House of Commons
|Session 2007 - 08|
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General Committee Debates
Housing and Regeneration Bill
Housing and Regeneration Bill
The Committee consisted of the following Members:
Hannah Weston, Committee Clerk
attended the Committee
David Orr, National Housing Federation
Alan Walters, Defend Council Housing
Nic Bliss, Confederation of Co-operative Housing
Terry Edis, National Federation of Tenant Management Organisations
Michael Gelling, Tenants and Residents Organisations of England
Andrew Heywood, Senior Policy Adviser, Council of Mortgage Lenders
Richard Hughes, Social Housing Panel Member, Council of Mortgage Lenders
Paul Stevens, Social Housing Panel Member, Council of Mortgage Lenders
Public Bill Committee
Tuesday 11 December 2007
[Mr. J oe Benton in the Chair]
Written evidence to be reported to the House
H&R 01 Defend Council Housing
H&R 02 National Housing Federation
The Committee deliberated in private.
The Chairman: Good afternoon, Mr. Orr. You are welcome. We have a series of questions to put to you.
Q 4646 Margaret Moran (Luton, South) (Lab): In the Bill, housing associations or registered social landlords
David Orr: Housing associations, please.
Margaret Moran: Back when I was involved it was RSLs. Under the Bill, housing associations can lower the amount of public subsidy that they must invest in affordable social housing by cross-subsidising through sales at market rates. I have asked some parliamentary questions about that, which you might be aware of. Do you think that there is sufficient regulation? In other words, are some registered social landlords simply selling off at open market rates to bolster their reserves, rather than to create more affordable housing? Secondly, in the context of the Bill, will the separation of the Homes and Communities Agency and Oftenantwe should think of a better word for thatprevent RSLs that are genuinely using the mechanism to create more affordable social housing from doing so? I stress the word genuinely.
David Orr: The answer to your first question is I think, on balance, that there is too much rather than too little regulation of the way in which housing associations dispose of their assets. At present, before disposing of anything it is necessary to have the consent of the regulator. We do not argue that there should be no regulation of disposals, but we do think that there should be more opportunity for class decisions, if you like, so that if for example garages are being sold, that might happen without the specific consent of the regulator for every individual transaction.
I think that where housing associations dispose of assets it is in pursuit of their business plans. That is also part of the present regulatory environment. If assets are disposed of it is necessary to be able to demonstrate that the proceeds from that sale are being
You may not be aware that it is not at present possible to achieve the core objective of providing a new supply of high-quality rented housing without some cross-subsidy. Housing associations on average invest about £25,000 per unit of money that they raise, primarily from transfers of shared-ownership housing, towards the cost of rented and shared-ownership housing. That activity cannot be funded purely from present Government subsidy and private borrowing. There is that additional subsidy. You might say that that is a loss-making activity that under present arrangements can be managed only with that form of internal subsidy.
Margaret Moran: The second part of the question was whether the new proposals for the Homes and Communities Agency and Oftenant would prevent such practices.
David Orr : We are generally supportive of the idea that there is a separation between the investment agency and the regulator. The reason for that is that there have been occasions in the past when the threat of action by the investment part of the Housing Corporation underpinned regulatory intervention, and that is not a helpful way of progressing the regulators responsibilities. We believe that future investment through housing associations should be done by contract: that the new agency will enter into a contract with the housing association in the same way as it would with a private developer. There would be an agreement about the nature of the product to be provided. There is sufficient protection in the Bill to ensure that the HCA and the new regulator would have to pay regard to each other; in particular there is a requirement for the HCA to pay regard to the views of the regulator. There is sufficient protection.
Q 47 Margaret Moran: I challenge your point about having to make sales to bridge the gap; it is borrowing from equity, surely. However, to come back quickly to the first question, are you assuring us that the current regulatory framework does not allow within an RSLs business plan, for example, the sale of property on the open market, not just to boost reserves but to pay extremely inflated wages to chief executives?
David Orr : Any sale of an asset that has been publicly funded in any way must be approved by the regulator, so before making such a sale the association must provide evidence about what the proceeds are to be used for. My view is that those proceeds are used to invest in the business, to do the work that housing associations are required to do. If there is evidence to the contrary we should be disappointed to hear it, and would want to know about it.
The Chairman: Before I call the next question, I apologise because I should have asked you if you wish to say any words of introduction. I shall give you the opportunity now, if you wish to do so.
David Orr: Thank you, Chairman. I would just like to say a couple of things. First, we strongly welcome this Bill, particularly the part relating to the creation of the Homes and Communities Agency. We have been supportive of that concept and think that the objectives for and the powers of the new agency are sufficiently broadly drawn for it to be potentially a real generator for new investment. That is welcome. However, the one issue that we have with regard to the Homes and Communities Agency is, we argue, that where it owns land it should be required to dispose of it for the greatest public benefit, rather than for the best consideration. We think that that would send a strong message about the use of public sector land in meeting public policy objectives.
Secondly, with regard to the regulator, as I have already said, we think that it is important that the sector is properly regulated. We support the idea of domain-based regulation, that is, regulating the productthe social housingwithout necessarily agreeing that the organisation should be regulated in its entirety. Indeed, the Bill as written makes it clear that private sector providers of social housing will be regulated only in respect of their provision of social housing. That is proper and should be the case right across the domain.
We are anxious that the Bill at present creates the potential for the primary ownership of decisions relating to the policy and practice of housing associations to rest with the regulator and, potentially, the Secretary of State, rather than with the boards of individual housing associations. We are concerned about that. I would be happy to discuss that further.
Q 48 Mr. Andrew Love (Edmonton) (Lab/Co-op): As always at times like these the debate still continues about whether a housing association is voluntary and non-profit-making or whether it is tending towards private profit-making activity. We have already had a discussion about what the regulator will regulate. Considering the balance between the private profit-making activity and the voluntary non-profit-making activity, should not the regulator be involved in ensuring that voluntary, not-for-profit housing associations do not transmute into something quite different, which would be of concern in relation to the delivery of social housing into the future?
David Orr: Yes, although there is no realistic prospect of that happening. My contention is that every housing association in the country is a not-for-profit social purpose organisation. When you have visited as many housing associations as I haveI think that I am able to say that with a degree of confidencethere is no question
Q 49 Mr. Love: Can I interrupt you for a second? There seems to be a gap opening uptell me whether you agreebetween the large associations that build and the other more specialist associations, and there is concern about the large end. For example, Places for People now has some 4,750 market rent properties. The
David Orr: I think the regulator has a proper role in ensuring that providers are operating in accordance with their constitutions and objectives. On the 4,700 market-rent homes, in a market where there is a real problem for people who cannot afford to buy, but where there is not enough social rented housing, the provision of market rented housing is a proper response to the demands of the market at present and the needs that people are expressing.
Places for People probably has in excess of 50,000 homes, of which about 40,000 will be social rented. A small number in relation to that will be shared ownership and then there are the market rent properties. That kind of plurality of supply is to be welcomed. It is important that we look at the failures in the housing market and try to identify appropriate solutions.
It is not helpful if affordable social rented housing is going to people who have a bit more income but cannot afford to pay present market prices for owner-occupation. If it is possible for housing associations to use their commerciality to cross-subsidise in pursuit of their social objectives, it would be foolish to argue against it.
I will give you a specific example: the traditional housing association model would be that the Government provide a grant which, on its own, would allow a housing association to provide 20 homes for rent. It is a welcome model and something that we have been successful at doing. However, if, with the same amount of grant, the housing association can build 100 homes, sell 50 of them on the open market, use the profit not for paying dividends but for cross-subsidising against 25 houses for shared ownership, 25 for social rent, and perhaps providing some play equipment, then 100 homes have been created, rather than 20. That is five more social rented homes than would have been the case, and a contribution has been made to a mixed-tenure, mixed-income community. It seems that, if we can use that commerciality and profit-making potential for that purpose, everyone wins.
Q 50 Grant Shapps (Welwyn Hatfield) (Con): Thank you for that introduction, Mr. Orr. I want to pick up on a couple of points. You mentioned welcoming the Homes and Communities Agency. A concern with the Bill that has struck many of us is that the highest price will be the required criterion for whether a piece of land is sold. Many of us feel that the public good might require more than simply a judgment on the highest price; I believe that the Government may be looking at this again. I would be interested to draw you on that point.
If I may get two points in in one go, there has previously been talk of lessening the red tape for good or excellent housing associations. That is not forthcoming in the 208 clauses of the Bill. Is it something that you had hoped to see, and, out of the 1,200 housing associations, what proportion do you think might have benefited from such legislation?
David Orr: To answer the first point, it is clear that one of the advantages of best consideration is that it is a figure; it is quantifiable, so you can say, £110,000 is more than £100,000; take the £110,000. An assessment of public benefit is to some extent a judgment. I believe that the Homes and Communities Agency should be given the power to determine what is the public benefit, although it may need to be approved by the Secretary of State. I cannot give you a one-sentence answer saying, Instead of best consideration, here is the descriptor for what constitutes the greatest public benefit. The federation would be happy to work with members of the Committee or civil servants to explore what that descriptor might be, if that would be helpful.
The present arrangements allow local authorities and other public bodies to dispose of land at less than market value if it is in the public interest, but that power is not used very often and there is no compelling guidance that creates a framework. Guidance would be a necessary component.
With regard to the burden of regulation, we have been going through a fairly lengthy process over the last few years. Members of the Committee will know that a review was carried out by Sir Les Elton. I was pleased to be a member of that review group, which looked into reducing the burden of regulation on housing associations. It has been helpful and has made some progress. No housing association in the country would not welcome a further reduction in the burden of regulation. One of the objectives of the Bill is to ensure that the regulatory burden is limited, although those are not the exact words used.
