Over the years, those of us involved in the Social Housing Sector have become used to governments and political parties of all hues and persuasions trumpeting, with varying degrees of sincerity and or believability, that "Housing" is a core issue for that government/party.
How the various parties/governments approach this core issue varies considerably. Some favour localism, some favour everything being controlled centrally, (i.e by them as they know best) others a mixture of the two. Some favour building rented units and others are looking to carry favour with the aspirational voter in seeking to provide more housing to buy.
Building more housing is something that just about every party agrees is a vital requirement. They vary enormously in how they think it can be best achieved, again varying from effective state control through to "the market knows best" and all stations in between.
The result of this inconsistency of policy between various parties has been a lack of continuity as regards provision of Social Housing. In recent years, we have seen a move away from social rent to affordable rent and Providers encouraged to put rents up to higher levels than they were previously able to achieve (albeit that they were still discounted from market levels) to by higher levels than they were previously able to achieve. In many cases RPI plus 1% being applied to those higher rental levels so that income took a significantly positive jump.
It is fair to say that central funding for Social Housing has been increasingly less generous and the Providers have been bridging the gap with finance, based on their rental income. Over the years in various forms, Providers have been encouraged to "sweat their assets" to release more money, to provide more housing etc. Exactly how this has been encouraged has varied slightly but, it has meant Providers taking on more debt from the Market in order to build more housing. More associations have been mortgaging property more quickly in order to progress.
Unfortunately, we now have the dictat that rents must be reduced by 1% per annum for the next four years. Providers who have stretched themselves and been encouraged so to do will be repaying debt from a decreasing income stream. Most will have been prudent and there will be no danger of breach of lending covenants but belts will have to be tightened, plans put on hold or abandoned and whole programs completely reconsidered.
The present government's focus is on getting people onto the ownership ladder. There is no doubt that there is a substantial section of the potential voting public who have an aspiration to be homeowners but have been frustrated by a combination of high prices and lenders' over reaction to the crash caused by lenders themselves being over enthusiastic to lend to the unsuitable (at least in part).
Funding to construct new social rented units is not something which is available at present, unless a Provider uses its own money.
On any balanced view, a Provider needs to provide for Social Housing (or at least affordable Housing) as well as dealing with low cost home ownership in its many formats. At the moment, we appear to be going down an ownership focused path, leaving a shortage in the social end of things, where Providers are going to be increasingly less able to paper over the cracks because their income stream is diminishing. Let us pray that interest rates don't increase significantly!
Shared ownership or any other type of low cost home ownership does not work everywhere. Unsurprisingly, it works best in areas where people want to buy houses. All of us who have been involved in the Sector for a long time have seen disastrous schemes constructed for low cost home ownership in unsuitable locations, often leading to the Provider having to go back to its governing body to ask for the ability to convert the scheme back to Social Housing and often buying out those unfortunate persons who had purchased the few units that were actually sold.
Assuming, therefore, that Providers - especially those who are not traditional Housing Associations - will have learned lessons from the past, we are going to see new housing provision in desirable areas, as that is where the units will sell.
Sadly, of course, desirable areas tend to be more expensive for the acquisition of building land and, consequently, the units available for low cost home ownership will be more expensive, leading to the persons served best by the low cost home ownership units, being young professionals with possibly low incomes at the present but high potential for income in the future, often backed up by the Bank of Mum and Dad who can produce the sort of deposit that lenders want to see.
Politically, this might be a jolly good thing! A lot of these people are likely to vote the "right way" (pun intended). However, where does it leave the ordinary person, who wants a house of their own (not necessarily to buy)?
Moving on, Providers traditionally provided Housing, mainly rented, but with a suitable admixture of different tenures to produce some capital receipts to be ploughed back into the provision of further housing. In effect, Providers were managers of housing with sales being very much ancillary to the overall business of managing and providing housing for those in housing need. The current climate means that Providers are going to have to become traders in property and, one suspects, will have to take a much shorter view of financial return, which will again tend to push the provision of housing into more desirable areas to maximise the return that is achievable.
I suspect that I am not the only one who is slightly uncomfortable with where Providers are being pushed and how they are going to have to change if they are going to survive. How long can they be pushed in this direction without them loosing the ability to deal with those most in need of housing? Will it fall on to the charitable sector to take up the slack?
Posted on: 23/10/2015
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.
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