Posted by: Jules Birch15/09/2010
I thought I was being gloomy until I read Andrew Heywood’s analysis of the prospects for affordable housing for the Smith Institute.
It’s not just the inevitable cuts in investment in 35 days time that concern the former deputy head of policy at the Council of Mortgage Lenders (CML). It’s also the indirect effects of cuts in housing benefit and changes to regulation. And the fact that the development model based on cross-subsidy is still broken, shows few signs of being fixed and could be put under even more pressure by a housing market downturn.
The report comes to many of the same conclusions on alternative approaches as London & Quadrant and PricewaterhouseCoopers earlier this week and conference presentations over the last few months, which is hardly surprising since it’s based on conversations with all the leading players across the sector. But it doesn’t pretend that any of them will be easy options.
Heywood warns that without an alternative strategy the inevitable consequence of the cuts will be an accelerated downturn in affordable housing development and increased risks for housing associations that ‘stay in the game’.
And he’s especially concerned about housing benefit reform plans that threaten ‘an essential and pre-eminent element in underpinning lender and investor involvement in the sector’ and could increase lending rates and reduce lenders’ willingness to support the ‘present leverage levels’ of developing associations.
The prospect, he says, are grim, with a real threat that lenders will lose their appetite to lend and associations will abandon development in favour of concentrating on being a landlord to their existing tenants.
The alternatives he maps out will all be familiar from previous reports - especially the central idea of a new deal between associations and the government - but he’s careful to lay out the downsides of each of them as well as the upsides.
Market renting might be an attractive new market for associations and boost the supply of homes but it would also damage work incentives and attempts to build mixed communities and cost working tenants more - and it might not be viable in all housing market areas.
Intermediate renting would mitigate some of those problems but substantial subsidy is still required unless there is an assumption that the tenant will buy within a certain period. For many associations it would be hard to justify as part of a planned strategy, he says.
Reform of housing benefit has to recognise the key role that it plays in attracting private investment and underpinning association income streams as well as the government’s desire to promote personal responsibility and work incentives.
There is scope for efficiency savings by associations but that has to be seen in the context of cuts in grant that could run into billions over the next spending review period and ‘the impact of cuts in housing benefit or loss of confidence by lenders in regulation could be at least as great’.
Local authorities could make a greater contribution if the government built on the work of its Labour predecessor and especially if it listened to arguments about changing the public borrowing rules. But would the markets take that as a sign of the financial weakness that the cuts are all about avoiding?
Heywood seems to see increased rents for existing tenants as an opportunity. He argues that they could boost the overall financial capacity of the sector and reduce the grant needed for future development by more than it costs in increased in housing benefit.
But he warns that the idea is not a panacea. In areas where private rents are low it won’t work. It will make getting off benefit and into work more difficult and cost poor working tenants more.
There has to be constructive engagement with the government, he says, so that it understands the direct and indirect effects of the cuts and addresses some of the issues that could mitigate against the fall in new development.
And even if that happens there will be a price to be paid: less general needs development; higher rents for the working poor; a more painful transition from benefits to work; and a move away from many of the social objectives of housing associations and local authorities.
From Inside edge
Housing commentator Jules Birch puts the latest news in context