Since the 1980s, the UK has failed to build and repair its housing stock. Cut backs in social house building has not been matched by Private Sector growth. We now have a highly distorted market with high valuations and rentals being a significant social, economic and political problem.

Repeated changes to the planning system, we are constantly assured, will solve the problem, but repeatedly have not delivered. One insight into the problem can be seen from one aspect of the changes since the 1980s. We are increasingly dependent on a few large scale house builders. For them, they want large scale developments to make their business models work. Because of the need for large plots of land, too much building has been in flood-risk areas. Over the last generation the number of homes built by Small and Medium-sized builders has fallen dramatically.

Around the villages near me, there are a number of small scale plots, some of which already have planning permission but there has been no development. Access to Finance was explained to me as one reason. There are a few sites that risk becoming eyesores and detract from the areas in which they sit.

Given the low yields many people face in their pensions; it seems to me that the use of Local Property bonds could be a way of delivering small scale infill developments, especially around social housing provision. If these were offered via Local Authorities or Housing Associations, the ability to generate local employment, improve skills demands and enhance the local tax base could animate a virtuous circle. I would suggest that these funds could be used both for new builds but also modernisation and repair of old stock where viable. Importantly, these small scale developments do not generally require the levels of infrastructure spending that large scale developments do.

For instance, a 3% bond for 50 years, would be a good contributor to long term pension needs and reduce the burden on tax payers. If property is built and later sold, bond holders could share in capital gains based on the time the bonds have been held.

That the investment is in a fixed asset makes this a reasonably low-risk approach. Short term bonds already exist for the funding of social housing, as for instance in Chicago. Interestingly, these investments are protected against currency risk.

I would argue that there has been a market failure in UK housing around small scale developments for over 30 years and that blaming the planning system for everything has failed to resolve the challenge.

One of the interesting challenges around QE is that we are running out of assets to buy. Unwinding QE will be tricky, especially in an era of negative bond yields. Under the pension freedoms there is potential I believe for new instruments to be created with steady long-term paybacks. Funding the housing requirements seems a sensible area for innovation.

Could there be other areas where local bonds might be an approach to channel money to patient capital projects? Importantly, the problems of “NIMBYISM” on large scale developments often pit local populations against planners, builders and local politicians. Yet at the same time, many of the same families worry about the lack of housing provision in their area for their children.

Given that housing is central to an “economy that works for all of us”, some financial innovation here would bring economic and social gains surely?

More widely, could innovations in bond models challenge PFI vehicles? Again, the US has bonds for funding hospitals for instance? Could we conceive of a crowd sourced bond market for wider infrastructure developments?

The debate around inequality and intergenerational fairness requires, I argue some financial innovation around social purpose as well as economic efficiency. For the older generation seeking retirement investments, the opportunities to invest in housing, schools, hospitals, broadband, energy in reasonably low risk vehicles, seems to me a sensible direction to take. The benefits that would accrue to their children and grandchildren seems an important trade off as part of the solution.