Monthly Archives: April 2013

The Future of Housing Associations

Denise Chevin, Research Fellow

The underlying message from my recent report for the Smith Institute, Social hearted, commercially minded: tomorrow’s housing associations, is that change in the housing association world is set to accelerate. The sector which houses two and half million people, has been diversifying for years, and building up a mixed portfolio of housing for different types of tenure. But the cuts to grant and reform of benefits on the one hand combined with less regulation on the other, are creating more freedoms and opportunities and driving change.

Combining a social heart with a commercial mind

One of the key themes, and it’s a tension point that is only going to get more pressing, is the conflicted position the sector is. How do HAs combine their traditional social ethos with a new harder commercial approach – which all agree is necessary?

But, what does the sector mean by commercial? What came across very clearly from my interviews with 50 housing association chief executives and experts is that the modern housing association would see itself running very much on private sector lines – being efficient, focussed and jettisoning activities that don’t bring a clear demonstrable benefit. The social hearted comes when the association ploughs profits back into social housing rather than taking a dividend like the private sector.

Alongside this, associations still see themselves as a force for community good – providing housing services for their tenants.

As the welfare reforms and cuts in housing subsidy begin to bite, there will be increasing conflict of interest between the two different obligations.

The social conscience in the housing association boardrooms is already being pricked by charging the full 80% of market rent and the prospect of more evictions because of increased rent and the bedroom tax. It’s a real conundrum which could damage their reputation.

Certainly, increasing eviction rates by housing associations is concerning councils – and we might see increased tensions there also.

We all know there are things housing associations do for their communities that landlords in the private sector would never contemplate – coffee mornings, after school clubs, training for work, translation services.

They might say, we’ll stop doing those things and donate to local charities – but then do they risk becoming just like any commercial business that just ticks the CSR box?

An overarching question is who they house and what now is their social purpose. The problem is that without social housing grant it becomes impossible to develop low cost homes. Incidentally, that’s a state of affairs that is still yet to dawn on some MPs and local politicians. As my report makes clear, some new tenants in London will see large rent hikes as housing associations increase levels in line with the affordable rent model or market rented housing.  So, unless grant returns to build genuinely affordable homes – and at the launch of the report, shadow housing minister Jack Dromey pledged that it would – many of those on low incomes will be priced out of new housing association accommodation.

And what about the bedroom tax and eviction? Edinburgh Council is pledging not to evict any tenant because they can’t pay it. Will housing associations happily submit to being (bedroom) tax collectors and bailiffs for the sake of £15 a week?

Do housing associations want to stay special? Or do they want to be so commercial they are a private company in anything but name? Tough choices really do lie ahead.

Skilling up the board

Allied to this commercial dimension is the question of just how business savvy are associations? That’s not an easy one to judge. Interestingly, Genesis are working  with others on a new index to measure how effective housing associations are at managing return on investment – which should provide more of an objective answer to that question.

There is certainly consensus amongst the interviewees that the new opportunities available bring with them greater risks, demanding different skills in the boardroom – skills that some fear housing associations do not always possess. So, whether they can they manage risk, in what is becoming a more complex financial arena, is one of the big questions facing the sector.

There’s a lot of interest in the private rented sector for example, but it’s questionable whether it will really provide the means of cross subsidy opportunities many associations seem to be banking on.

Good leadership and clarity of thought will be absolutely crucial – and getting the right people on boards vital.

One person I interviewed asked why do boards need to be so big.  Is it essential or compulsory that there are tenant representatives?

It’s controversial. But his argument is that retailers don’t have customers on their boards. That doesn’t mean you don’t take into consideration their views, but wouldn’t it be better to have a smaller focussed group who can’t hide behind the sheer weight of numbers?

Relationships with tenants

The drive to be more commercial is also manifesting itself in a more business-like approach to tenants. Yes, associations appreciate the need to be more professional in their approach to things like repairs and maintenance. But the sector is also taking a step back and asking what do they get in return?

And are they promising things that we can’t actually afford to deliver, such as weekend repairs or or simple fixes that tenants could do themselves? Has a whole industry been created to deal with anti-social behaviour?

So we are seeing a reappraisal of some services and the emergence of carrots and sticks to encourage tenants to pay their rent and take care of the property. I see this as real notable shift in the outlook of the sector.

It was also interesting to see Family Mosaic’s approach, which is to keep rent levels low for new tenants to encourage them to train and get into work if they don’t already have a job.

Creative thinking

There is undoubtedly a wealth of innovation and creative solutions in the sector.

In the face of fiscal austerity, associations are increasingly looking to deliver social value through new types of partnerships and community services, which can also provide new development opportunities, or additional income streams.

One really exciting partnership for example is the One Housing Group and the North London Health Trust. One Housing Group is joining forces with the North London Health Trust to provide accommodation and care for people with mental health problems who otherwise would need hospital care.  It’s a real win win situation.

