An interview with Tom Verbeke, member of the research consortium KU Leuven, Brussels campus, and responsible of the Recurring fund research.
1. How does the Recurring fund work?
The recurring fund is focused on home owners with limited or no resources to renovate their property. The fund (co-) finances (part of) the renovation and its aim is to improve the quality of the property so that it would meet the minimum standards included in the Flemish building code. In addition, renovation aims to improve the property’s energy efficiency. The funds, currently with a maximum of €30.000, are made available as the renovation project is implemented. In addition, home-owners can benefit from advice and guidance at the design and implementation phase. Although various mechanisms exist that offer financial support to renovating home owners, without the participation of the fund it is highly unlikely that these projects, given the limited resources of the owners, would have been implemented. Subsidies and tax-related incentives often require that eligible activities have been completed and paid for before the paperwork for the subsidies of tax incentives can be completed. For the target group, these conditions essentially mean that they don’t have access to these support schemes, as they don’t have access to the funding required to complete and pay for the eligible activities. With the fund, they can access these schemes.
The fund is not a subsidy and it is not a loan. Unlike a subsidy, the contribution of the fund has to be repaid. Unlike loans, repaying the contribution does not require a fixed, monthly or yearly repayment. If the renovated house is sold, the value of the house is used to repay the fund’s nominal value. If the property’s value has risen over time, part of this capital gain is allocated to the revolving fund, more or less in line with the fund’s share of the house value after renovation works were completed. With these repayments, the revolving fund can contribute to new renovation projects.
Image by Lies Ferny, lecturer Social Work Practice at Artesis Plantijn University College of Antwerp
- What are the benefits of setting up a recurring fund?
The primary benefit is that it offers a way to finance renovation works of income-constrained home owners. As house prices have risen across the curve in almost all major cities, people on a low income often spend a major part of their income on housing costs. As a consequence, low income home owners have often little choice but to pay very high rents or to buy a property whose quality would not meet the standards in the Flemish building code. In addition, these properties often suffer from a lack of good insulation and don’t have efficient heating systems. The fund offers the group of low income home-owners a way to increase the quality of their property and in doing so the fund aims to contribute to the owner’s and his or her household’s health, quality of life and reduce their environmental footprint.
Second, in addition to funding, the guidance offered at the design and implementation stage unburdens these households. Having access to the right information on e.g. the existence of cost-efficient solutions to address quality issues and increase energy efficiency of their properties is a major benefit of the fund.
- What are the challenges?
To evaluate what the fund delivers in terms of improvements to the quality of life of the household and to the energy efficiency of the property, we need sufficient projects where renovation works have been completed. However, due to Covid, there has been some delay in many of these projects. In addition to the impact of renovation on the household’s quality of live and environmental footprint, completed projects are necessary to evaluate if and to what extent the terms of the fund are appropriate, for instance, if and to what extent the fund’s contribution (€30.000) is sufficient or if and to what extent the income-related conditions are appropriate for the target group.
- How can you make the fund sustainable?
When the property is sold, the fund’s nominal contribution returns to the fund. In addition, if there are capital gains, a percentage of those return to the fund as well. In the medium run, that should guarantee a constant flow of funds flowing back. These can then be used to fund new projects.
- What is the future of this recurring fund and what are your expectations?
In 2019, the building stock in the city of Ghent included 62.000 terraced or semi-detached houses. In terms of the average age, more than 60% of these were built before 1945 and one third occupied less than 65m². As a first approximation, it would be among owners of those houses where the fund would be able to contribute. Assuming that these are representative (in terms of size and age) for the house that presents the first quartile of the house price distribution – admittedly, a big assumption – their value in 2019 was €219.000. From the first data analysis, the average value of the property renovated was indeed €220.000. Since 2010, the value of the first quartile house has risen 61%. Given the characteristics of the housing stock and the price evolution of the first quartile house, the recurring fund will probably meet increased demand for funding.