The Social Housing Green Paper: The beginning not the end

Great expectations were placed on the Social Housing Green paper (A new deal for social housing). Whilst there have been some welcome developments it barely gets to grips with the main focus on regulation and governance. To have a debate, it needs to be structured.

Some welcome developments

Kicking mandatory fixed term tenancies into the long grass may provide to be the most significant announcement, marking, as it does, the abandonment of another of the mean-spirited proposals in the 2016 Housing and Planning Act.

Rammed through Parliament then. Meekly abandoned now.

The shift towards a US-style “ambulance service” model of social housing, whereby its role is to provide temporary support to the acutely needy until they either get back on their feet or completely fail, has been halted – for now, at least.

A step change in new supply, coupled with the abandonment (or severe curtailment) of Right to Buy, would have allowed the sector to grow again, and move towards the safety net role that it played until acute shortages made that impossible, pushing thousands into temporary accommodation and many more into insecure private tenancies.

But there is no sign in the paper of that happening. “Strategic partnerships” with housing associations and tweaking local authority borrowing caps are unlikely to achieve anything much anytime soon. In Scotland, increasing grant funding is supporting a social housebuilding programme which, per head of population, is close to the levels of social housing output needed in England. Why so difficult? Granted, land is more expensive in high demand areas of England, but so too are the opportunities for land value capture.

Regulation and governance

Professor Mark Stephens

The main thrust of the paper is, however, the regulation and governance of the social housing sector.

It is here where the absence of any sense of what the key issues in the governance of social rented sector actually are.

Thirty years ago, the Government embarked on the journey whereby housing associations were chosen as the main providers of new social rented housing. Capital grant funding was directed to them. Stock transfers from local authorities to housing associations also began in the 1980s, but were stepped up under New Labour, with the result that the 60% of social housing is now in the housing association sector.

One of key the drivers of change was the view that local authorities were too big and bureaucratic to be sufficiently responsive to tenants’ needs. Housing associations were seen as being smaller, less bureaucratic and innovative.

This is what Secretary of State Nicholas Ridley told the House of Commons during the passage of the Housing Bill in 1987 that set the ball rolling:

“After the second world war, public sector house building increased dramatically: by 1979, local authorities, together with the new towns, owned and managed some 5·5 million homes.

“To manage that number of houses is a massive undertaking, and that is precisely what went wrong. Local authorities have found themselves landlords of vast numbers of houses, flats and maisonettes—about 50,000 is not an uncommon number in the larger metropolitan authorities. As a result, councils have faced an enormous administrative and management task. Almost inevitably, it has led to insensitive allocation procedures and to queuing, which make tenants feel like supplicants. Often cumbersome, remote and inflexible arrangements for the management and maintenance of properties have grown up.”

Now the housing association sector in England owns and manages around 3 million houses. The Notting Hill/Genesis merger in April created an organisation managing 119,000 units of housing.

So, if it was precisely wrong to have local authorities managing 50,000 units of housing then, why is it OK to have housing associations managing more than 100,000 units now?

“Building more homes” is the mantra, and it’s true that there are economies of scale when it comes to attracting finance from the markets. But concentration means that financial risks are more likely to become systemic (or sector-wide). Remember Vestia, the 90,000 unit Dutch housing association that went bust when it lost €2 billion interest rate swap markets? Or Neue Heimat in Germany, which collapsed in the 1980s leading the government to turn against the sector as a whole? (At one point its remaining 250,000 units “were sold for a token price of one Deutschmark (40p) to a master baker in Berlin by the name of Schiesser”. This rescue deal collapsed.)

Now is the time to stop and to ask: when does increasing access to private finance become outweighed by the risk?

It’s not even obvious that we get “more homes”. Housing associations completed 24,000 units in England in 2016yet managed 30,900 in 1995. Yes, they are doing it now with much less up-front subsidy, but the sector is more mature and interests rates are also much lower now. And it’s a financial model that puts landlords in direct opposition to their tenants – a system that became dependent on guaranteed above inflation rent rises to increase tenanted market value against which to borrow to build. Even then, the system is effectively underwritten by Housing Benefit to pay for the rents the tenants can’t afford. Back in 1988 when the system of private finance for housing associations was introduced, Secretary of State Nicholas Ridley said when presenting the Bill:

“….associations should be able to set rents that could reasonably be met by housing association tenants in work.”

It’s time to think about this most fundamental aspect to affordability. Some 1.8 million housing association tenancies are dependent on Housing Benefit of about £95 a week. Rents that are not affordable to many people in work is now a fundamental part of the social housing financial model, exacerbated by the shift towards the “affordable rent” model. When George Osborne threw the guaranteed rent rise policy into reverse, and the housing associations issued a collective cry of outrage, it should have become obvious to all concerned that, regardless of which side of ONS’ public/private sector line they fall, the housing associations are effectively private corporations dependent on the state.

As for tenant empowerment, it’s difficult to imagine an outcome more different from that promised in 1988, when switching from local authorities to housing associations which was meant to enable tenants, in the words Nicholas Ridley, to “vote with their feet”.

And now hopes of tenants exercising some market-like choices give way to:

“Our preferred approach is to increase transparency for residents over the performance of landlords, including through key performance indicators and league tables.”

KPIs are bread and butter to big corporations, their favoured management method. They are unlikely toworry the sector giants one little bit. KPIs and league tables also risk creating (or exacerbating) a cynical culture of gaming and undermining the values of public service, professionalism and collegiality; those intangible organisational attributes that are hard to build, but easy to lose. We should be alert to Goodhart’s law: “When a measure becomes a target, it ceases to be a good measure.”

The Green Paper suggests that leverage (beyond naming and shaming implied by league tables) can be obtained by linking performance with access to subsidies for development. Which is, to put it mildly, a rather indirect method of redress for existing tenants.

Every organisation in every sector, faces dilemmas about performance management, perhaps most acutely in the public and de facto public sectors where market-like mechanisms cannot work. Social housing is allocated administratively at below market rents: the lack of market-like mechanisms is inherent to the model, especially given the way social security and housing support works in the UK. When price signals are sent to tenants, for example through the bedroom tax, most of them find that they cannot exercise the market-like response, in this case to trade down because there are insufficient numbers of smaller social dwellings.

The other side of the coin is that local authority housing still accounts for 40 per cent of the social stock in England, and the Government now appears to be less hostile to it. How well does that model work? Government can borrow more cheaply than anyone. The Treasury accounting rules on borrowing are as absurd as they are long lasting: when housing association debt was transferred to the public sector, the Treasury described it as being “a statistical reclassification which does not affect the underlying performance of the economy.” And at least council tenants can go to their local councillors either on individual matters or those relating to policy. In the 1980s, there were experiments in local authorities such as Islington and Walsall to make housing management more efficient, more responsive and more accountable.

Finally, but also fundamentally, we also need to disentangle the position of tenants within a system that serves the public as a whole. It is clear that the Government recognises tenants as “consumers” who ought to receive a decent service. The discussion is mostly about what mechanisms can best achieve this outcome. But how far into strategic or operational policy should that extend? In Sweden, the Tenants’ Union is enormously powerful and successfully fends off rent pooling, with the result that established tenants can enjoy the benefits of past subsidy, whilst inhibiting new build in a country where the housing system is under acute pressure. So presumably, not that far.

The greatest disappointment of the Green Paper, given its focus on governance, is its failure to structure the terms of debate.