Our concern is with other components of the objectives, particularly the line of decision making that allows the Secretary of State to direct the regulator with regard to standards, and the regulator to require regulatory bodies to act in a particular wayeven if there is no misconduct or mismanagementand to intervene if they have not followed that instruction. We think that that is imposing a regulatory burden too far, not so much in terms of the volume of regulation, but rather because of the decision to relocate decision making away from the committees of independent, not-for-profit social businesses, towards the regulator and potentially the Secretary of State.
Q 51 Lyn Brown (West Ham) (Lab): I was interested in boards, not regulators, and I am obviously interested in the tenants. I could go into numerous cases in which I have seen housing associations behave in what I believe to be an appalling way towards my constituents. I have no levers to use against them and, more importantly, neither do my tenants. They cannot run against them at a local election, they cannot vote against them, they do not have any power to wield against an offending housing association.
On Second Reading there was a fabulous speech by my hon. Friend the Member for Islington, South and Finsbury, in which she talked about the rats, and the lack of heating and hot water for young mums as well as elderly tenants. I am interested in taking that idea a little further, because for me, it is public money, public service, public accountability. I am interested to hear your response.
David Orr: Well
Q 52 Lyn Brown: Before you startsorry, I know I am meanlet me add that I am sure that many of the housing associations that I take issue with would be considered excellent using other indicators: they may, for example, be the bigger ones. Therefore, when I hear someone say, Wonderful housing association: its big, its huge, its wonderful, it does great things, for me that does not deliver where it needs to, which is in the interest of my tenants.
David Orr: There are a number of things to say about that. First, neither I nor anyone else involved in housing associations will say that all practice is perfect in all cases. We do not live in a perfect world and there is no doubt that on some occasions, the performance of individual housing associations, either with respect to individual places, tenants or more generally, falls below the standards that we expect. However, whenever there is a systematic evaluation of the performance of housing associations, they always do better than local authorities. That is in systematic evaluations of tenant satisfaction levels and related matters.
The issue is about how to ensure high-quality standards. My argument is that housing associations as independent organisations have been invested in by the Government to deliver a service. It is proper that they should be accountable to Government for the public investment that they have received. It is correct that the regulator should be able to direct with regard to rents and housing management standards, and we do not take issue with that. Our issue is about the extent to which the regulator is able to require a housing association to do things that are not necessarily in pursuit of the housing associations own objectives, and to intervene even though there has been no mismanagement or misconduct. The provisions currently in the Bill would allow that.
David Orr: No, we are worried about the power that the regulator has, or would have under the legislation, to require a housing association to behave in a particular way, even where there is no evidence of mismanagement or misconduct. It would be the regulator, or potentially the Secretary of State, who would require that action.
Q 54 Andrew George (St. Ives) (LD): I follow on from that theme. Throughout your paper, and the comments that you have made, you refer to your concern about the threat to housing associations non-public body status. I know that that is an accepted piece of terminology, and I do not want to get into semantics. However, to what extent would you say that housing associations are public bodies? They are non-profit-distributing organisations, they work for public benefit with public bodies, local councils and others; they accept public funds and resources and they are state-regulated to a significant extent, although not to the extent that you fear they are in the Bill. To what extent are they public bodies and to what extent is it important to differentiate them from public bodies?
David Orr: They are not public bodies, and it would be in no ones interests for them to be classified as such. The state has invested about £30 billion in the work of housing associations, which has been matched by about £35 billion of private borrowing. If housing associations were classified as public bodies, all that private borrowing would be classified as public money, so there is no gain for anyone in associations being classified as public bodies.
We tend to make the issue more difficult than it is. We have private sector organisations that exist to provide dividends to shareholders; their purpose is to make profit. We have public bodies that do as they do because they are owned and invested in by the public and the state. Housing associations are bona fide third-sector organisationsnot-for-profit social purpose organisationsand it is extremely important that that status is protected. There is a danger in reclassification. If it was deemed that the regulator could direct the entity or organisation in its constitution or its behaviour, there would be a real threat to housing associations remaining non-public.
Q 55 Andrew George: But what would happen if the state withdrew its funding and these non-public bodies were not in receipt of public resources? They would presumably not be able to develop at all.
David Orr: It would be considerably more difficult for them to developthat is clearly the case. There would be some development, but the capacity for development would be substantially reduced. The Government have identified a figure of slightly in excess of £8 billion for investment in new affordable and social housing in the three-year spending period from 2008 to 2011. Our expectation is that housing associations will bring £12 billion to match that funding and meet the new housing provision requirement. That is a very good deal and one that we need to protect.
Q 56 The Parliamentary Under-Secretary of State for Communities and Local Government (Mr. Iain Wright): May I go back to a point that Lyn Brown talked about, Mr. Orr, because it relates to one of your fundamental concernsthe Secretary of States power to the direct the regulator to go into micro-management areas of a housing associations operations? May I suggest that the Bill brings housing regulation up to date and takes into account the statutory regime and framework that are in place at the moment, including the Legislative and Regulatory Reform Act 2006? The Hampton principle says that everything should be proportionate, encourage economic activity and prosperity wherever possible and look to scale back regulatory boundaries where necessary. However, is the key point not that that balance needs to be struck and that tenants need to have the rights and responsibilities that Lyn described incredibly eloquently? In that respect, the framework that we are proposing is right. With the greatest respect, Mr. Orr, you are probably exaggerating the ability of the Secretary of State to direct, which is not going to happen.
David Orr : The Bill, as drafted, creates the potential for that kind of intervention. If it is not the intention that the Secretary of State should intervene to that
I do not overstate the potential of the Secretary of State to intervene. I do not anticipate the Secretary of State intervening daily, but under the legislation it will be possible for the Secretary of State to intervene for the purpose of what the jargon calls policy passporting, whereby the Government of the day have a particular policy objective that is imposed through regulatory intervention. That is the nub of the anxiety. In Martin Caves report to the Department for Communities and Local Government, he warned specifically against such policy passporting, but the Bill increases rather than decreases the danger of it happening.
Q 57 Mr. Wright: In the federations example to the Committee, it mentions the risk that community-based initiatives such as crèches could be stopped because the regulatory regime is too onerous. However, again, I return to the sense that regulation must be proportionate. One Hampton principle is that we must ensure that economic progress is advanced as much as possible. The principle states:
Regulators should recognise that a key element of their activity will be to allow, or even encourage, economic progress and only to intervene
this is the key point
when there is a clear case for protection.
Is that not what the Bill does?
David Orr: Not as presently drafted, because there is no limitation on the regulators ability to intervene in the way in which it is drafted. If a limitation on protection were introduced, we would consider it very carefully. I cannot say that we would be happy to see it, but it would create a limitation. As you know, we have argued that the present test, whereby intervention should take place only when there is evidence of mismanagement or misconduct, should be retained. Creating standards, providing guidance on them and asking people to identify how they perform against them are all fine, but intervention should take place when there is wrongdoing or failure and not just when a particular policy of the Government of the day has not been followed. It is instructivefor us, at leastthat the Charities Act 2006, which is probably the most comparable recent legislation, retains the mismanagement and misconduct test.
Q 58 Ms Angela C. Smith (Sheffield, Hillsborough) (Lab): I want to return to the best consideration issue and put two points to Mr. Orr. First, the key principle
Secondly, on another key principle, if land is offered at less than best consideration, and, for instance, homes are passed on to owner-occupation, there should be provisos in the agreement to recompense the public sector for the loss of the social benefit. In other words, if the benefit of the subsidy on the land is to remain, there should be a proviso whereby the homes concerned are always be on a shared equity or rented basis, if the benefits given by the subsidy on the land are to stay in place.
David Orr: This is effectively the same model as that on rural exception sites, and we are enthusiastic supporters of it and wish it to be retained. If the Homes and Communities Agency, a local authority or any other public body were disposing of land at less than market value for a public benefit, and a housing association were the vehicle by which that public benefit was delivered, we would expect that to be written into the contract or the agreement between the owner of the land and the housing association and that that would be part of the long-term contract. We have absolutely no wish to see land offered at something other than greatest consideration being used for other than the purpose for which it was intended.
David Orr: This is just the law. Housing associations have to be accountable to their boards, and, as organisations that exist for the benefit of the community, they have to be accountable to the community. It is a failure of the housing association movement that we have not demonstrated successfully to you and to others that we are properly accountable to the communities in which we work. It is an issue that the federation is working on quite closely at present.
Q 60 Ms Smith: In terms of offering land at less than best value, and accountability for making that offer, the decisions have to be taken by elected members whether that is through guidance from Government or a final decision in difficult areas by the Secretary of State. There has to be some mechanism for ensuring that land offered at less than best consideration is offered by an elected representative of some kind or another, because we are talking about public sector land.
David Orr: Indeed. If a housing association is the beneficiary of land at less than best value, the purpose for which that land is being used should be written into our contract, and the housing association would expect to follow the terms of that contract. It is a contract compliance issue. In the present arrangements, and in any future arrangements that we can identify, it is a regulatory requirement that the housing association follows the terms of the contract and does not move away from it without the consent of the regulator or the other party to the contract.
Q 61 Ms Smith: What I am interested in is at what point would the decision be made to offer their land? Who would make it? In your view, who is the best body to make that decision and under what terms and guidance?
David Orr: I am not sure that I entirely understand your question. If the land is in the ownership of the local authority, only the local authority can offer that land for use at less than best value. If it is in the ownership of the Homes and Communities Agency, the agency would have that responsibility. My view is that the HCA should be working closely with the local authority before making decisions of that kind. However, the housing association is the recipient of the land, so it would not make the determination about the sale of the land.
Q 62 Mr. Nick Raynsford (Greenwich and Woolwich) (Lab): First, I apologise that I could not be here for the start of the sitting. I want briefly to turn your attention to clause 111 of the Bill, which defines the registration of profit-making or non-profit-making organisations. This is different from the existing framework, which requires registered social landlords to be not for profit. Is it your understanding that that would, as it is currently drafted, enable registered social landlords to convert from not-for-profit organisation status to plc status?
