Is stock transfer dead?

When South Cambridgeshire Council balloted its 7,000 tenants in June over the transfer of their homes to a housing association, it knew change was afoot in Whitehall.

The landmark consultation proposing that councils could leave the housing revenue account system and finance their own housing had not yet been launched, but South Cambridgeshire was aware the government was considering the idea.

‘It was our last opportunity to give tenants the choice of a housing association landlord,’ says Stephen Hills, corporate manager for affordable homes at the council.

In the past, the council, which was hung for many years, had been unable to reach a political consensus on whether to transfer, but it cannot maintain its homes to their current standards without additional funding.

Tenants voted against the sale of their 5,800 homes to a new association. There was an active anti-transfer campaign by some tenants before the ballot. ‘They made the point that the government is reviewing [council housing finance] so now is not the time [to transfer],’ says Mr Hills.

Since its introduction by Margaret Thatcher’s Conservative government in 1988, 1.19 million homes have been transferred from councils to housing associations with £14.2bn of private finance invested. But could council housing finance reform mean the death of stock transfer?

Money matters

There are certainly those who believe the HRA consultation, which ends on 27 October, will trigger a bout of suspended animation.

‘I think there will be a period of hiatus because, even if you believe it is worth doing, you might be cautious until you know the outcome [of the consultation],’ predicts Professor Hal Pawson of Heriot-Watt University.

In other words, the relative merits of self-financing and transfer for councils will depend on how the government decides to redistribute £18 billion of debt currently in the HRA system.

There are some groups of councils which may not be able to carry out transfers once they are self-financing, depending on the outcome of the consultation. Stock transfer could become ‘financially unviable’ for some councils if they are asked to take on very high levels of debt, says Steve Partridge, financial policy director at the Chartered Institute of Housing.

Crucially, the consultation paper also says future transfers would not get a better deal than the councils would receive if they retained ownership of their homes. This seems to rule out the practice of writing off the debt of local authorities which choose to transfer.

Councils with a backlog of repairs - the total is estimated at more than £6 billion by the Building Research Establishment - also need to wait to see what, if any, assistance the government might provide for this after they become self-financing.

Tenants may also reject transfer because they feel self-financing would allow their council to keep its stock and meet the decent homes standard.

‘For most tenants, waiting six months for a new kitchen but keeping their secure tenancy is a deal I suspect they would grab with both hands,’ says Eileen Short, chair of campaign group Defend Council Housing.

Councils will need to manage the tricky task of communicating the pros and cons of transfer and self-financing - and highlight that finance reform is far from a done deal - if tenants are to make a fully informed choice.

But there are also reasons why transfer might now look more attractive than it once did to some authorities.

Debt-free authorities might well be better off if they can sell homes before the HRA debt is redistributed among all stock-holding councils. That way they can get money from the sale and do not have to take on part of the collective HRA debt, points out Professor Steve Wilcox of York University.

Even if a council can retain its stock and meet the decent homes standard, tenants may want more, and transfer can be a way to fund this. ‘Tenants don’t want 30-year-old kitchens; they want something better and decency does not provide that,’ says Nigel Tooby, director at consultancy Sector Weedon Grant.

The HRA consultation says the government would still fund the rebuilding of estates in the same way as it funds new build. This means that transfer of estates for redevelopment could still go ahead.

‘We are seeing more interest in partial transfers where councils have major estates,’ says David Hall, executive director of consultancy Tribal. But even without extra funding, some councils, especially small ones, may be able to transfer their homes to financially strong housing associations rather than setting up a new organisation. ‘They’d get economies of scale and it would enable them to invest more in their stock,’ says Mr Hall.

There is also interest from councils in tenant-led stock options, whereby tenant groups hire advisors and come up with preferred options for their estates rather than comment on an option produced by the local authority, he adds. ‘There are some authorities where groups of tenants are doing stock options on partial transfer so there could be a few of those.’

Taking action

Meanwhile, a group of four of the longest established arm’s-length management organisations - Stockton, Oldham, Warrington and Bolton - have been given the go ahead to move forward with the transfer of the 49,000 homes they manage to housing associations.
The ALMOs can’t afford to maintain the decent homes standard after 2010 and transfer could be a solution. Their regional government offices have signed off their options appraisals and the HRA paper says they could get financial support provided it was a ‘demonstrably good deal’ for the government.

A number of other councils, including Wycombe in Buckinghamshire, are seriously considering it. Wycombe is carrying out a consultation on what to do with its 6,200 homes, and has penciled in a ballot for October 2010.

It is one of several authorities which will find its HRA in the red in 2011 - which is illegal - unless it takes action.
Martyn Hale, head of homes and housing at the council, thinks legislation to allow councils to become self-financing is unlikely to be in place before Wycombe’s HRA reaches its high noon. ‘There are a lot of unanswered questions about what [self-financing] would mean or when it would be introduced,’ he says.

A growing number of other authorities have also commissioned new options appraisals, either because transfer looks more attractive to them now or because they feel previous appraisals were based on too low a standard for decent homes. The stumbling block for them and others is: will the government allow further transfers? Allowing the councils with little debt to transfer before wholesale reform would make redistribution of debt among the remaining, more heavily indebted, councils far more difficult. However, Professor Wilcox says that rather than prevent further transfers, the government should reintroduce the levy system under which councils without debt pay a sum to the government on transfer.

But there is another big change on the horizon which could seriously affect stock transfer’s health - the general election, expected to take place in May next year.

Party politics

The Conservative Party stands a far better chance of winning power than it has for many years. It has not yet come out with a formal position on transfer, but privately the party seems less enthusiastic than it once was about the policy.

It is understood the Tories want to examine how housing associations have been hit by the credit crunch. There is also an argument that localism - one of the party’s key policies - is most easily pursued when local services like housing are council-controlled. Shadow housing minister Grant Shapps supports axing the HRA system, but has not said how his party would do this. Many debt-free councils are Conservative-run, and it seems unlikely that a Tory government would want to anger them by weighing them down with large amounts of debt.

Nor has the party said where it stands on writing off debt.
All of this creates a policy minefield that the Conservatives will have to negotiate before settling on a position on transfer and the HRA.
Now that the HRA consultation is out, albeit without detailed numbers on debt redistribution, South Cambridgeshire officers fear the authority will end up saddled with a large slice of other councils’ debt.

Mr Hills estimates this could total around £160 million - far more than the £50 million it was going to borrow for transfer. Uplifts in major repairs and management and maintenance allowances will not plug shortfalls in budgets that have previously been supplemented by right to buy receipts, which are now spent.

As a result, South Cambridgeshire Council is now considering how to balance the books within its reduced means. Job cuts, increases in service charges and reductions in services and capital spending are all being discussed as ways to fill the gap.
‘Throughout the transfer process we said “if you vote to stay with the council there will be service reductions”,’ says Mr Hills. ‘There will definitely be an impact and people will feel it.’

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