Left Hand-Right Hand

by Ken Gibb

Yesterday it was reported that George Osborne used a House of Lords Economic Affairs Committee to attack the housebuilding record of housing associations and also to threaten a ‘more confrontational relationship’ if they do not do more to cooperate with government over the English RTB extension.

Housing has become that old cliché of party politics, one of many footballs that from time to time the Chancellor thumps up the park in order to secure short run political advantage. Yet the emerging policy just does not add up in terms of meeting wider espoused objectives.

Recent housing interventions from the Treasury include proposals to cut higher rates of  tax relief to buy to let investors (politically popular but likely to reduce investment and indeed holdings in the rental market); the aforementioned extension of the Right to Buy, supposedly offset by councils selling off high value homes to help fund replacement homes (perhaps this is better viewed as a CLG policy); and, of course, there is the small matter of the coming four year rent reduction as a further way to reduce the Housing Benefit bill. Now there is exhortation for more associations to build and to do so in increasing numbers of units.

The rebuttal that followed from the sector stressed that the decision to build or not is essentially a function of size and financial capacity. The many hundreds of very small players generally do not feature as developers in the current or indeed most plausible financial environmental scenarios.  Before the 2008 crisis, the old model relied on sufficient grant and often other support via S106 planning agreements and other pro-cyclical cross subsidy, long term (affordable) borrowing, confidence about Housing Benefit (and confidence regarding business planning around future long term income streams). That world is gone so it us hardly surprising that social building has become more concentrated. The reduction in the number of active developers was probably reinforced by the affordable rent programme.

But can the Chancellor really expect more building when extending the RTB to associations is such a disincentive to build (the lesson learned by the Scottish Government when it chose to abolish the RTB on newer homes specifically to encourage council building). It makes little if any practical sense to tie sales to sitting association tenants to new build via forced sales by councils with high value homes. Why make policy so complex, other than the misguided belief that it will save the exchequer money? We risk net fewer social homes, fewer mixed income communities and higher long term social costs from policy-induced housing system failure. How can the Government know or be confident that there will be enough council homes in the right place available to sell to support this programme and that it makes sense in risk and viability terms for the affected associations to then replace the lost stock?

And that is before we get into the legal questions about the status of the housing association sector. And it is interesting that one of the Chancellor’s Committee quotes belies the sense government has that the sector is their policy creature: ‘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’. Is it an appendage of the public sector or an independent third sector?  Kind of important when we think about the ONS/EU question about whether that balance sheet debt ought to be on the public sector balance sheet or not?

And that takes us on to the rent reduction policy – imposing rent cuts might sound like good politics and be popular with hard-pressed tenants but it hardly helps with house building or investment in the existing stock. The housing movement abounds with stories about associations responding by withdrawing from social housing development, planning job cuts and retrenchment. A friend of mine often uses the contraction ‘left hand, right hand’ to summarise where policy on the one hand runs counter to other contradictory policies at one and the same time i.e. the left hand does not know what the right hand is doing. So it is with the treatment of English housing associations.  And it raises further questions about the reclassification of the sector.

Maybe the Treasury will take reclassification on the chin and then use some form of the ‘Post Office’ public expenditure definitional gambit to try to massage the figures?