed through subsidised loans either from mortgage banks or from KommuneKredit (municipalities).
The government will finance the loans through issuance of government bonds and a loan administrator will intermediate lending to the social housing sector. The administrator is to be a financially independent entity and will be determined through a public tender.
With this proposal the government expects to achieve significant cost reductions, as the interest rate on government bonds is lower than that of mortgages. In addition, the lending fees will be lower. The cost reduction may be up to 1.2 pct. of the refinanced loan amount. Currently the sector has subsidised loans totaling 180 billion kroner, of which 55 billion are indexed loans. In addition to the above cost reductions, the proposed model will improve the transparency of the government’s liabilities, and provide better control of interest rate risk exposure.
Aside from the proposed, the existing social housing financing model will remain unchanged. The rules on social housing rent will not change and the part of the loan obligation borne by tenants will remain independent of the type of financing.
The new loan administrator will be established in 2018, by which time new lending can be financed through government bond issuance. From 2019 onwards, the government will refinance existing mortgages and do so over a period of 10 years. Financing of the social housing sector through subsidised mortgage loans will therefore continue for a considerable time.
There will be a close dialogue with the mortgage bank sector to ensure a smooth transition to the new financing model.