David Orr: It is not, although we may need to take some more formal advice on the matter. My understanding of the clause is that it is to ensure that private sector providers of social rented housing should be registered and subject to regulation.
Q 63 Mr. Raynsford: But as there is no proviso, unlike the current Housing Corporation guidelines, it appears to prevent a registered social landlord from seeking registration as a profit-making organisation. Is that possibility not at least there?
David Orr: I think the main determinant as to whether or not a housing association could change its status would be industrial and provident society law, because virtually every housing association in the land is an industrial and provident society, and in practice it is extremely difficult to change from being an industrial and provident society to being a publicly listed company.
David Orr: There has been a great deal of media speculation that some have expressed an interest in doing so. My own view is that no housing association is actively seeking to convert to public listed company status.
David Orr: It would.
The Chairman: Order. I am sorry, but we have come to the end of this session. I thank you, Mr. Orr, on behalf of the Committee, for your attendance and for the evidence that you have given.
David Orr: Thank you.
The Chairman: Good afternoon, Mr. Walters, and welcome to the Committee. Thanks for coming. I wonder whether you would like to say a few words of introduction.
Alan Walters: Thank you very much, Chairman, and thanks for inviting me. Defend Council Housing, which I represent, was formed nearly 10 years ago to oppose the privatisation of council housing and council homes being sold off through stock transfer and to campaign for direct investment. Despite many premature predictions of the end of council housing, there are still more than 2.5 million council tenants and strong demand, as witnessed by the number of people on council housing waiting lists. We argue that council housing is not perfect, but local authorities are democratically elected and accountableyou have just covered some of those issueswith landlords providing secure tenancies at lower rents. Particularly in the current situation, if we did not have council housing, we would have to invent it.
Our concerns about the Bill fall into two categories. First, we have built a broad coalition around what has become known as the fourth option for council housingto bring about changes to the housing revenue account and housing finance so that councils can improve all existing homes, build a new generation of first-class council housing and maintain both the existing and the new as first-class council housing for years to come. Despite all the warm words on council housing over the summer, however, there is nothing in the Bill that will provide a mechanism to achieve a level playing field and secure a long-term future for council housing.
Secondly, there are a number of measures in the Bill that we think are quite dangerous, from the increasing stigmatisation of council housing to the introduction of a means test. We do not want bog standard council housing in the same sense as bog standard schools; we believe that council housing should be first-class housing for everybody, rather than being only for those who cannot do any better, in the same way as we all see our local hospitals, schools and other parts of the public sector as being first-class services for everybody. We are concerned about the transfer of power from elected politicians to the regulator, including the blurring of distinctions between local authoritiesthere was a discussion this morning about whether you are going to try to get local authorities in under the regulator from the beginning, which would significantly undermine the protections and rights that council tenants have today over those of housing association tenantsand the blurring of lines between not-for-profit and for-profit landlords.
The Chairman: Order. Sorry to interrupt you, Mr. Walters, but I think that that is a sufficient introduction. Thank you very much indeed. We have some questions for you.
Q 66 Alistair Burt (North-East Bedfordshire) (Con): My first question is on one of the issues that you have just raised. The definitions of social housing in clauses 67, 68 and 69 appear to create a relationship between an individuals ability to pay and whether they
Alan Walters: We are broadly content with the current situation, although, having said that, a real distortion in council housing has been brought about by shortage. The number of council homes becoming available has fallen massively, and the availability of new lets has also fallen massively, so councils have had to limit new allocations to those in the most desperate circumstances. That has changed the composition of council estates. John Hills did some useful work in his report Ends and Means. He took a snapshot in 1979, when 20 per cent. of council tenants were in the top 10 per cent. of earners. The position now is clearly different. Our argument is that if more first-class council homes were built, and if the people on the waiting list were housedShelters ROOF magazine has identified that people on the waiting list are from a wide social mixthat imbalance would be redressed and council estates would again become mixed communities. The only way of seeing the eligibility clause is in the context of demands from a particular political position that wants to reduce council housing and public housing to housing of last resort, and to push everyone into the private market. We oppose that.
Alan Walters: No. It is a fundamental principle that there should be first-class public rented housing for everyone who wants it, and that people should not be forced into the private sector just because they are not on the breadline.
Q 68 Alistair Burt: The Bill seems to open up greater opportunities for local authorities to build their own houses than has been the case recently, although a later question will ask how real that opportunity is. Do you draw a fierce distinction between local authority-built housing and housing run by housing associations and others in the social rented sector? Do you feel that there is a market in itself for council housing and, if so, what sort of proportion should it be?
Alan Walters: The evidence is clear. We have had some anecdotal evidence today, and many MPs and councillors will say that it is harder to hold a RSL to account than a local authority. The greatest evidence is probably those council tenants who, despite being bribed with promises of new kitchens and bathroomsit is almost saunas and jacuzzishave turned down privatisation and stuck out for direct investment. People can see that a secure tenancy, an elected landlord and lower rents are not abstract dogma, but something real in an increasingly insecure world. People want the opportunity for council housing that the RSL sector does not provide.
Q 69 Dr. Roberta Blackman-Woods (City of Durham) (Lab): Mr. Walters, do you think there are any circumstances in which it might be useful for tenants to have an independent body to set standards in their interests? I shall give an example from my constituency. About two weeks ago, I saw some tenants whose homes had supposedly
The ruling group on the council is not elected by council tenants, so council tenants have little voice in getting policies changed. From where they are sitting, it would be useful to have an independent body to tell the council, or anyone else, that it should treat tenants properly and bring their homes up to a decent standard. What can tenants do if they do not have a democratic voice, because they are too small a group and do not vote in the right way to elect the ruling group?
Alan Walters: As chairman of my tenants association and a member of the federation, I suppose that I would say that the best protection is to have tenants organisations and to make representations to landlords and other bodies. We are not opposed in principle to a regulator, but the problem is that the Bill is worded in such a way that the regulator is not obliged to consult tenants. The provision is extremely woolly and vague, and I believe that the obligation is to consult one organisation, which could be the limit of the consultation, so the danger is that an independent, remote body will never reflect tenants views and tenants will be no more empowered than they are now.
Q 70 Mr. Robert Syms (Poole) (Con): May I ask about the housing revenue account and the subsidy system? Poole has an arms length management organisation but nevertheless has to pay 20 per cent. of its council rents into a national pool, which is money that could be used locally. We have quite high house prices, and so the situation is difficult. Do you have a view on whether that system should remain, or do you think that the money that has been paid by tenants should stay in the political district or borough in which it has been paid?
Alan Walters: The fundamental problem is that successive Governments have been siphoning money out of council housing. Although tenants pay rent, there is a gap of £1.8 billion between the amount that tenants pay in rent and the amount that councils get in allowances for management, maintenance and major repairs. Therefore, the fundamental problem is that Governments have taken money out of council housing, which causes a gap in available resources to maintain, improve and build houses.
As regards whether there should be a national or local housing revenue account, we support the argument put forward by the Audit Commission in its report two years ago that there needs to be more transparency and local accountability. Councils should be able to retain and ring-fence all the rental income and capital receipts to pay for the maintenance, improvement and building of council housing and not for the mayors new parlour or swimming pool. Any surplus beyond that should be pooled nationally, and councils should be allowed to bid for money from that pot. There is an argument for having all income ring-fenced locally, but the fundamental problem is that the Treasury takes money out of council housing, which is why most councils face financial problems today.
Q 71 Mr. Wright: On ring-fencing the money, does that not relate to the wider community issue? You have mentioned a swimming pool. I think that you meant it
Alan Walters: I use a swimming pool every day. If a community needs a swimming pool, then council tax should be used to pay for it. The whole community should pay for that facility. However, what we are talking about here is council tenants rent. I think that 100 per cent. of it should be used for the maintenance, management and improvement of council homes. Apart from council tax, we do not take money from home owners to pay for a swimming pool. Council tenants should not be penalised twice, which is what has been going on. What is particularly absurd and obscene is that money taken out of council housing has been used to fund Government subsidies for home ownership. If people want to be home owners, that is fine, but council tenants should not have money, which we need to improve homes on estates, taken from them to subsidise other people being home owners. If people want to be home owners, they should do it themselves.
Q 72 Margaret Moran: I just want to clarify your position on the housing revenue account. You have quite rightly referred to a £1.8 billion surplus. Is there not an argument for using that surplus not only to manage and maintain, but to enable local authorities to build new homes? As regards ring-fencing, I am particularly confused. As you will be aware, some local authorities are in great surplus. Arms length management organisation are in surplus to the extent that they could fit jacuzzis in some of their properties, because they have achieved decent homes standards several times over. Broomleigh housing association is one such example. On the one hand, some authorities are over-providing, if that is possible, but London councils have a massive deficit in their housing investment. Can you explain your argument on ring-fencing in that context?
Alan Walters: Our position is that rental income and capital receipts should be ring-fenced locally to manage, maintain and improve existing council housing and build new council housing. If councils can manage and maintain their existing housing and they have some money left, they should use that to build new council homes.
As regards the London situation, some authorities are in serious financial need and in receipt of positive subsidy, largely because there is a massive overlap in terms of high levels of historic debt. The big metropolitans that built lots of housing in the 60s and 70s tend to have high levels of historic debt and therefore need support. The Audit Commission in its 2005 report Financing Council Housing recommended paying special attention to that small number of authorities. We would argue that, as part of introducing a level playing field, Governments should take over local authority historic debt, to get rid of that imbalance. That would be financially absolutely neutral, and it would not have any impact in terms of either pound notes or PSBR, but it would put all authorities on to the same footing.
