Penfold Associates

Welfare reform measures were mentioned in the Conservative election manifesto. So we were expecting the lower household benefits cap, restrictions on young persons’ entitlement to housing benefit and the measure on higher earners in social housing. The reductions in tax credits were also predicted ahead of the Budget. The proposal to extend the Right to buy to more housing association tenants had also been in the pipeline for a long time. These measures will have an impact on the disposable incomes of many existing tenants, have potential implications for associations’ cash-flow, and in some cases present operational issues.

The Right to Buy proposal has deeper implications because it could affect the relationship between housing associations and their funders. It also shows an unusual level of Government interference in the activities of independent, private organizations. This interference actually threatens the private status of housing associations and runs the risk of a re-definition of their activities which would mean the transfer of £60 Billion to the national debt.

The biggest threat to the sector, however, is the Chancellor’s decision to overturn the recently approved rent regime and to cut housing association rents by 1% a year for four years. This will hit associations’ business plans and their ability to deliver new affordable homes. The NHF says that 27,000 fewer new homes will be built because of the change (the OBR puts it at 14,000) and says this drop will be compounded by the RTB extension. These are significant impacts but the reversal of rent policy is really symptomatic of a much more important and dangerous threat.

The Chancellor seems to have been persuaded that housing associations are part of the problem rather than part of the solution. The decision clearly reflects a view that the housing association rent settlement that has existed in more or less the same form for over a decade adds to the problem of rising rents and rising benefits bills. I suspect it also reflects an external impression that associations are a high-cost, inefficient sector with wage levels (certainly at the senior level) that are high compared to the public sector. It certainly gives the message that reduced output of new homes by the sector is not as important as the housing benefit saving.

This is a serious threat to the sector’s credibility as a partner of government – at national and local level – in meeting housing needs and has to be addressed. There is a broader issue of reputation here with a view perhaps developing in the wider world that some housing associations have lost their way. The trend towards diversification may have blurred the understanding of why associations exist and what their values are. Recently reported research revealed that only 40% of associations engaging in commercial activity do so with the primary objective of cross-subsidizing affordable housing. This begs the question of what the other 60% think they are doing it for! There is a reputational risk here which could restrict the ability of the sector to deliver its real objectives. I am not arguing against diversification. I would argue, however, that diversification should not be to the detriment of the core business and should always aim to support that core business. NHF and individual associations should take this into account in assembling evidence to support the sector’s case to Government. Some individual associations might also wish to review their actions and how they are perceived. Reputation and credibility are vital to the sector being able to get on and do its job.

Kim Penfold
July 2015