Another bad idea from Policy Exchange

PE freeing housing associations

Policy Exchange won’t be expecting a good reception from Red Brick for their latest housing proposals. Our opposition hasn’t stopped the coalition from adopting some of their past ideas, but their latest one is bad even by PEx’s standards.

It’s not surprising that Freeing Housing Associations has had a drumming, not least from Tony Stacey (presumably one of the housing association leaders they hoped to convince). It’s already been expertly dissected by Colin Wiles and Jules Birch, so Red Brick can step back from the detail and take a broader view.

The report’s starting point is the current development regime, in which new homes must be let at near-market rents and chunks of existing stock must also be let at higher rents. The report ignores the resultant decline in the social rented stock, exacerbated by rising right to buy sales, which has been highlighted in Red Brick and elsewhere. Some of the big housing associations – not, to their credit, all of them – have also been oblivious to these effects and are still willing to build houses on the government’s terms. And, surprise, surprise, they are the ones who also (perhaps behind the scenes) support Policy Exchange and its ideas. Key for them is a future in which they’ll have freedom to set their own rents and allocate their own properties. Given their powerful financial positions, they’ll happily pay the price of getting less new grant and having to buy out their old grant. As they see it, they’ll finally get the chance to break away from an irksome regulatory regime and cater for more profitable parts of the housing market.

Almost coinciding with the PEx report came one from JRF on what the housing market will look like in 2040. It asks who will house the poor, especially as absolute poverty has, since 2010, been rising for the first time. It points out that, if social rents were to rise to 65% of market levels, the housing benefit bill would increase by 125% and 1.5 million more people would be poor. JRF and NHF are producing a report in the New Year aimed at developing a genuinely affordable rent linked to earnings for those on low pay. They are calling this a Living Rent, and it will include costed proposals for how such rents would work. It will represent the polar opposite of the Policy Exchange proposals.

Freeing Housing Associations doesn’t address this crucial issue. Neither did the NHF’s response to the report, which insisted that associations ‘must’ be able to set their own rents and decide who to let their homes to. While David Orr welcomed ‘this critical debate’, his own stance was very clear. Tony Stacey and Placeshapers are quite right to point out that, in this respect at least, he doesn’t speak for all housing associations: but it’s pretty obvious he thinks he’s speaking for some of the big ones.

These associations think of themselves as dynamic businesses which can only prosper if they have more ‘freedom’. Yet for several years they’ve enjoyed a benign environment of guaranteed above-inflation rent rises, underpinned by HB paid directly to them, combined with low interest rates. How many businesses have that kind of certainty? Yet their surpluses don’t represent the sort of returns that major equity holders in a company would expect. Since the scrapping of the TSA they’ve also enjoyed light-touch regulation yet PEx claims they suffer from a ‘byzantine system of regulatory rules and financial constraints’.

To be fair to Policy Exchange’s supporters, we must admit that this debate was sidelined by the recent Lyons report, when it should have been central to it. Building 200,000 new homes per year is vital but equally important is ensuring that a high proportion of them are let at rents that can be paid by families on low to middle incomes. While Lyons called for 50,000 new homes from social landlords, he was much less clear on the implications for rents. Indeed, chapter 9 of his report hosts a mini-debate which anticipates some of the key PEx proposals. Arguments for flexibility over both rents and allocations are put forward and are contested, but Lyons ends up recommending ‘discussions’ with the sector over a new rent regime. It’s true the report then points to the disadvantages of high rents and the arguments for shifting spending ‘from benefits to bricks’. But it was the former, not the latter, that was turned into one of its recommendations.

My only disagreement with Tony Stacey and Placeshapers’ views of the report is therefore that they are too polite, ‘welcoming’ the debate that the report has provoked. The housing lobby might have its debate, but the conclusions will matter little to ministers. It’s more relevant to see the PEx ideas as part of a softening up process for fundamental changes to the housing association sector of which the NHF ought to be very wary. While we know the Lyons Review wasn’t part of this process, its equivocation inadvertently left openings that would have been better firmly closed, rather than giving further encouragement to the ‘debate’.

Why is this all so dangerous? As we’ve seen, the housing minister has already turned the unpopularity of the 2015 Affordable Homes Programme into a presumed acceptance by associations that they don’t need grant. And now the sector itself helps a right-wing lobby group make the case, in what might appear to be convincing detail. Let no one be mistaken, if we have a conservative government in six months time a ‘no grant/high rent’ regime for housing associations is firmly on the cards. Protests about the increasing housing benefit bill will fall on deaf ears, because most of the expenditure falls under the new welfare spending cap. In other words, rents will go up, but state helps towards paying them won’t.

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One Response to Another bad idea from Policy Exchange

  1. runner500 says:

    Well put, the final paragraph is the key.

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