On some authorities being in surplus, I would be surprised if any were. Perhaps some ALMOs are quite comfortable in terms of their capital budgets, but a large number of ALMOs face the same kind of
Q 73 Mr. Andy Slaughter (Ealing, Acton and Shepherd's Bush) (Lab): How far are you pushing this means-testing point? If there is a criticism of the clause, I should have thought that it is that the phrase below market rent could mean anything. Wandsworth Council at one stage called properties at 99 per cent. market rate affordable homes. My local authority is targeting its affordable housing at people on between £50,000 and £60,000 a year. That is the criticism that could be made: it is slightly vague. Surely council housing, even in its heyday, was targeted towards people in housing need to some extent, whether they were people in substandard housing or people who were homeless. I entirely agree that there is a need for such housing for people who are in overcrowded conditions, but should you not be focusing on that issuethe need for the supply of genuinely affordable housingrather than trying to recreate some sort of halcyon day that never existed?
Alan Walters: If we want to achieve the sustainable mixed communities that the Government say are their ambition
Alan Walters: I certainly want to do that. I live on an estate and I know the problems of people moving in and out and right-to-buy leaseholders selling on to management companies and short-term six-month lets. You meet people in the lift whom you have never seen before and you wonder why there are all these white goods by the bins all the time. Having mixed tenure on our estate does not improve the community; it means that people who are coming and going have no commitment to the area. If you want to make council estates mixed communities again, we have to bring people back to those estates from a wide social mixthat means the teachers, the nurses and the IT workers, as well as the butchers and bakers.
Q 75 Mr. Slaughter: I know the problem that you are talking aboutit is a big problem for mebut those disruptive properties are often the ones that are being let out at market rents, because they are right-to-buy properties that have been bought by companies on a buy-to-let basis and are being rented back to housing associations or local authorities as short-term lets. Often there are also people renting at commercial rents living in them. You cannot designate exactly who you want to live everywhere. We are not living in the sort of society where you can say, You live here and You
Alan Walters: I suppose that what we think is that, if we are going to have a housing regeneration Bill after waiting all these years, we should do it properly, by ensuring that current council estates and the new estates that we build are mixed communities. We are not for intricate social engineering and you cannot sort out who will live at No. 25, but we should ensure that council housing is first-class housing that a wide range of people want to live in and are proud to live in. It should not be stamped as housing of last resort that only those who cannot afford anything better would move into. That means massively expanding the numbers of council houses.
We are concerned about the proposal for local housing companies, and you have already discussed what kind of consideration councils should have when selling public land. We would argue that, where there is public land, it should be used to build first-class public housing, because there is massive demand for that. It is quite clear that that is what people want. That process would provide the homes, create mixed communities and get rid of the stigmatisation. It would be win-win all the way round. There is massive popular support for the Government to do that.
Alan Walters: Defend Council Housing is a particular campaign, and we do not pretend that we have a view on every issue that has a big H in it. We have concerns about the cross-domain issues. The Bill does not include local authority housing, although in the discussion this morning, we heard the LGA and the Chartered Institute of Housing say that, in the next month, they hope to come up with some words that would allow the Bill to take that on. That scares us.
I said at the beginning that there are big differences between council housing and the alternatives. The key thing is that council tenants need to be consultedwhich they have not beenbefore there are any changes. I suspect that most council tenants would be in favour of a levelling-up exercise, if we are talking about RSL tenants and private sector tenants having the same rights for all tenures, with the landlord being obliged to consult tenants about management and change of ownership. Perhaps that would be acceptable to council tenants, but I do not think that that is what is being suggested. It will probably be more of a levelling-down exercise.
In terms of crucial issues like tenant voice, we do not believe that there is strong demand from council tenants to change the management of their homes. There is a lot of emphasis put on that, and there is a new clause that allows small groups of tenants to demand a ballot. We see that more as a landlords charter, empowering landlords to seek out those estates where there are two blades of grass and a bit of childrens playground, where they could build some
We are concerned that the Cave report has not taken on board the opportunity to make it a requirement for landlords to fund genuinely independent tenants organisations. A top-down tenant panel or consumer panel has nothing to do with most tenants on the estate. We are concerned with where all of this is going. The danger with what the Government are setting up is the opportunity for a levelling-down exercise where council tenants lose their rights under law and a situation where the Government have some tame panel that it can consult and, in the name of that, impose changes on all tenants.
Q 77 Mr. Raynsford: Why should a group of tenants that has a poor standard of service from its council landlord not seek a ballot on the transfer to an alternative one?
Alan Walters: In principle, there is absolutely no reason at all. We have never been opposed to people having ballots. What we have said is that there should be a very clear code of practice to ensure that that ballot is conducted in a way that most people would think is democratic. There should be a clearly set out timetable, so that people know when the vote will be and a fair and balanced debate with resources for people to put both sides of the argument. That is not what you have in the vast majority of stock-transfer ballots today, where the council has all of the resources and it pitches a very straight PR campaign promoting the stock transfer. Often there is no argument put up against it at all.
If you accept the principle that tenants should have the choice, you would give RSL housing association tenants the right to ballot to return to the council. That is not there, so the democracy bit ends up being a cloak to create the circumstances in which public council housing can be transferred to the private sector. There is a big lobby in favour of doing that. However, there are not a lot of tenants across the country demanding a change of landlord. They want decent, modern homes in estates; they want improvements, but that is about investment and a need for change to the housing finance regime. I do not think that many tenants think that a change in landlord will make much difference to them.
Q 78 Mr. Raynsford: Mr. Martin Cave, in his review, specified three principal objectives for the regulation of social housing: to insure the continued provision of high-quality social housing; to empower and protect tenants; and to expand the availability of choice of provider at all levels in the provision of social housing. Do you agree with those objectives?
Alan Walters: As I have said, we think that the problem of empowerment is best solved by helping tenants organise locally and requiring the landlord to respect the democratic views that tenants express. All too often, there is a token tenant participation operation, which is top-down and has more to do with ticking boxes. When tenants say, as we do in Camden, We dont want stock transfer, PFI or an ALMO; we want the council to have the money to carry out
Mr. Raynsford: To expand the availability of choice of provider at all levels in the provision of social housing.
Alan Walters: That is obviously part of a bigger discussion. There is a strong argument in favour of people having the choice of which local school and hospital they use. I feel that most people want a first-class local school, a first-class local hospital and to live in first-class housing, and the issue of choosing a landlord is not any more of a real concern. I do not think that that is at the top of the priority lists of the people who live on my estate or who attend the tenant meetings that I go to around the country. They will complain about what their landlord is doing and want to be able to hold them to account and to see their estates improved, but changing a landlord is not really an issue for tenants, although it might be an issue for the industry.
Q 79 Alistair Burt: I want to return to the definition of social housing and clarify your thinking on that. Do you feel that the provision of council and rented housing generally is an issue of principle and that, if you want to rent, you should feel able to, regardless of who you are or where you come from?
Alan Walters: There is a principle there, absolutely. It is wrong that people should be forced into home ownership, as a lot of people do not want the burden and responsibility, because it does not suit their lifestyle. For an awful lot of people, it is not a consideration, because they cannot get anywhere near affording it, so I think that having a rented sector is a matter of principle. It is then a question of what kind of rented housing, and we would argue that council housing provides the secure tenancies, lower rents and accountable landlords, and those advantages mean that it is worth defending and extending.
Q 80 Alistair Burt: There is an argument that many fewer people rent in this country than do elsewhere, such as the continent, because there is a stigma attached to renting. Is it your belief that, if we introduced a means-testing provision, we would add to that sense of stigma and the public would never have the chance to rethink renting in such a manner, as they obviously do on the continent?
Alan Walters: Yes, it is remarkable how much public opinion and perception has changed over the years. Not that long ago, people were quite happy to rent. They had complaints about the condition of their housing, but I do not think that the issue of ownership or renting was a major political issue in this country. Political opinion can shift, but it can equally shift back the other way.
The Government argue that the majority of people aspire to be homeowners, and it may well be true that, if you asked people in the street whether they wanted to be a homeowner, a lot would say yes. However, a whole lot of people face chronic overcrowding, and a whole generation of young people cannot move out from under their parents feet. If you said to each of
It comes down to the available options. The problem is that successive Governments have discriminated against council housingboth financially, by taking money out of that system and disinvesting, and by deliberate stigmatisation. We want investment to go back into council housing, to improve existing homes and build new ones, and we want an end to stigmatisation. Let us make council housing a form of housing that people can once more be proud about.
The Chairman: Order. I have learned that you have a bad back. Is there any way in which you can make yourself more comfortable?
Alan Walters: I am fine, thank you.
Q 81 Alistair Burt: I am interested in whether you read the Bill as I do. The clause states that accommodation should be made available in accordance with rules that are eligibility designed to ensure occupation by people who cannot afford to buy or rent at a market rate. That implies that if people begin living in a property because their income is X, and they improve their circumstances such that their income is X-plus, somebody will come along at some stage and say, Youve got to go.
Alan Walters: The clause clearly means that people will be means-tested in.
Alan Walters: People will be means-tested in order to decide whether they qualify. The position on what happens after that is ambiguous. However, if people are going to be means-tested to enter council and low-cost housing, there is logic in continuing to apply means-testing for the duration of occupancy. That is not the direction that we want to go in, and we believe that most people in the country do not want it either.
Q 82 Andrew Gwynne (Denton and Reddish) (Lab): I apologise for not being present when hon. Members declared their interests. I declare for the record that until May I shall be a member of Thameside metropolitan borough council, which is a housing authority.