One Housing Group told me that it would cost the health authority £3,000 a week to house a patient on a ward whilst for a housing association is would cost just £700.If housing associations were able to house a third people with these health conditions it could save the NHS £1 billion a year.

Conclusion

It is a unique time in recent history of housing associations. The sector is resilient – it is after all sitting on billions of pounds worth of assets and rental income is stable, at least for now.

Fiscal austerity is nevertheless forcing associations to scrutinise the way they work, make efficiencies and adapt to change quicker than many would like.

There is certainly huge regret that providing traditional low cost housing will be rare unless grant returns. That’s not to say they won’t be building sub-market rents – buts that’s more likely to be between 60 and 80% of market rents.

As organisations become more entrepreneurial, so do the risks they run increase. As a consequence the leadership and capacity and capabilities of housing staff and board members will come under ever more pressure and scrutiny. And they will inevitably need to confront the increasing tension between their commercial minds and social hearts.

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The right’s lack of positive populist policies

Paul Hunter, Head of Research, The Smith Institute

In the week that Margaret Thatcher died it is instructive to observe how she won both the argument and power with populist policies and what this might tell us about the upcoming election – not least what the downturn means for conservatism.

All governments are inextricably linked to the environment and times in which they come to power. When Thatcher fought her first successful campaign as leader of the Tory party, Labour and the left were divided with the breakaway of the SDP; the 1979 election was fought against the backdrop of the ‘Winter of Discontent’; the Labour government received a loan from the IMF; much of industry was state owned and subsidised; and the cold war continued.

None of this is true today. However, parallels exist and issues are being exploited in a similar fashion to permanently roll back the state. The financial crash was not caused by trade unions – even the most imaginative of spin doctors couldn’t credibly pin it on them. Instead, the enemy within has been welfare scroungers. The argument goes, Labour featherbedded them and as a result government spending spiralled out of control and debt levels became unsustainable. In so doing, the Conservatives have managed to blame the big state (eg Labour) and not big banks. And from without Europe is blamed for both immigration (taking British jobs) and the profligacy of Eurozone countries, which like Labour, have got Britain into ‘this mess’.

This narrative has been incredibly effective for the Conservatives – most still blame Labour for our current economic ills two and an half years after Cameron came to power. However despite the strategy of blame and division (and related policies such as welfare reform), the Conservatives have yet to offer any truly populist policies, similar to what Thatcher did, which seek to materially improve, at least in the short term, the lives of some traditional Labour voters.

The most obvious example of such a policy in the 80s was promoting homeownership through right to buy – Thatcher wanted a home owning, share owning democracy. It was one of Thatcher’s most popular policies however it has run its course. Attempts to re-stimulate right to buy have ended in failure for several reasons most of which have their roots in Thatcherite polices. First, we saw a rapid growth in income and wage inequality in the 1980s (in part due to Thatcher’s attack on the institutions of predistribution) meaning that those who once could take advantage of cut price homes no longer can afford to pay for a mortgage or save for a deposit. Second, the best properties have largely gone. Third, the decision to stop building social housing alongside policy changes in the Wilson/Callaghan government means that new lets largely go to those most in need (or at least in high demand areas) who are least likely to be able to buy a home. Fifth, the lack of social house building has resulted in the under supply of housing which has increased house values, which has priced out social tenants from buying their home whilst in low demand areas the economy and wages remain depressed impacting affordability in a different way. Seventh, the big bang saw the expansion of easy credit (for those at bottom) which is no longer an option with banks fearful of lending and many households over indebted.

Of course this is just one policy but it touches on many other policy areas not least credit, employment and wages. The selling off of other state assets (including share give-a-ways of privatised utilities) can’t happen again because there is little left apart perhaps from hospitals and schools which the Conservatives have been doing by stealth are controversial and don’t benefit people materially.

The other problem for Cameron in a downturn is that the Tories seem tied to fiscal conservatism. Given the stated aim of cutting the deficit (in many respects their number one priority) there is little to offer by way of populist tax cuts – especially after cuts to business taxes. Moreover, as already mentioned, another big bang to encourage what Colin Crouch describes as ‘private Keynesianism’ is an very unlikely option.

So if tax cuts, more personal debt and asset sell offs aren’t an option and the negative propaganda war takes you only so far the only other strategy surely lies on returning to growth before 2015 which would help to reduce the deficit – ‘we have dealt with Labour’s mess and the pain is working’. However, growth could be too little, too late and what’s more it is abstract concept and might not feed into the pay and living standards of workers. After all, much of the growth in recent years has not trickled down into people’s pay packets.

So without a split on the left and few policy options open it remains unclear how the Conservatives can attract a majority of voters. Of course, Labour has its own difficulties. Large increases in public expenditure are also unlikely, not least because Labour are wary of being portrayed as profligate. All of which means that with low growth both parties have as yet struggled to find populist policies to improve the living standards of the electorate.