Details of Rettie & Co\'s innovative award winning funding model Resonance.

1. In this climate of constrained government funding, attracting private finance into the provision of
affordable housing has become critical to meeting future demand and achieving national targets.
The challenge lies in designing a model which, in the new economic landscape, satisfies investor
aspirations and generates positive outcomes for the broad range of stakeholders.
Matthew Benson of Rettie & Co has worked with the investment bank Execution Noble and Scottish Government since late 2008
to deliver an exceptional model which achieves this and more.
THE ISSUES RESONANCE – THE MODEL
Resonance® was conceived to address changing economic Investors like straight forward investments where the bottom
conditions and demands on housing supply. Specifically: line is clear. Some of the mechanics may be complex but the
principle is straight forward. Here it is:
• Constrained funding from government for social housing.
Resonance® provides a partnership to deliver affordable
• A distant prospect of recovery in the traditional sources of
properties with the capital cost shared between an RSL and
bank finance for new homes.
a private investor. The RSL borrows against future income
• The massive reduction in mortgage availability for first streams to fund the cost of bricks and mortar, whilst the
time buyers and low to middle income earners squeezing investor funds ‘land’ costs. The RSL rents out the units at
them out of owner occupation. affordable rates and gets to keep a percentage of the units
in perpetuity. The private investor benefits from any rise
• Under supply of social housing tenures which address their
in capital value over an agreed period. In other words the
demand for mid market or transitional rental properties.
model satisfies the desire of the RSL to deliver housing
• The consequent reduction in first time buyers who seed very cost effectively and of the investor to achieve a return.
sales in the housing market.
• The RSL borrows against the future income stream of the
• From people who are currently unable to buy but not property - for the model to work the stream needs to be
eligible for social housing under existing tenures. strong enough to generate borrowing.
• A drastically contracting construction industry suffering • Critically, reduced borrowing cost is facilitated by a
unemployment and long term loss of skills. guarantee from local or central government against any
• Medium and long term government housing policies shortfalls in rental income. The stronger the guarantee,
in jeopardy - without a recovery in construction the the lower the cost of borrowing. The lower the cost of
government will be unable to meet its targets. borrowing, the greater the capacity to fund build costs and
to keep more units in perpetuity.
• A steady flow of distressed land and part built property on
the market. • The funds borrowed by the RSL are transferred to the
investor on completion of each unit and used to offset land
and construction costs.
With minimal government funding available, innovative projects
are required which will maximise value from limited public • The properties are let on short assured tenancies.
funds and drive new sources of private finance into affordable • The private investor retains a right to reimburse the RSL
housing. Grant resources are constrained and grant subsidies and resume the properties for sale at any point subject to
per unit delivered need to reduce. tenancy agreements.
The future of a robust approach to housing lies in ensuring a full • Normally the agreement would be in place for around ten
complement of routes to home ownership and more choice for years and at maturity the investor would reimburse the
those who choose to rent by providing more housing options RSL all monies and take full control of the properties.
for low to middle earners. Fundamentally, because they need
• Under most circumstances, the longer the deal lasts the
to be housed, and importantly, because they have the potential
better the return for the investor.
to become owner occupiers. Some of this demand can be
satisfied by offering mid market rental properties where rental • The RSL retains an agreed number of the properties for
level is set between the social and private rent levels in an no more than the cost of the bricks and mortar.
area and can provide people with the opportunity to save for
a deposit. We need to ensure a full compliment of routes to
home ownership and more choice for those who choose to
rent.
The construction industry is suffering a downturn which is
leading to unemployment and could lead to a serious loss of
its skills base.
The Resonance® concept addresses all of these issues.

2. RESONANCE – POSITIVE OUTCOMES A SUCCESSFUL PILOT PROJECT
The concept achieves its aim of delivering positive Having identified the gap in the tenure market Dunedin
outcomes for a wide range of stakeholders. Canmore Group were very responsive to the potential of
the scheme and keen to run a pilot. A property in Joppa was
• The scheme makes it attractive for investors to develop identified and the investor approached. A build contractor with
distressed or part built sites which are currently offering appropriate expertise was identified in Springfield Properties
good value for money. PLC, who have an excellent track record in the delivery of high
quality affordable housing and who will deliver their 700th
• The investor is able to spread funds in what looks like
affordable home this year. The development has delivered 15
being a long wait for recovery in values.
mid-market rentals two of which will be retained by DCG in
• As a result these sites, which are often becoming perpetuity.
eyesores, go back into production.
Springfield Properties PLC and Dunedin Canmore Group have
• Jobs are created in construction retaining skills for the
now joined forces on a property where Springfield will play the
future and protecting the future of housing delivery in
full developer role. Brunstane Apartments were bought from
Scotland.
an administrator by Springfield Properties in November 2010
• The market for transitional or intermediate tenures which and will be built out at their expense. Of the 35 one, two and
can lead to home ownership or long term renting in the three be room apartments 18 will be transferred to mid market
private market is addressed. rental through the Resonance® scheme.
• Tenants have an opportunity to save towards a deposit. As a result of the success of these partnerships Rettie &
• No capital subsidy is required from government. Co are rolling out the scheme countrywide and using these
developments to demonstrate how the model can attract
• These units, if let at a social rent, require grant support of private sector funding to deliver housing that otherwise may
up to 50% less than current benchmarks. not be built. A standard package of legal documentation and
• There is minimal call on the public purse and leverage on financial modelling has been developed to allow quick and easy
that call is maximised. site appraisal keeping deal costs to a minimum. This adds to
the deliverability of projects and permits even the smallest of
• The developer is able to spread funds in what looks like sites to be considered.
being a long wait for recovery.
• There is no risk to the RSL at the construction stage. The strategic and rigorous approach of the partners in
the delivery of these homes has led to the successful
• The repair onus on the RSL is minimised with new development and piloting of a scheme which will have a
properties held on the scheme for only 5 - 10 years. positive long term impact on housing and construction in
• The RSL is able to offer properties for rental at minimal Scotland.
cost to the organisation.
• An agreed number of units is permanently retained by
the RSL at cost price. These units can add to the RSL
portfolio or generate a capital receipt for future leverage
and investment.
• No stamp duty costs are incurred and VAT is avoided on
management costs.
• The scheme promotes partnership between the public
and private sectors.
Matthew Benson
0131 624 9031 | matthew.benson@rettie.co.uk
www.rettie.co.uk/services