There is no pretending that stock transfer and large-scale voluntary transfers are not controversial. Two ballots have occurred in my constituencyone in Thameside in 1999 which produced a favourable vote for new charter housing, and another in Stockport in 2003 which rejected proposals for LSVT, although eventually an ALMO resulted. Given what you said in response to an earlier question, do you not recognise that the mere fact of housing being in the control of a local authority does not necessarily imply democratic control? The large overspill estates were created in the 1960s, when slum clearance took place and people were shifted out of one local authority to live in a new estate that was
Alan Walters: You are right in everything that you have said about the limitations on the accountability of councils. It is right too, as has already been said, that council tenants form a tiny minority in some wards, so they do not register on the political radar. Some accountability exists, however, whereas registered social landlords are not accountable at all. It is not a completely black and white situation, and there is no doubt that some RSLs originate from the cuddly local community movement. However, the dynamics in the sector are driving towards massive regional, national and multi-million pound private companies in law driven by business plans and increasingly looking to development for profit. In that situation, the idea that tenants have any hearing or that landlords, operating across dozens or, in some cases, more than 100 local authority boundaries, are in the least interested in, or capable of, responding to the needs of particular tenants is nonsense. Councils have limitations, and we argue that we need to strengthen the relationship between tenants in council housing and local authorities. However, that is massively better than the relationship that most tenants have with RSLs.
Q 83 Andrew Gwynne: If I had been a councillor representing the Haughton Green overspill estate in Tameside in my constituency when it was the responsibility of Manchester city council, I would have had no voice on Manchester city council and no way in which to force the council to do anything. How is it different now that Irwell Valley housing association is responsible for Haughton Green estate? Surely the only difference is that major investment is now going into that estate, whereas before there was none. Where is your argument about democracy there?
Alan Walters: You can always find examples in which the principle is more tenuous. Nevertheless, however tenuous that relationship, you are up for re-election and will have to look over your shoulder at who will re-elect you. The RSL board of directors is not up for re-election and, therefore, is not looking over its shoulder. The majority of council tenants will have a closer and more direct relationship with their local councillors. In the majority of cases, the relationship is better than in the exceptions that you are painting.
On the second part of the issue, about areas that, having been transferred, made improvements, we think that it is outrageousthis is where you must question all the talk about democracy, empowerment and ballotsthat if tenants, when asked to make a choice, make the wrong one, the councils debt is not written off and the tenants do not get the improvements, whereas if they agree to privatisation, those improvements are made.
Between 1993 and 2004, the Government siphoned £24 billion out of the national HRA. However, in 2000, the backlog of repairs and improvements was estimated by the then Office of the Deputy Prime Minister at £19 billion. That was outrageous! The money was available to carry out the improvements that tenants wanted. The work could have been done by local authorities, and it was only because of dogma that it was not. We need to reverse that situation and to respect tenants choices by allowing them to stay with a landlord and get their improvements. This Bill should be doing that.
Q 84 Andrew Gwynne: In the Stockport part of my constituency, where they rejected stock transfer, one of the issues for tenants was the protection of their rights under the local authority and fears that they would not be protected following stock transfer. However, where transfer has taken place, do you think that the provisions in this Bill will strengthen tenants rights through Oftenant? Do you think that it will provide a level of protection not currently in place?
Alan Walters: My understanding is that it is unclear exactly what Oftenant will do. It is not at all clear whether it will be accountable to tenants or whether what it will do will be done on their behalf. There is a very great danger that, because the Bill blurs the distinction between so-called not-for-profit and for-profit landlords, and allows for-profit landlords to operate in this area, the overall effect will be to the massive detriment not only of council tenants, but of RSL tenants. It is dragging the whole thing in the direction of the private sector. What we know about private sector landlordism is that it benefits not tenants, but those who own the land and the banks lending the moneythe industry. The answer, probably, is nothe overall impact will be to the detriment of all tenants. There is a lot of ambiguity in the clauses, but some of them are off our radar.
Q 85 Paul Holmes (Chesterfield) (LD): I want to explore a little further the issue of democratic choice. We have just heard examples of what I would have thought were fairly unusual circumstances around the country in relation to overspill estates. Where I used to work in Buxton, there was an example of a Manchester overspill estate, so I have seen it there, but in the case of most councils, surely there is a very direct relationship. In Sheffield, on the council estate where I grew up, there was a direct relationship between tenants, votes and the councila relationship that has now gone because the council has gone to ALMOs and housing associations. In Chesterfield, people were able to vote against a council with low satisfaction ratings and elect a council to which they now give high satisfaction ratings. Presumably most councils have a fairly direct link, do they not?
Alan Walters: If we had a research department, I would ask it, but we do not, so I cannot. Not enough is known about how exact that link is. There is a lot of anecdotal evidence from talking to councillors that people know what their tenants association is, and if there is not a tenants association, they know people who are active in the community. In particular, they know who is involved when it gets close to an election, whichever party those people are in.
One of the other interesting things is that there are a number of authorities where there was a stock transfer ballot in which tenants voted no, and then the political control of the authority changed at the next election. I am sure a number of factors are involved in that, but there are cases in which it has been quite clear that the tenant vote has counted. We do not say council housing is perfect in a whole number of areas, including accountability. We are arguing that it offers something that is significantly stronger than what alternative forms of landlord offer. Therefore, if tenants choose to remain as council tenants, there is an obligation on the Government to stop robbing their rents and to fund improvements. If people on a council waiting list are clearly saying, We want to be council tenants,actually, quite a lot of them are saying, We would prefer to be a council tenant than an RSL tenant, because we think that the council is a better landlord, the rents are lower and the repairs are done bettera Government who say that they are in favour of choice should respect that choice. The Bill is an opportunity for the Government to do that. That means a fundamental review and overhaul of the HRA to give councils the meanswhether you call it a fourth option or anything elseto improve, maintain and build new council housing.
Q 86 Paul Holmes: Further to that point, in about 120 or 140 authorities, the tenants have voted at least oncefour times, in Camdens casenot to transfer. However, they are offered a choicecorrect me if I am wrongwhereby if they transfer to the housing association, the housing association keeps all the rents and reinvests them, but the council keeps only whatever percentage it is allowed by the Government. Money is taken away from three quarters of councils. The housing association keeps 75 per cent. of right-to-buy money; the council keeps 25 per cent. The historical debt of the housing association is written off; that does not happen for the council. Even though it is a pretty loaded, undemocratic choice, there are still 120 or 140 areas where the tenants have said, We want to stay with the council.
Alan Walters: I think that that is extraordinary. That so many council tenants have voted to remain with the council is to the credit of council tenants and, to be fair, to the credit of elected councillors, MPs and the trade union movement, who have supported the argument. It is an almost unprecedented mandate that the Government cannot afford to ignore. Lots of people are for or against all sorts of Government policies, and they might moan and protest. It is partly a historical accident, but council tenants were given a ballot, and many council tenants have exercised that right and turned down what was offered. When you consider the blackmail and bullying that have gone on in terms of twisting peoples arms to go for the privatisation solution and the bribes of new kitchens, bathrooms and so onpeople are often desperate for those improvementswe think that the Government should respect the choice that people have made, which means allowing councils to do the job that their tenants want them to do. The Bill has to do that.
Q 87 Mr. Wright: A quick question: on principle, are you opposed to the use of private borrowing to help to allocate additional social housing?
Alan Walters: No. I think the answer has to be absolutely not, in principle. The question is what conditions or costs are involved. We would certainly defend secure council tenancies, lower rents and accountable landlords. If we can find a way of squaring that circle that maintains all those elements and does not mean private landlords or consortiums of developers in effect taking over our estates, we would be prepared to look at the options.
The Chairman: Order. We are about to come to the end of this part of the sitting, Mr. Walters. On behalf of the Committee, I thank you for your evidence and hope that your back gets better.
Alan Walters: Thank you.
The Chairman: Order. Good afternoon, Mr. Gelling, Mr. Bliss and Mr. Edis. Welcome, and thank you for coming. Would you like to make an introductory statement, Mr. Gelling?
Michael Gelling: The document states that we are from the same organisation, but that is certainly not the case. I chair the Tenants and Residents Organisations of England.
Nic Bliss: I represent the Confederation of Co-operative Housing.
Terry Edis: And I represent the National Federation of Tenant Management Organisations.
Q 88 Paul Holmes: We have heard in previous evidence that there has been controversy in the past about ballots on transfer and how they have been run. There have been suggestions that ballots are not always run openly and fairly. Clause 257 of the Bill tries to introduce principles such as making a ballot mandatory, if it has not been so before, and establishing a fixed period for tenants to make their views known during the process. Will that solve the problems that used to exist in respect of ballots on stock transfer?
Nic Bliss: By and large, most of the stock transfer ballots have been run relatively legitimately. The Bill crystallises what is actually done in practice at present. One of the key issues for our three organisations is that we want tenants in communities in this country to be in a much stronger position and to be able to make decisions about their homes and neighbourhoods. That is fundamental to us.
One of the things that is particularly important about the stock transfer ballot is that councils are forced to engage with their tenants during the process, and the resulting organisations have generally been some of the better landlords in this country and have engaged with their tenants. That is the reality of the situation.
One of our concerns is that in changes in the management of housing association tenantsthings like mergers between different housing associationstenants are not in a position to have any say. It would probably be better for them if they were in a position to vote, because landlords would be required to go through a strenuous process to engage with them,
Michael Gelling: The process has improved since it began. Today, independent tenant advisers are more independent than they were five or six years ago, and they are not influenced as much by the existing landlords wishes in respect of the transfer, but it is still sad when a landlord does not really engage until a transfer is on the menu. Engagement with the tenant should be there as standard anyway, and it should not improve just because people want to talk about a transfer. It should be there as the standard, normal thing to do on a day-to-day basis about all services that are provided.
I thoroughly endorse what Nic has said with regard to the housing association sector. The tenants in that sector have no control and no say in any mergers or group structures that are created within that sector, and half the tenancies in England now belong to the housing association sector.
Terry Edis: I certainly think that the provision closes a loophole. There are local authorities that use that loophole. As Nic has said, the majority of local authorities go along in the right frame of mind, as far as their tenants are concerned, but I think that putting it in the Bill will close a possible loophole.
