Chris Walker: How to free housing associations to build more homes

November 12, 2014

Today is Housing Day, and Policy Exchange has published its latest report, Freeing Housing Associations: better financing, more homes. The report outlines a new vision for the delivery of 100,000 affordable and market homes a year through a new category of grant-free housing associations.

Just 47,000 affordable homes are currently being built each year. While this might be enough in the context of meeting the future growth in households most in need, there are already 1.7 million households on local authority waiting lists.

The tragedy is that, within the housing association sector, there is certainly sufficient financial capacity to build many more affordable homes and homes for market sale. Indeed, the sector as a whole could deliver as many as 100,000 new homes each year. But that capacity is being curtailed by a byzantine system of regulatory rules and financial constraints, as well as high levels of risk-aversion.

Many housing associations want to build more affordable homes than they are currently building, and see this as an integral part of their charitable mission.  They currently have £45.4 billion of historical housing grant vested in them – capital grant provided over the years to build subsidised housing for cheap social (or affordable) rents. They have housing assets which, at open market value, are worth around £300 billion. Unfortunately, for many housing associations, the historical capital grant money has become more of a hindrance than a help, preventing them from utilising their housing assets more fully.

There are two villains of the piece. The first is the regulatory requirement that exists for the legitimate reason of protecting public assets – namely the £45.4 billion of historical housing grant money. As a result, housing associations must gain consent from the regulator in order to be able sell their social homes, which can prevent them from managing their assets.

The second villain is that local authorities have the right to nominate households on their waiting lists to housing association homes. As a result, housing associations often have no choice as to who their new tenants are, and get stuck with the most anti-social. Such nomination rights also prevent housing associations from asset-managing cross local authority boundaries: they will often be prevented from selling a social home in one local authority, in order to build a new home in a different local authority.

The report proposes that housing associations be allowed to buy out their historical government grant (at a discounted rate), which binds them to these rules. In return, these new “Free Housing Associations” would then have the freedom to:

  • Sell expensive social homes in order to build a greater number of new affordable homes without having to get permission from the Homes and Communities Agency.
  • Choose their own social tenants and, related to this, set their own rent policy. Instead of having a number of different rents for similar properties inhabited by similar households, as dictated by government, grant-free associations could set a single rationalised rent or cheaper rents to reward good tenant behaviour.

Unfortunately, only around a dozen housing associations (out of a sector of 1,500, including 71 very large organisations) are currently engaged in any meaningful market housing delivery. It could be many more. The report argues that housing associations could build nearly 25,000 homes for market sale, without being overly exposed to market risk, creating substantial profits to plough back into building affordable homes and making a vital contribution to market supply.

It is worth pointing out, too, that local authority waiting lists increased from a million to 1.7 million between 2000 and 2010. This is not because affordable housing supply fell, but because affordability in the housing market got so much worse with soaring housing prices – again symptomatic of a lack of market supply. Currently, one in six existing homes in England are affordable (or social), so building 60,000 affordable homes a year, as the report proposes, would more than maintain that one in six. Beyond this, the focus should be on more market homes.

The report proposes a couple of relatively straightforward ways to support housing associations to build more market homes:

  • Extend the Help to Buy scheme for new homes beyond 2020 for housing associations.
  • Count and value housing association market homes within bids for capital grant funding (or, as the report proposes, government equity funding) for new affordable homes.

Fundamentally, Policy Exchange’s report is about enabling housing associations to build the greater number of homes that they want to, which lies at the heart of their charitable mission.

This blog originally appeared on ConservativeHome

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