Friday, 31 October 2014

Private sales no longer able to support social home building

Model is broken say mega-associations

UK housing policy is ‘broken’ and will not deliver the number of social homes the government wants, some of the country’s most powerful housing associations have warned.

The Volume Developers Group, which includes mega-associations London & Quadrant and Riverside, is lobbying the government for revolutionary changes to end their dependence on the crashing property market. Backed by the G15 group of London’s largest associations, the landlords have warned the government they are no longer able to subsidise social housing development by selling private and shared ownership homes.

Writing in this week’s Inside Housing on behalf of both groups, L&Q Group chief executive David Montague calls for a ‘fourth way’ – beyond the ‘third way’ of public-private partnership that housing associations have embodied for many years. This would involve bringing forward the entire unspent affordable housing budget for the next three years. Until private lenders regained confidence, the government would be the main source of associations’ development cash, providing a combination of grants and equity investment.

Mr Montague admitted this plan would mean fewer homes for the money. But he added: ‘Nothing is going to be built under the current model. The current model is broken.

’L&Q was not planning to build any new homes for private sale in the next 18 months, Mr Montague said.

Keith Exford, chief executive of Affinity Sutton, said the government would ‘unequivocally’ fail to meet its social housing targets in the next three years with current resources. ‘We typically build about 1,000 homes a year. We will not be building this many homes next year because that can’t be sustained without profits from sales.

’Sir Bob Kerslake, chief executive designate of the Homes and Communities Agency, said: ‘We wouldn’t rule out bids without cross-subsidy, but would look for a range of proposals to come forward.

Readers' comments (4)

  • The warning by some of the country’s most powerful housing associations that UK housing policy is ‘broken’ and will not deliver the number of social homes the government wants (12th September) comes to me as no surprise because of the sector’s over reliance on the fluctuating fortunes of the commercial money markets to finance their activities. To date, housing associations’ over reliance on the money markets has resulted in higher rents and less rights and security for their tenants in relation to counterparts living in local authority owned housing stock.

    For the most part, housing associations are registered at Company’s House with articles of association not disimilar to those of a local football club. Naturally, banks lending to those associations want security for their loans i.e. the homes in which tenants live. Additionally, legislation permits housing associations to placate banks by having the right to increase tenants’ rents to commercial market rates in the event of their running into financial difficulties.

    Housing assocations’ tenants are informed by the great and the good that the Housing Corporation would not let such events transpire, yet neither the Corporation or the Government actually guarantee or underwrite those loans and why would reference to commercial rent hikes be included in the Housing Act if it would never be enforced?.

    A survey by Baker Tilly referred to in your Journal (12th September 2008) States that seventy-five per cent of respondents say they expect to see other housing associations run into ‘significant financial difficulties in the next 12 months’. Almost a third say they have encountered their own ‘difficulties with lenders’ because of the credit crunch.

    Surely, it is time for the Government to recognise that local authorities collectively as the primary deliverer of public housing should be the preferred model to provides a service and security of tenure that tenants on low incomes want and deserve.

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  • With a lack of foresight that would do credit to a Northern Rock director, the leading figures in HA deveopment tell us that they won't be able to deliver affordable housing because the housing market has slumped. Was the business model that they were operating on not stress tested to consider the entirely predictable downturn in housing sales (It's a cyclical industry you know, lads).
    Their solution - more Government money. Ah that's what we pay them those fantastic salaries for - imagination and vision.

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  • Well here's a howdy do! For years these mega - and not so mega - housing associations have been bragging about how they - and they alone - have the answer to the nation's affordable housing needs. Now, when the going gets tough, the 'tough' ask for more state subsidies! Those of us who argued that housing associations were not capable of filling the role of council housing were dismissed as troublesome lefties. When we said that HAs were too heavily exposed to the inevitable fluctuations of the property market, we were told we didn't understand the ways of business. Now it seems the 'Mega Associations' want to jump back on the public funding bandwagon as Council Housing Lite! HAs have a role to play, but I hope that one of the consequences of what I think will be a long and nasty recession, will be an end to swaggering HA bosses on inflated salaries and a more honest assessment of how we meet the growing housing crisis, with a realisation that genuine affordable, publicly owned, rented housing is what millions of people need.

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  • Social Housing (SH) was always a euphamism for state subsidised housing - a disaster worldwide succeeding only as a parasitic soft job creation scheme. SH continued and institutionalised the post war social divided between the 'haves and have nots ' created dependency immobility and a gratitude vote for partonising politicians. The mean spirited shared ownership schemes were designed primarily to prop up HAs.

    We should switch to a system of 'social households' where individuals/families are given direct annual subsidies, being the difference between what they can afford and market rents so they can buy or rent where they like within their budget, in total confidence so they are not exposed as state assisted. Such loans could not drop by more than say a third of the recipient's improved income and would be for life just as subsidies are now, i.e., 'do nothing, stay poor and the subsidy is yours for life'. HAs would be wound up or become merely mentors to those who need advice. Private builders could then sell or let direct to social households with no financial loss, which currently makes around 25% of sites unviable, leading to a major building increase.
    Direct subsidies could also be offered on a voluntary basis to existing HA and Council tenants, who would fare far better under the scheme. It would gradually enable the State sector to be sold off to occupants or investors at market prices yieding many £bns to the Treasury. The annual cost to house the same number of people in new homes as now would be about 10% of current rates as annual rent/mtge subsidies, not capital subsidies, would be paid. The main benefit would be to society as it would gradually be re-unified and the whole ghastly divisive socialist housing system designed to keep the poor poor, would disappear.

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