Q 89 Margaret Moran: Can I get your views on the right-to-manage proposals within the Bill? Do you think that they go far enough? Are they likely to be effective? Are there changes that you would like to see? And are you awareI guess that you are very awareof the proposals for resident-led self-regulation, with tenants and residents being involved, for example, in inspection procedures, particularly within RSLs? Do you think that such measures should be included in the Bill? Would they help to assure you that the Bill truly has tenants concerns at its heart?
Michael Gelling: Our experience, as the Tenants and Residents Organisations of England, is that many landlords engage with tenants. Tenants have been inspectors in all kinds of roles within our organisation, and they have inspected everything that landlords do, because there is best practice out there. There are very, very good landlords out there in all sectors. My organisation represents tenants, and we are not particularly interested in who the landlord iswe are interested in how the landlord acts and relates to the tenant. There are good landlords in all the sectors.
Where it is difficult is where a landlord does not engage with tenants. If tenants do not know that they have choices, or if tenants and communities do not know that they can be empowered, they will not be empowered. Many people in this country do not know that they are empowered to influence local authorities in any venue and discipline that they take notice of, never mind the landlord discipline. So I think that we still have a lot of educating to do, to tell people what is expected from them if they want to engage in their community and with their service providers, because it is about engaging with not only local authorities, housing associations and landlords, but all the disciplines and services that are provided. If that is the agenda of the Government, there is still a long way to go.
Terry Edis: You would probably expect me to say this as chair of the National Federation of Tenant Management Organisations, but I do not think that the right-to-manage goes far enough. I think that it should exist within not only the local authority sector, but the RSL sector. Then, we would start to get the right to manage, which is the phrase that should be looked at. The Bill does not go far enough. What is in the Bill is certainly helpful, but as chair of the National Federation of Tenant Management Organisations, I would like to see it go further, certainly within the RSL sector.
Nic Bliss: For many years, tenants have consistently raised with us the issue that the right to manage should be extended to the RSL sector. It sends the wrong signals to housing association tenants that that is not the case.
The work that has been done to streamline the tenant management organisation structure and to set up process is welcome. Most of the actual nuts-and-bolts work to improve the process and to set up tenant management organisations is not legislativeit is more procedural in some ways. That kind of work is going on at the moment.
Resident-led self-regulation is a new concept, and it is too early to legislate on it, to be honest. People such as ourselves have only really been involved in these kinds of debates in the past two years or so. Before it is realistic to expect tenants of housing associations in particular to be seriously and properly involved in the regulation of housing associations, a lot of work is going to have to be done to make that real, quite frankly. What we do not want to end up with is a handful of tenants who do not really know what is going on trying to regulate housing associations. That is not directed at housing associationsit is true of councils as wellbut unfortunately, in the majority of both sectors, there is a culture of disempowerment. The landlord makes the decisions and the tenants are there to receive the service, and sometimes they get a good service and sometimes they get a bad service. There are only a few examples of landlords really welcoming tenants being involved in decision-making processes. Until that whole culture starts to change, trying to drop resident-led self-regulation on it is not going to work.
Q 90 Sir George Young (North-West Hampshire) (Con): Mr. Gelling, you talked a moment ago about empowering tenants. Have you considered the position of tenants who want to move from one area to another but who, in the absence of any national mobility scheme, find it difficult to do so? Have you addressed that issue in any way?
Michael Gelling: I do not think that that is about mobility; I think that it is about the lack of properties to move to. There are about 1.2 million people on waiting lists in this country waiting for houses in our sector. I live in a small unitary authority, and I work as an advocate on a day-to-day basis to assist people with housing issues. I currently represent a lady who has six children and wants a bigger property, but there is not one in the borough that she can move to. She cannot stay in that community, and her children cannot stay in that school. They have to move somewhere else becauseit is not a criticism; well, maybe it isthe
Terry Edis: With the building of all the new properties and what have you, there needs to be a big element of rented social housing. Then we can have, more gradually if you like, people moving from area to area. That is a big thing that we need to look at within the programme of building all the properties that we are looking at.
Q 91 Mr. Raynsford: We are going to receive evidence later from the Council of Mortgage Lenders. Its written evidence states:
While accepting that some tenants can and do participate successfully in management, lenders will be uncomfortable with the reference to control.
Is that an issue in relation to housing associations?
Terry Edis: Walsall decided in 2001 that it was going to transfer all its stock. We have eight tenant management organisations in WalsallI know that you have been to see ours at Burrowes streetthat did not want to be part of the main transfer vehicle. We decided to set up our own registered social landlord, which would be completely tenant-controlled. One tenant from each of the eight tenant management organisations is on the board, plus four independents. It is completely controlled by tenants, but more to the point of your question, we had lenders queuing up to lend us the money. We had to go through a process of interviewing them to see which one we wantednot what they wanted to doas our preferred partner in using the money. For us, that certainly answers the question.
Nic Bliss: I can back that up. The reality is that lenders are competing with each other to lend to tenant-led organisations as much as to any other organisation. Lenders are not going to stop lending to the social housing sector, because it is relatively safe borrowing for them. I worked with the tenants to set up the Preston community gateway association, which is a tenant-led organisation that has explicit commitments to things such as tenant management, and similarly the Watford community gateway association. Lenders strongly competed to lend to both of them, and they actually found the involvement of tenants in decision-making reassuring. They were lending at the same rates as any other organisation, so I suggest that the CML is not reflecting what is happening in practice.
Michael Gelling: I think you need to define what control and tenant-led mean. Tenants do not have to sit on a board to lead an organisation. If the board and the organisation have a philosophy of putting the tenants voice first, the professionals can still make the decisions, but they will be based on the empowerment that they have given to people to write the menu, as it were. It is important to understand that we are not different from other people just because we are tenants.
Q 92 Mr. Raynsford: May I move on to a slightly different, if related, issue? You commented on the lack of opportunity for housing association tenants to comment on transfers in the sector. However, I must say that that is not always the case. In a previous incarnation, I advised housing association tenants who were considering a transfer to another association, so it can happen in certain cases.
There are circumstances, howeverlet us take what has happened in the past few weeks with Ujimain which an association that is in serious financial difficulty would go to the wall, literally, with the risk to tenants tenure, if it was not transferred rapidly to another association with greater financial strength and the ability to provide that safeguard. That seems to be difficult to reconcile with the procedures that applyyou would probably like to apply themto having some degree of tenant say on a transfer.
Nic Bliss: Perhaps tenants should be involved in the association all along. In my experience of working with tenants, I have found that they are interested in the financial structure of their association and that they would like to be involved in those kinds of decisions. If tenants had been involved in the situation you mentioned, perhaps they would have seen that problems might arise before they did, and would have prevented them or found some way to move in a direction that they wanted.
You are right to say that some associations are good at engaging with their tenants, but the reality in most housing association transfers or mergers is that the decisions are made behind closed doors by two chief executives, more or less.
Michael Gelling: One of them is usually retiring.
Terry Edis: If the tenants are there at the beginning and making the choices and what have you, their vested interest is not to let the association sink so low. At the end of the day, it is their homes that count.
Q 93 Mr. Raynsford: My point was that there are certain circumstances in which safeguarding the security of tenure, and protecting tenants from the risk of having their homes repossessed, might justify something that is slightly less than ideal.
Terry Edis: Do you put that down to tenants or, as I said, bad management of the housing association?
Michael Gelling: Is that not about guardianship and the time when you engage? People should know if their tenure is being jeopardised by bad management. It is a question of how to deal with that. There will be always be exceptions to all rulesthere must be; that is what rules are for.
Q 94 Mr. Raynsford: That takes me to my third point, which is about the role of the regulator in the new legislation. As spelt out, the legislation will enable the regulator to keep a close watch on the range of things, such as those we described, that might indicate poor management and financial control by an organisation. Would you like to make an observation on the definition of the remit and role of the regulator? Do you think that the regulator will be effective on those terms, or do you think that they could be improved?
Nic Bliss: We welcome the general thrust of the Bill because the regulator will have a widened scope and objectives, particularly on involving tenants in decision making about their homes and neighbours. I obviously support that.
As with anything of this naturethe changes are wide-rangingthe reality of how the Bill, which provides a framework, is implemented will determine its success or otherwise. It is important that tenant representatives are involved in the formation of both the HCA and Oftenant. Tenants must be right at the heart of the process, to ensure that they can get involved in decision making about the kinds of things that we are discussing. That must be built into every part of the new organisation. I do not know whether that is yet the case; perhaps it needs to be looked at.
Q 95 Mr. Wright: I want just to push you a little further on the point that Nick Raynsford was making about the whole regulatory framework and the Secretary of States ability to direct the regulator. We heard evidence earlier from the National Housing Federation, which has expressed concern about that. Will you reaffirm that you are happy with that regulatory framework, in terms of the direction from the Secretary of State down to the regulator, and on to housing associations? Secondly, in terms of standards, clause 173 states that
Standards under subsection (1) may, in particular, require registered providers to comply with specified rules
A range of things are then specified, such as
the nature of the housing demands...the extent to which demand is to be supplied...terms of tenancies...anti-social behaviour...landlords contribution to the environmental, social and economic well-being of the areas.
Are you happy with those standards?
Nic Bliss: I think we are. That is the short answer. I can understand where the National Housing Federation is coming from, in terms of trying to protect their members and so on, but the reality is that when you go out and talk to tenants and explain to them about organisations in which tenants can get involved in decision making, both housing association and local authority tenants are shocked that they do not have those kinds of powers and rights as well. For years, we have been trying to come up with ways to cajole both local authorities and housing associations to start to work with their tenants. In some cases that has had some success, but the reality is that the majority of social landlords at this stage are not really working with their tenants and do not have the culture to work in partnership in decision making with their tenants. In the 21st century it is shocking that tenants are unable to get involved in decision making about their homes and neighbourhoods, so if it takes putting it in the Bill I think that it should be there.
