Juggling without dropping the ball

Posted: May 8, 2024 | Author: julesbirch | Filed under: Council housing, Decarbonisation, Fire safety, Housing associations, Housing finance, Rents, Social housing |Leave a comment

Originally written as a blog for Inside Housing.

How long can you keep juggling before it all goes horribly wrong?

That’s the question for social landlords posed by a new report from the all-party Levelling Up, Housing and Communities Committee on the finances and sustainability of the social housing sector. 

Juggling a couple of balls is simple. Three gets easier with practice. Four needs intense focus. Add more balls and external distractions and you risk dropping the lot.

The issues that need to be juggled are familiar ones: how do you continue to build new homes, decarbonise existing ones, fix fire safety problems and regenerate older stock when there is not enough grant to go around, construction, energy and insurance costs have soared and supposedly long-term rent settlements keep being revisited?

As the report points out, we are already seeing the results. Fiona Fletcher-Smith of L&Q told the committee that under the affordable housing programme that ended in 2021 it built 10,000 new homes in London but ‘this year in this programme we are bidding for 1,000. It is a dramatic drop.’

The MPs say that ‘the social housing sector is, as a whole, financially resilient’, but they point to ‘a very real possibility that individual housing associations may come close to insolvency’, with knock-on effects that would make lenders more cautious about lending to others. 

And they are ‘concerned that the Regulator of Social Housing’s ability to manage the insolvency of a large housing provider is limited’ and that its tools to manage a large insolvency ‘are as yet untried’. 

The Treasury will doubtless seize on evidence presented to the committee that associations are still making ‘significant surpluses’ but the financial demands on them are greater than ever before. 

Government funding for decarbonisation is ‘insufficient’, say the MPs, while ‘the government still refuses to provide the social housing sector with the same fire safety funding as the private sector’. 

Associations are also confronting the costs of upgrading older estates and the committee calls for more flexibility in funding for regeneration. 

However, the report also highlights some of the difficult choices facing the sector and some future policy options that many will find unpalatable.

Some of the recommendations, such as continued support for 90,000 social rent homes a year and an increase in ‘inadequate’ government investment, will be welcome. So too calls for greater use of land value capture and improvements to the Infrastructure Levy. 

Local authorities will like the message that it may be possible to write off some of the additional debt foisted on them when self-financing was introduced in 2012. They will also welcome criticism of constraints on how they can use receipts from Right to Buy sales even if they will look in vain for criticism of the sale terms or of the policy itself. 

Other recommendations look supportive from one perspective but have a tougher message from another: the MPs back a rent settlement linked to inflation for at least five years but also say landlords must take account of the impact on tenants and ‘reflect on the levels of their reserves they may be able to use to hold down rents’.  

And some have a definite sting in the tail. The MPs heard evidence about the risks of an increased role for for-profit RSLs and private equity investment.

However, they seem more impressed by the potential of for-profits to build affordable homes without grant and argue that ‘properly motivated and regulated private investors present a real opportunity to increase the building of social housing’. 

They consider that ‘the government’s current use of grant to fund mainly affordable rent and shared ownership is inefficient when these homes can be finally viable with no direct grant’ 

The government should instead ‘assess the role of appropriate private investment providing affordable rent or other forms of tenure in order to free up grant funding to better support more social housing provision’. 

This is a welcome shift in emphasis on grant after 14 years in which Conservative-led governments have prioritised affordable rent and shared ownership over social rent – and it is hard to ignore new sources of finance.

However, there are also clear risks to this approach. In the wrong hands, this is a call for the most profitable forms of affordable housing development to be privatised.

Not-for-profit landlords, meanwhile, would have no guarantees about future grant levels and would continue to face all the costs associated with their existing stock. Even as reports like this one encouraged governments to look at an increased role for private investment in meeting net zero.

The juggling would continue but the game would have changed.

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