Monday, 22 December 2014

Regulator to protect social sector’s assets in tie-ups with profit-making ventures

HCA sets out rules to stop asset stripping

The social housing regulator is finalising tough new rules to prevent the ‘asset stripping’ of social homes by for-profit providers.

The Homes and Communitites Agency regulation committee also wants to introduce measures to prevent high-risk activities by unregistered parent companies from threatening the viability of landlords.

The regulator is concerned the regulatory framework, which was introduced in April, is based on an outdated assumption that all proceeds are re-invested in non-profit activities.

As a result it is considering making for-profit providers pay a premium if they sell a social home on the open market. The money would then be re-used for social housing, along with grant attached to the property.

This is to prevent for-profit providers from exploiting the fact that social and affordable rented homes have a lower value than open market homes.

Social rented homes have a lower value because rents are sub-market and underpinned by benefit. The regulator is concerned that for-profit providers may sell social homes for open market prices solely to boost profits by pocketing the difference in values.

Matthew Bailes, director of regulation at the HCA, said: ‘It is not reasonable simply to buy at one value and sell at another and benefit from the proceeds.’

The regulator is still finalising the formula to be used but the premium paid should be the equivalent needed to replace the social home, including any recycled grant.

The HCA is also looking at how it can prevent unregistered parent companies, which it can’t regulate directly, from taking risks which threaten their non-profit housing association subsidiaries. The regulator is likely to ‘ring-fence’ the risk by preventing unregistered parents from using homes of registered subsidiaries as loan security without permission. Limits could also be set on the amount of non-housing activity associations can undertake.

James Tickell, director of consultancy Campbell Tickell, welcomed the move, but said it could lead to less private sector involvement in social housing. ‘The rules will have to be watertight because of the ingenuity in the private sector in terms of avoidance of restrictions,’ he warned.

The government wants to encourage new entrants to the sector. Sixteen for-profit providers have registered with the regulator, and several companies including the UK’s largest listed landlord, Grainger, are attempting to register for-profit subsidiaries.

The HCA hopes to publish a consultation later this year, with new rules likely to take effect next April.

Readers' comments (11)

  • A bit late in the day to wake up to this, isn't it

    If tenants arbitrage their homes by exploiting the difference between social and market rents, a practice threatened with criminal sanction, then it's odds-on that the social landlord will also see the same opportunity.

    And social landlords are at it. The recent report on the future of Lambeth's housing stock reveal rather than RTB being the major source of stock loss by far the greater contributor - 132 last year - was authority-sanctioned sales.

    The former NAO in various reports warned that authorities dressing up the proceeds of sales as used for reinvestment were often using the money to prop up incompetent and inefficient operating structures.

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  • Perhaps some thought along these lines for Right to Buy tenants would be in order? Social tenants are able to purchase at a discount and then sell their homes on the open market, surely this is also an abuse of social housing. I'm sure there will be those that disagree, but can private tenants purchase at a discount?

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  • Brian C Kent

    Steve Woods | 26/10/2012 10:14 am

    I agree with your comment re RTB.

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  • i think you are trying to apply the same criteria for a corporate being and a tenant...they are two separate entities and the tenant does not asset strip their home which is the objective of this new initiative. however these new commercial landlords will reduce social housing to the same appalling private sec r or accommod s tion by neglecting their repairing obligations and pushing rents to an unaffordable level for current social housing tenants, many of whom work. what guarantees will there be against this?

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  • Perhaps local councils should be looked at too! Instead of sending empty valuable housing stock to Auctions they should be offered to tenants who have the RTB but their own property is not suitable!!! How about operating a Local Authority Estate Agency whereby councils can sell their empty stock at a discount to tenants (renting) thus in turn freeing up properties to move people on housing list! Simple and effective!

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  • Nicole M

    Evamou,

    There is a difference between local councils and private companies... if the local council 'asset strips' it will be reinvesting the money in the community. Yes, you could argue that the councils don't spend their money wisely, but none of it is profit for shareholders etc.

    Regarding your idea that councils should sell properties to tenants, I echo Steve Woods' comment... why should they only offer social tenants this opportunity? They could sell to private tenants, which would reduce the numbers on the housing list and free up private rented property for those looking for a place to live.

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  • i dont think councils should be selling social housing at all!! they should be refurbishing it for social rent unless the property is beyond repair and has to be cleared. there is enough destruction of the social housing base without the councils looking for further ways of disposing of homes.

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  • Chris

    Asset stripping is part of the policy so I cannot anticipate any real robust defence being mounted to prevent it - what I anticipate is something more like the energy regulator who huffs and puffs but the power companies still charge the earth at their whim and regardless of (for instance) the fact that energy costs are going down elsewhere.

    Toothless regulators as apologists for consumerist policy are not worth the vast sums we spend on their existance.

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  • Asset stripping has been going on in the uk for the past
    30 years under both Tory and New Labour goverments !!
    There isnt much left to grab by vested interests , but they
    are targeting council homes as the con dems want to keep
    pushing up rents , including the so called affordable homes rent ,
    which is a very large 80 % of market rent !!!
    Actually the Previous Tory Government asst stripped nearly all
    of the communal wealth to transfer it into the hands of the well off,
    but now they are asset stripping the Social Security system which gives legal rights of the poor by creating a basic level of income
    which has been achieved over the past 60 years, but which is now being
    severally reduced by Billions of pounds of benefit cuts.

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  • Dear Rosa, it will only work if you are taking people off the social housing lists - people who privately rent are not on housing waiting lists thus not freeing up property to reduce the list. Don't forget those who buy their council property cannot sell it for 5years and then the council who sold it to them have first refusal - I am stuck in council housing as I cannot afford to buy it even with the discount the price is out of my reach. If they wanted to get the London housing market moving as prices here bear no resemblence to national prices there should have been a better discount!

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