Terry Edis: I agree with Nic. Again, we come back to the issue that while we agree that the things that you have mentioned are in the Bill and we would support that, we would also say that it must be driven by the tenant movement.
Michael Gelling: Again, that comes back to the regulator. If the regulator is seen to have tenants involved in the regulation, that sends the message out to organisations that tenants are at the heart of things.
Nic Bliss: Or decrease services.
Q 96 Ms Smith: I want to tease out the issue of tenants empowerment because I think that most people, if not everybody, around this table would accept that tenant empowerment should mean at least some meaningful control over the management of your home. I will for ever hate the colour maroon because when I was a child all our houses had to have their front doors painted maroon. We had no choice whatever about the colours or the maintenance of our homes. We have all moved a long way since then, and I hope that that is now accepted, at least.
I want to tease out your ambitions with regard to the more difficult management issues in the tenanting sector in relation to allocations, which is where it gets difficult. For instance, I have a difficult case at the moment involving an individual whose wife has left him and taken the children with her. He has now been told by Sheffield council, which incidentally for the record is not a shining example of tenant empowerment, that he will have to move to a one-bedroomed flatand that he will be moved back to a three-bedroomed property if he gains access to the children. Such situations of powerlessness are not acceptable.
Terry Edis: Or bureaucracy gone stupid.
Ms Smith: On the other hand, allocations can be difficult when vulnerable people and vulnerable families are involvedthose that no one wants to live next door to. I would be interested to hear your response, as the voice of tenants, on how you see tenant empowerment working when it comes to the difficult issues of allocation and tenancybasically, the management of limited supply.
Terry Edis: A few years ago, it was said that tenant management organisations outperformed local authorities in every departmentrent collection, antisocial behaviour, lettings and everything else. The structure is there, through the tenant management system; the policies are made by the tenants but they are carried out by the paid staff. There is a line, and that line should never be crossed. The defining line is that, yes, we make the policies, but the staff carry them out. As long as they are carrying them out, we would not encourage any tenant management organisation whatever to get involved with the management of the properties, or any aspect of it.
Michael Gelling: One of the biggest issues is allocations, because of the confidentiality of dealing with particular families in their particular circumstances. I know that tenants were involved with allocations policies way back in the early 1980s; tenants actually sat down and wrote allocations policies.
Allocations policies work very well when you have officers who carry out the allocations in a human way,
If we want balanced communities, the commodity has to have people in there who work, who earn money, who may be on benefits, who may be single parents, who may be black, who may be white, who may be Catholic, Protestant or Muslim. If we want mixed communities, that is what we must have. Once you start saying, Well, these peopleor those peoplecannot be allocated to these properties, we start ghettoising, with little pockets of people within our communities. That is certainly not the way that we want to go.
Allocations is the most sensitive issue. We can all pick paint for our front doors and all that business, but allocations is at the heart of everything that we do, because you cannot go and tell the world why you got that house. You cannot do that, but behind the scenes tenant activists need the ability, as always, through a confidentiality provision, to scrutinise the allocations policy to ensure that the officers are being fair and equitable.
Q 97 Ms Smith: That statement implies the belief that tenant management on that sort of scale is more successful in ensuring a fair and flexible interpretation of allocations policy than you might get with a large-scale local authority landlord. Is that so?
Nic Bliss: There are a number of different ways for tenants to be empowered and to be involved in decision making, and we think that there should be a whole range of different ways in which that should happen. Some of it is tenant management. I live in a housing co-operative. There is a staircase of opportunities, and so on, and we think that all those opportunities should be available. The further you get up, the more responsibility you take on, so the more training you have to go through to be in a position to take those decisions. My experience of working with tenants throughout the country is that, when we work through the issues with people, they are generally far more keen to see a fairer system of allocation than some local authorities. Sometimes, local authority systems can become formulaic and a bit soulless.
Tenants recognise the need to house vulnerable people with different ways of life from themselves. They want to create support mechanisms for those people. In my experience, tenants want to see that happeningif we work through the issues with them. Sometimes, when you first start to talk sense to themif they have not had any engagement with the issues and so onthey might say all sorts of things, but once we actually work through the issues, my experience is that tenants will generally be fair and want to set up the right system. [ Interruption. ]
The Chairman: Order. I ask not only members of the Committee, but members of the public to check their mobile phones to see if they are switched off.
Q 98 Mr. Slaughter: Do you see a role for TMOs as being an exceptional alternative to other forms of social housing, whether council or RSL? Do you think that TMOs should be a sector that stands alongside other forms of social housing, such as council housing and RSLs if the right for TMOs and RSLs is granted, or do you see it as more of an exceptional circumstance? I ask that question because, in theory, there is no reason why TMOs should not have grown at the same rate as RSLs, but they clearly have not. If you think that TMOs should be a substantial sector, why has that not happened?
Usually, a bad existing landlord or a very good and motivated group of tenants, or possibly both, are needed to make that happen. Although local authorities do not often say publicly that they are anti-tenant management, some will often do everything that they can behind the scenes to prevent that from happening. We could argue that the sort of comments that we have heard from the CML imply that there is something flaky about TMOs. Those are my reasons, but should like to hear your reasons.
Terry Edis: It is a question of what is right for that area, the group of tenants or whatever. If they want to consider tenant management and, if it is right for them, they should be allowed to do it and not stopped. We all know of local authorities that have actually closed tenant managements when they were outperforming the local authority in every aspect. I see that as running alongside, not as an alternative and cutting everything else off. If it is right for people in the area, and they want to do it, fine. If they want to stop with the council, fine. If they want to stop with an RSL, it is a bad choice.
Nic Bliss: There should be a range of opportunities for tenants to get involved in decision making in respect of their landlord, from very informal things such as being able just to talk to the landlord at one end of the spectrum, through to tenant management. Tenant management should not be seen as some sort of exception, but as something that tenants can do if it is right for them in their area. It has been said that the Council of Mortgage Lenders might consider such matters as flaky, but there is no evidence to suggest that that is the case. All the evidence of tenant-controlled, tenant-managed and tenant-owned organisations is positive. It says that generally, when tenants are properly trained and in the position to make decisions about their homes and neighbours, they make better decisions. Obviously, that will not be right for every area. Different solutions will be right in some areas.
Q 99 Mr. Slaughter: I think I am implying that there is not a level playing field. Barriers are put in the way of tenants when they want to manage their own estates.
Nic Bliss: The key issue that I want to come back to is the fact that, with most social housing landlords, tenants are not in a position to get involved in decision making. That is the problem, whether it is the tenant management organisation or anything else.
Terry Edis: More knowledge that they actually can do it. That is what is lacking with a lot of local authorities, certainly with housing associations. They do not want to tell the tenants about it in case they
Nic Bliss: It is not a simple matter of just one or two issues; a process of cultural change needs to happen across all our public services. It is about people being prepared to say that those who use the services can get involved in decision making and can make the thing better. To a certain extent you guys need to lead that process; you need to be out there saying it repeatedly. That is what we need you guys to do. We can work with the nuts and bolts down on the ground but you need to set the tone to say that that is what should happen.
Terry Edis: One thing in the Bill concerning local authorities, and certainly we welcome it, is that it gives tenants rights if they want to explore them. Again, we can give you examples of local authorities that let tenant management organisations look at different stock options, and spend public moneywe are talking about thousands of poundsbut when they say, Thats the option we want, the council says, Well that is not the option that we want, so you are not doing it. That has happened not once but on several occasions.
Michael Gelling: Is it not alarming that the Chartered Institute of Housing has an award ceremony every year for landlords who do wonderful things with tenants and vice versa and so does the National Federation of ALMOs and the National Housing Federation, but the message about best practice does not seem to go out to all the landlords? But it is there; it is happening in some areas and we cannot get away from it.
It is surprising that in a large local authority or an even larger housing association there can be pockets of best practice in one area but not in others, and you ask, How is that done? It must be down to personalities and cultures in certain areas. The question is how you get that culture to spread. It is one of the only cultures, or diseases, that you want to spread, to get it out there and get everybody having a bit of it. It happens even in the same organisation and the question is how we turn it around and inform tenants what the menu is, because if they do not know they can never make those decisions.
Terry Edis: And local authorities do not want to grab it. They are not going to tell the tenants anyway, are they?
Q 101 Mr. Raynsford: The second of the three objectives spelt out in the Cave review for the regulator is to empower and protect tenants. Let us assume that the regulator is established; if you had to advise him on examples of good practice, which two or three would you each select as really good examples of tenant empowerment and involvement and why would you recommend them? What are the characteristics that have made them successful?
Terry Edis: Well, without a doubt I would say Watmos Community Homes, of which I am chair. Eight tenant management organisations took the bull by the horns and said, We want to set up our own
Nic Bliss: I would mention three things. I have been personally involved with trying to develop the community gateway associations, which are stock transfer associations that have been about transfer into tenant membership organisations. There is a long process to develop the empowerment structure within those bodies.
On the empowerment issue, you have to make a commitment and work with it for years. It takes five to 10 years to change the culture and embed that among tenants and staff, and so on. I would like to talk about the process that the community gateway associations are going through as an example of how that has changed. In Prestons case, a council that was previously not very receptive to involving its tenants in something has changed and over 2,000 tenants are now members of the Preston community gateway association. People have come forward voluntarily and said, This is my association; I want to be part of it and signed up as part of it.
The other thing that I would like to talk about, because I am from the Confederation of Co-operative Housing, is housing co-operatives. I moved into a housing co-operative back in 1987 or so and I was staggered by the small-scale community organisation involving people from all walks of life who got together to make decisions about their homes in a small community. That has driven what I have been trying to do for most of my life, which is to make those kinds of opportunities available to tenants more generally. That kind of small-scale community approachthe community identity that comes from thatis the basis on which my housing co-ops and communities work.
