Voluntary service

Originally posted on December 15 on Inside Edge 2, my blog for Inside Housing

Tuesday morning’s announcement by Brandon Lewis on deregulation of housing associations delivers on the government’s side of The Deal and its pledge to get them reclassified as soon as possible,

However, it also completes the division of what we used to call the housing ‘sector’ into two very different camps: councils forced to do what the government says; and associations giving a new meaning to the ‘voluntary’ sector.

The housing minister told the Communities and Local Government Committee that amendments will be laid to the Housing and Planning Bill aimed at enabling the ONS to re-reclassify housing associations as private sector while maintaining proportionate protection for lenders and tenants.

The biggest move was to make Pay to Stay voluntary for housing associations, which is quite a climbdown. However, the amendments will also include removal of the consents and disposals regimes so that associations no longer have to seek permission of the regulator and the abolition of the disposals proceeds fund so that they no longer have to spend receipts from the right to buy according to criteria set by the regulator. More detail is here.

Effectively the government is walking the tightrope between getting what it wants and convincing the ONS that it is not in control of associations.

From what Lewis told the committee, the government expects the majority of associations to operate Pay to Stay even though it’s voluntary. He added that: ‘As far as possible we will encourage parity between housing associations and local authorities to ensure fairness for tenants, but as I say, it will be voluntary for housing associations.’

What’s not clear is how it can enforce or ‘encourage’ this (presumably the thumbscrews will be applied in private and indirectly). As with The Deal, perhaps the implied threat to channel investment elsewhere and find new ‘partners’ will be enough to make associations fall into line? But what happens if an individual association simply refuses to implement the Right to Buy and Pay to Stay?

Lewis said associations would still be forced to cut their rents by 1%. This is a DWP policy introduced in different legislation (the Welfare Reform and Work Bill) and he implied that provisions for exemptions for associations in difficulties would be enough to get around classification problems. Control of rents and housing benefit could therefore be another means of encouragement

Detailed analysis of the package will only be possible once the amendments are published (and will require more expertise than mine). However, two things struck me straight away.

First, this is another extraordinary example of last-minute law-making. These are fundamental changes yet they are only being proposed after the committee stage that is meant to provide detailed scrutiny of the Bill has already finished. It’s almost enough to make the abolition of security of tenure for new council tenants feel measured and consultative because it was proposed on the final day of the committee stage.

Second, this turns the already big divide between housing associations and councils into a gaping chasm.

Keeping the existing divide is of course the whole point of getting the ONS to change its mind. Until reclassification housing association borrowing and spending was classified as private sector while council housing borrowing was public sector and strictly controlled. This was the main reason for stock transfer and for channelling investment through associations.

But if you combine all the changes in the Housing Bill the divide is now a chasm. The following will now be compulsory for councils but voluntary for associations:

• The Right to Buy
• Pay to Stay
• Fixed term tenancies for new tenants.

Given that these cover sales, rents and tenancies, those are fundamental differences. Especially when you consider that the government’s argument for extending the right to buy was to ensure that housing association tenants were treated fairly with the same rights as council tenants. ‘Fairness’ now seems to mean higher rents for modest earners and lower security for council tenants.

On top of that councils will pay for association discounts through a levy based on the sale of their high value stock. And while they will have to pay any extra income from Pay to Stay to the Treasury, associations will keep their receipts.

Associations will also get greater freedom over their allocations and thanks to Tuesday’s amendments it will be up to them what kind of stock they build to replace homes lost to the Right to Buy and where they go with mergers and other asset management.

The new regime for housing associations is starting to look more and more like the one adopted in the Netherlands. Let’s hope things turn out better here. It’s quite a responsibility for associations and their boards – but one big lesson from the Dutch debacle is that tenants need more say over what happens to their money.

From a council point of view, a large proportion of associations’ stock used to belong to them and the motivation for transfer was to allow investment in improvements and in new homes while retaining a measure of influence. Even some Conservative councils giving evidence to the committee have expressed outrage at the changes and the Conservative-controlled Local Government Association continues to campaign for more freedoms and flexibilities.

One obvious way out for councils would be to ballot their tenants on stock transfer. The Bill does not prevent this but Clause 63 stops them using transfer to avoid selling their high-value stock.

Another, setting up council-controlled companies that are not subject to the Right to Buy, seems available for now but has to be vulnerable to government intervention.

On one side of the housing chasm, councils seem set to be forced to do the government’s bidding while having their assets cannibalised and asset-stripped. On the other, housing associations emerge blinking into the light of a brave new voluntary future. Exactly how bright and exactly how voluntary remains to be seen.