Friday, 30 September 2016

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The regulator is concerned the regulatory framework, which was introduced in April, is based on an outdated assumption that all proceeds are re-invested in non-profit activities.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

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