Between the lines

Originally posted on September 9 on Inside Edge 2, my blog for Inside Housing 

Another week, another George Osborne attack on housing associations – but this one comes at a crucial time.

The chancellor’s comments yesterday at the House of Lords economic affairs committee are not the shock they would have been three months ago. In the wake of his hostile joint article with David Cameron and the decisions taken in the Budget and a summer of hostile media coverage including THAT Channel 4 News report, they may be seen as par for the course.

But nobody will need reminding of what is at stake. Ahead of publication of the Housing Bill next month, discussions continue with the National Housing Federation over implementation of the extension of the right to buy. Ahead of the spending review in November, we already know the government will look to ‘refocus’ the housing budget on home ownership and who knows if there will even be a housing budget after 2018.

So the nuances of what he said yesterday matter. And it’s probably no coincidence that he made them where he did: the revolt in the Lords over charitable associations remains the biggest obstacle to extending the right to buy. You can watch here from just after 16:02 for the section on housing but here are some extracts that give some interesting indications of his thinking.

Baroness Blackstone, a Labour peer who declared an interest as chair of Orbit, tackled him on the right to buy and depletion of the housing stock. Osborne replied:

‘We are building social housing and there is a big programme underway on that front. But I fundamentally believe in our society we should give tenants of housing associations just as we gave tenants of council properties the right to buy their homes. All the arguments on this were made in the 1980s. There are no new arguments on this…We couldn’t have been clearer in our manifesto. There was a clear win for the party that proposed it. So I hope we can now work with the housing association sector to implement the manifesto commitment.’

I take that as a message not just to housing associations to stop complaining but to members of the House of Lords to stop interfering, given the convention that they do not vote against legislation that was in the government’s manifesto.

Blackstone said there had been criticism, including from Conservative commentators, that the government was addressing demand and not supply. Osborne replied:

‘We now have a social housing programme [sic] that is considerably larger than the previous Labour government’s. And you also have a private sector where demand is really picking up. When it comes to the housing associations you know we are going to publish the legislation and we are talking to the representative body of the sector. We want to make sure that the homes are replaced one for one with affordable housing and we have ideas about how that can be financed. At the heart of it is a judgment: is it right for someone who’s in a housing association property not to have the right to buy when someone who’s in a council property does? I think that’s essentially a public policy anomaly and we’re correcting it by giving people the right to buy.’

Blackstone pressed him on the mechanism for one for one replacement. He replied:

‘The detail is all coming when we publish the legislation and we are at the moment involved in discussions with the sector about that. But essentially the components are the receipt for the property that’s sold and a compulsion on councils to sell higher value properties and use some of the money that releases because obviously quite a lot of the public sector housing stock in the country is very expensive and you could sell some of that housing stock and generate more money in the area.’

The lack of any reference to replacing the higher value council properties sold off may – or may not – be significant but from what Osborne says it does not seem to be part of the discussions.

Crossbench peer Lord Kerr raised the private sector status of housing associations. ‘We the government will be compulsorily requiring these private sector organisations to suffer an economic detriment to the advantage of the tenant who has the right to buy. If I lived in a rented house rented from another private citizen a Conservative government would strongly resist the idea that I should have a right to buy my house from my landlords.’

Here’s what Osborne had to say:

‘First of all we do of course give a number of rights to people who rent properties off private landlords, not the right to buy, but there were over many decades all sorts of restrictions on the rent you can charge and how you do rent reviews and the fees you can charge and so on. So we already intervene in this space.’

Osborne almost gives the impression here that he thinks there is still rent control in the private sector and that the government has done more than the bare minimum to control outrageous fees charged by letting agents. These rights will come as something of a surprise to private tenants. But he was just warming up for his main point:

‘Housing associations receive very large sums of public money so they are not simply like a private citizen. They are classified as private sector and it’s one of the issues that the Office for National Statistics is looking at and were looking at long before the Conservative manifesto. I think we have to ask ourselves: is the housing association sector doing what it was originally designed to do when it was created in its current form in the 1990s? Then it was seen as a vehicle for building homes but the last data I saw said four out of five built no properties last year. I wouldn’t say they are proving a dynamic source of new housing in our country at the moment.’

It’s interesting that he seems relaxed, indeed almost fatalistic, about the potential reclassification of housing association debt as public sector – and there is more on that to come. But he’s also engaged in some careful rewriting of history too. True, associations did get the lead role and the cash to build new social housing after 1988 – but many of the newly created associations were stock transfers with pledges to improve the existing stock and no role in new development.

Blackstone came back to argue that most of those who are not building are small and that the chancellor’s Budget changes will hit the development capacity of the large associations who are. Osborne replied:

‘First of all the income of housing associations over the last six years has gone up pretty substantially, much more than most private enterprise or public sector bodies. They’ve had substantial increases. I will send to the committee our understanding of how many large housing associations build properties but it’s not particularly impressive in my view. There hasn’t been much pressure on the sector to be particularly efficient in recent years even though that pressure has been brought to bear on many public bodies, government departments and private companies.’

That sounds to me like a pretty clear signal of more changes to come in the spending review to follow the squeeze on rents in the Budget. But then came what you could see as an ‘offer you can’t refuse’ moment – or perhaps as a signal that there may be carrots as well as sticks to associations that cooperate on the right to buy:

‘Frankly I think the housing association sector has a simple choice. It was in our manifesto, the government got elected with a clear majority, and they can either work with us to make this done in a way that while I understand you have reservations the government has a mandate to deliver or it can be a confrontational relationship. But that’s not one we seek.’

Finally, Conservative peer Lord Forsyth asked him about debt reclassification and the OBR’s warning that instructing housing associations could lead to unintended consequences. For an ‘austerity’ chancellor facing the prospect that almost £60 billion could be added to the public debt he is dedicated to cutting (even as it increases year by year) he sounds remarkably relaxed about this prospect. His comments are almost enough to make you think that the Treasury has already accepted it will happen:

‘There are always classification discussions going on. We had Network Rail reclassified a couple of years ago. The questions about the housing associations were being raised long before the Conservative proposal was talked about which points to some of the ambiguity of their exact nature. But I’ll leave that for ONS to work on.’

Watch this space.