Should I stay or should I go?

In all walks of life there are successful and unsuccessful firms. A few years ago Marks & Spencer and Sainsbury’s went through a bad patch and customers began to buy clothes and food elsewhere. General Motors is no longer the world’s biggest car manufacturer, and now Toyota is stumbling too, thanks to its recent recall crisis.

If they are unhappy with products or services, customers of these companies can simply choose to change to another brand. Not so with public services. If the National Health Service is poor, it is expensive to get healthcare in any other way. So too with education, and it is impossible with the police. But at least we can vote for someone else to run them. Democratic accountability is not perfect, but it is a mechanism of sorts to keep providers in check.

Lack of choice

So what about social housing? In the old days of council housing, tenants could vote for a different party to run the council if the council messed up. In reality many areas were ‘one-party states’, so the option was always more theoretical than real. But it was there. More recently if tenants thought the council was not doing a good job of running housing, they could campaign for a ballot with the aim of transferring to a housing association.

But, once tenants transfer to a housing association, they are stuck.

If roads are not swept properly, the council can sack the supplier. But the council cannot sack a housing association because it doesn’t just manage the housing - it owns it. Unless tenants give up their secure tenancy, or are lucky enough to be able to move, they are stuck with their housing association.

Don’t get me wrong, many associations do a good job. But realistically, with housing associations controlling millions of homes across Britain they are not all going to be well-managed all of the time. They are run by human beings, after all. Sooner or later we are going to come across a housing association which offers really poor service.

Perhaps it will have made some bad decisions at the top of the market and got into financial trouble. Or the need to build up reserves means that repairs are not being done quickly and improvements are not happening at the rate that tenants expected. Or perhaps the people at the top just aren’t any good at management, the staff poorly led and poorly motivated.

When this happens to a company like a supermarket or a garage, its customers go elsewhere. This move isn’t costless for the consumer, particularly if they have to walk past supermarket A to get to supermarket B, but they can do it. And this, in turn, gives the supermarket the best evidence possible that something has begun to go wrong.

Housing association tenants can’t switch, and that is bad in itself - since it means that people are trapped - but it also means that associations don’t get the market-share warnings that normal companies get when they do something wrong.

Preventative measures

There are four options. First, we can put our heads in the sand and say that housing associations are never going to be badly run and that tenants will never suffer like this. That seems implausible to me - I cannot imagine any sector this large in which every single provider is well-run in perpetuity.

Second, we can go for the centralising control method - once dubbed ‘targets and terror’. This model, most closely associated with Alan Milburn’s time as health minister during the early years of the Labour government, consists of the government setting detailed targets and then terrorising managers who fall below the standards. Mr Milburn was said to receive weekly reports and to ring up NHS bosses who were in the bottom 10 per cent each week to ask what they were doing to change. There is good evidence that this worked at some level - waiting lists did fall particularly quickly in this era - but I think we would want to question whether in an area such as housing, weekly targets about the things that matter most are possible, let alone desirable.

The third model is to give tenants more choice. Many housing association tenants were balloted about a move from being council tenants to housing association tenants. We should give serious thought to allowing housing association tenants the right to vote to move back, or to move to a different housing association.

There are serious issues here: ballots are not cheap and uncertainty is costly. There would need to be conditions that had to be satisfied before a ballot would be called. These conditions could either be external - poor evaluations - or they could be tenant-led, with a certain number of signatures triggering a ballot. Once that happened, another body would have to be found that was willing to take over. The local council might say that it simply did not have the expertise, and could not do it. At that point a ballot would be about transferring from ‘Housing Association A’ to ‘Housing Association B’.

The fourth option has been proposed for banks in the post-crisis world: so-called ‘living wills’, setting out how depositors and taxpayers will be protected. If the bank gets into trouble, the living will is activated. We could do the same for housing associations: they could, for example, be required to put in place measures (including having themselves taken over) if their service standards slip below a threshold.

Any solution is better than none, but the best solutions mean that senior management and all staff have good incentives to prevent problems getting serious in the first place, and to limit the duration of serious problems when they do occur.

Dr Tim Leunig is an academic in the department of economic history at the London School of Economics

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