11 June 2015
Promises, Promises
by J R Thomas
Mr Cameron, now safely tucked up in Downing Street again, may in the deep watches of the night be contemplating how to deliver some of his pre-election promises. The latter stages of the election campaign edged towards an auction of increasingly rash hostages to fortune as Messrs Cameron and Miliband traded some sound-bite promises, and almost certainly they had not spent much time contemplating how effective political delivery might be accomplished.
One of those promises – simplistically appealing and indeed probably a Tory vote winner among some floating voters – was to introduce a right-to-buy among housing association tenants, along the same lines as is available to council housing tenants. Mrs Thatcher introduced that latter policy and very popular it was too, with many qualifying owners buying their houses or flats with enthusiasm. Subject to a basic residential qualification period, any resident could exercise this right, at attractive discounts to market prices which increased depending on the period of residence.
Now Mr Cameron is hoping to underpin the property-owning democracy by an extension of this right into the housing association stock, no doubt having considered the research which shows that home owners buying former public stock tend to develop strongish Tory voting tendencies.
Another advantage to the Thatcher administration’s policy was that the proceeds of such sales went back into the public purse, also saving many struggling local authorities from some of the repair costs of the public stock which now fell on the new private owners. This advantage will not benefit Mr Osborne at the Treasury; the proceeds of such sales from housing association stock go to the housing association vendor.
And this is where the philosophical thinking behind this policy might have been more carefully pondered. The housing associations are obscure in their legal status. They are private bodies, subject to many of the rules governing public bodies but independent. They are a species of self-perpetuating quangos, with boards selected from the great and the good (usual caveats) and with professional management, often well paid in line with the private sector. And, it has to be said, they are often well run; good managers, thoughtful landlords and increasingly proficient developers of new stock. There are a lot of them – 1,400 in England alone, owning 1.8m homes; some very small and specialised, dealing with for instance the disabled or the over 55’s. But many of them are pretty sizable; Glasgow Housing Association owns around 50,000 residential units in that city. It was formed to take on the former city council-owned housing stock, partly to defeat the right to buy legislation but also to get the ownership costs off the council books. Circle Housing Association, operating in south east England and the Midlands, owns 63,000 units worth probably in excess of £5bn and employs 2,200 people. But these are private bodies, not governmental; and there is a possible danger that a future Labour government might use the precedent to further extend such buying rights to tenants of truly private landlords. A distant cloud, but a cloud nonetheless.
The great expansion of housing association activities was in the last quarter of the 20th century, when stock transfers from local authorities were at their height. The government informally gave the banks to understand that any failed housing associations would be “supported” and not allowed to default on external debt (indeed, no housing association has lost money for its lenders, though there were some hairy moments and pretty brutal forced mergers during the recession). Consequently, by this elegant fudge, the housing associations were regarded as quasi government risk and were able to borrow very cheaply but without this attaching to the public debt.
Once they had sorted out the usual backlog of repairs and tightened up management, the more innovative housing associations began building new stock and also taking on stock built by the private sector for the social housing market, often as part of planning gain – social housing built to transfer to housing association ownership as part of the horse trade to gain planning permission for private housing. (One Hyde Park, the astonishingly lavish private housing apartment block in Knightsbridge built in 2008 to 2010 by Candy and Candy, had to provide an equal number of social housing units, though not on the same site.)
The effect of all this is that the housing associations have become very major owners of housing and collectively the largest providers of let housing in the UK. And they have also become pretty switched-on commercially – so providing part of the solution to south east England’s problems in sourcing sufficient low cost housing.
Which is the second wing of the government’s thinking here. A double whammy of creating some contented home owners (with a propensity to vote Conservative, hopefully) and some increase in housing provision at the bottom end of the market (which is a continuing ticking bomb, especially with the London mayoral elections coming up).
The detail has not yet been provided, but the housing associations will be required to recycle the money they receive from their forced sales to owner-occupiers into new housing stock. Where and what and when this will be is not yet clear, nor is it yet set out as to whether the housing associations will be required to build this themselves, or whether they can buy from the commercial sector. However this does not address the supply-side difficulty. The reason the south-eastern housing issue continues to be intractable is that it is not easy to provide the land for residential development, however worthy. There is not much brownfield land available without very long lead times of moving current occupants and often decontaminating; and building on greenfield land is yet another set of difficult political issues and local unpopularity. Also, financing the construction and sourcing money to enable the resultant rental stock to be held long-term is not that easy, even post-recession.
But for large experienced housing associations with relevant experience this could be a welcome boost to their activities (though their tenant management arms, faced with negotiating sales and subsequently managing mixed-ownership blocks and complex service charge regimes, may not be quite so jolly about it). The smaller societies may not wish to or be capable of building new stock, so presumably there will be at least some ability to buy built units. Which raises more questions – given that the aim is to get more cheap housing into the market, how will this work if it is built by private ventures for profit? Much profit on development comes from clever land dealing, enhanced planning permissions, and effectively from intensification of land use; and large private profits from planning uplifts will not be popular with the public.
Some housing associations are already pretty experienced in dealing their portfolios. We touched last week on Poplar HARCA’s decanting of tenants from the Goldfinger-designed Balfron Tower which is being refurbished by a private developer for sale as individual apartments to private buyers. The money from the sale of the block will be going into Poplar’s next range of developments for rent. (Next week, if the editor permits, we will look at another and more complex embryonic scheme in London’s East End which encapsulates the difficulties in providing housing to poorer tenants.) So the housing associations are already moving to recycle, looking closely at where private values may exceed social housing use. This is commercially sound practice but raises the question of what housing associations are actually for. The answer to that, of course, is to provide good quality housing for the less advantaged in society, including in areas where it is not otherwise viable to do so. That mission may be getting a bit lost in an urge to be commercial.
So that pre-election promise may turn out to be a sensible move and a popular one, but it seems unlikely that it can be delivered successfully without some thoughtful consideration of the other constraints on increasing the housing stock. Core to that might be defining the roles of the housing associations more tightly, and lurking behind that is how to operate the planning system so that “unproductive” land can be put to low-cost housing use without realising large profits in the private sector. There are a few more troubled dreams for several cabinet ministers before those squares are circled.