Part of the problem, in terms of your question, is that I do not think that there is enough research into successful models of empowerment. I can only talk about examples that I have specifically come across, which have changed tenants lives. But there are other examples. There are good examples of housing associations and local authorities working with their tenants, but the sad thing is that there are not enough of them and the good examples are not being disseminated enough to other tenants and other landlords.
Michael Gelling: I mentioned awards by three organisations. I have been fortunate enough to be invited to be a panel member disseminating all the information. It is difficult to identify two or three organisations and I do not feel comfortable doing so. But many hundreds of organisations out there have done quality work with individualswhether young individuals or people who find it difficult to communicate with their landlordand go that extra mile. There are huge numbers of tiny examples. They are not usually the winners of awards, because the good examples are hidden in the projects, even if a project has not won. However, there are good examples in there. I have spoken to one or two people in the awards systems, saying, Lets ask judges in future to try to extrapolate some of those little pieces of work
There is fear about tenants being in charge and being in control. However, they do a good job. Many of the ALMOs are three-star organisations led by tenant chairs and tenant-majority boards. I am not just picking on ALMOs. I live in the housing association sector, but I cannot promote my own landlord, unfortunately.
There are a huge number of examples. It is a task to disseminate the information, but somebody needs to do itand if you give us funding we will go away and do a bit of it for you.
Terry Edis: Just leading on from that, those organisations forge partnerships with others outside the housing remit, including all sorts of organisations such as community radio, fibre-optic broadband and all that sort of thing. It is that sort of thing that tenant organisations really want to get into. The days of
The Chairman: Order. I am sorry, I have to stop you there, as we have come to the end of our session. On behalf of the Committee I thank you very much, Mr. Bliss, Mr. Gelling and Mr. Edis, for your submissions here this afternoon.
Good evening, gentlemen. Mr. Stevens, Mr. Hughes, Mr. Heywood, would you like to say a few words by way of introduction, one on behalf of the three of you?
Andrew Heywood: Thank you very much for inviting us this evening. We are very pleased to be given the opportunity to give evidence, because we feel that we are a significant stakeholder in the social housing world and, going forward, an important source of funding. I am pleased to introduce myself, Andrew Heywood, working for the Council of Mortgage Lenders. On my left are Richard Hughes from Halifax Bank of Scotland and Paul Stevens from Abbey, both organisations that make a substantial contribution to the funding of the housing association sector and have done for many years. We would be pleased to answer any questions that you may wish to put to us. I simply point out that probably our key areas of knowledge, on which we may be the most help to you, are funding, clearly, but also regulations. Lenders derive significant comfort from effective regulation, particularly of finance and governance. Those are areas in which you may find us particularly helpful.
Q 102 Sir George Young: May I ask two questions? The first relates to what you have said in your memorandum: that clause 37 should be deleted. I have looked at that clause, and it basically states that if you sell a property that has had a social housing grant, the person to whom you sell it has the same obligation that you had to repay it. As far as I can see, it simply replicates what is in the 1996 Act. Why do you want it deleted?
Richard Hughes: Our reading of the Billwe are happy to be corrected if it is incorrectis that there will be a change in the Governments relationship with the RSL sector in particular. At the moment the
On our reading, clauses 36 and 37 seem to say that the HCA can demand its grant back and a return on itwe assume some sort of equity-style return. Particularly in clause 37 on binding successors in title, that seems to undermine the security that we get by taking a first fixed charge over rented housing. That is incredibly technical, and I appreciate that it is probably more of a detailed discussion. Our reading of the Bill suggests that the security valuations that we take of our charged property would need to be adjusted to reflect any grant that has been sunk into those properties.
Q 103 Sir George Young: You are not saying that the Government should not have the right to claim back the grant if the property changes hands, are you?
Mr. Richard Hughes: No, we are not saying that. We are saying that the current premise is that that right is subordinated to our charge. The Bill does not have that same effect, but I am perfectly willing to be told that I am wrong.
You make it quite clear that you value effective regulation, which has enabled you to lend money at a lower rate than would otherwise have been the case. If we abolish the existing regulator and set up a new one, the risk is that the baton may be dropped as they go around the course, so what undertakings are you looking for to ensure that the collective regulatory wisdom that has been built up in the Housing Corporation is carried through to the new organisation?
Paul Stevens: That is absolutely right. Maintaining lender confidence in the current economic and banking climate will be extremely important. There are only a handful of active lenders who have deep pockets and are prepared to support ourselves. In fact, only last week, or the week before, Bradford & Bingley disposed of its properties, so there is one fewer lender in the sector. Maintaining that confidence is absolutely crucial at a time when there is talk of £8 billion of additional grant funding, which in itself will require about £16 billion of additional private finance. If the Government are to deliver their objectives of building capacity and building more properties to satisfy demand, we must maintain that confidence.
Our position on the transition of the regulator is that we see ourselves as a key stakeholder. We want to engage in looking forward to the new regulator, and we want to be confident that a chief executive, or an equivalent, and a chair within the new regulator will be appointed early. I understand that that is happening. We also want to have the opportunity, as a key stakeholder, to engage in establishing the new regulator, such that that confidence is maintained.
Q 105 Alistair Burt: I wanted to come in on what Mr. Stevens said about the pulling out of Bradford & Bingley. Can you help us out? Is it a temporary blip, or
Paul Stevens: If you read the press releases that Bradford & Bingley put out, the issue was about the best use of capital from its perspective. It felt that it could lend more profitably elsewhere. There is an issue in the sector about the Basel II capital accord and the treatment of capital for social housing lending, whereby the Financial Services Authority has, in my view, arbitrarily imposed a 10 per cent. floor on loss-giving default. This is all getting technical, but in essence it means that lenders, under that capital treatment, have to put more capital aside for such lending, and therefore our returns, which are not great anyway, are reduced.
Not all lenders are able to seek the advanced status under Basel II in order to get the most advantageous capital treatment, and one of them would have been Bradford & Bingley. Most smaller building societies are unable to compete in the market, because they are unable to get the most advanced capital treatment.
Q 106 Alistair Burt: I return to a point that I made earlier to other witnesses: the Governments record of providing social housing has not been good. What in the Bill would make a difference to the access-to-capital problem that you have just outlined?
Paul Stevens: There is nothing specifically linked to capital treatment in the Bill. The issue is about maintaining lender confidence in a market that is clearly unstable from the credit crunchand we can all argue why that has happened.
However, the reality is that lenders are understandably more conservative than they have been hitherto, so we need to ensure that the lenders who are active remain active and do so at a price that does not penalise the RSLs for situations that are, to some extent, outside their control.
Q 107 Alistair Burt: But there is always going to be a rented sector, so why is it not a better bet?
Paul Stevens: A better bet than what?
Alistair Burt: A better bet for lenders to get into. If they are worried about confidence and security, you could argue that it will be a rather more stable market than the home ownership market, which is bound to fluctuate more.
Paul Stevens: Yes, possibly so, but it is a very specialist area of lending and that is why the activity of financing RSLs has been brought to a situation in which there are only a handful of lenders. They are all specialist lenders who have a significant commitment to the sector, the skills to deliver it and the ability to build internal systems that give them the right capital treatment. There is nothing stopping a new entrant coming in other than those issues concerning building the expertise and the capital models that enable them to compete. If pricing in the market increases, we might find that there are more entrants, and only time will tellthat is market forces.
Richard Hughes: The issue of why there are so few funders is partly because of the success of the Housing Corporation. The margins are so low. HBOS, which I can speak for, has a £5 billion portfolio that is already
To go back to your first question, there are some barriers to the delivery of some aspects of the additional points that are to be regulated. At the moment, however, RSLs respond on a nice-to-have basis and there seems to be a requirement for an additional cost that is being thrown on to RSLs that potentially will impact on their ability to deliver more housing.
Q 108 Mr. Raynsford: Can you help me, as I am a bit puzzled by this. Over the last 20 years or so, you have probably managed to raise around £32 billion to £35 billion for the sector and I think that I am right in saying that there has not been a single failure. Can you name any other market sector of that scale that has a similar record of no losses through bankruptcy or failure?
Paul Stevens: No, it is the best example of levering in private financing that exists; there is no question of that.
Richard Hughes: It is the change in the risk profile. I do not think I am giving away any trade secrets by telling you that a good quality RSL will borrow money at a cost of approximately 0.2 per cent. in the current market. A good quality private residential landlord will probably borrow at approximately 1.2 or 1.5 per cent. The market has got to the stage where it is effectively deemed risk free, so any change that increases the risk imperils our existing portfolio, and that is our point. If we were starting with a blank sheet of paper, following on from the Bill, and we were asked, Would you lend into this sector?, I am sure that we would, but we possibly would not lend at the margins that we currently lend at.
Q 110 Mr. Raynsford: We had evidence earlier today from the National Housing Federation expressing nervousness that the regulatory regime was being tightened, which might jeopardise the standing of RSLs as non-public sector bodies. Why do you see that as a risk?
Andrew He ywood: The areas that we consider to be key in regulationit is important to make this distinctionare in the areas of financial performance and governance. The National Housing Federation might have arguments about other aspects of regulation which probably concern us less. However, that particular relationship makes the risk-return ratio acceptable in the end and gives social housing a place as one portfolio within a broader portfolio. The existence of sound, dependable regulation focusing on those two aspects is crucial.
Mr. Raynsford: You have obviously considered the Cave report. In fact, I am sure that you all contributed to Martin Caves considerations. What is your feeling
Paul Stevens: The CML response to the Cave report was supportive of its recommendations. We support the notion that there should be an independent domain-wide regulator. The detail of that has yet to be worked out. How are you going to manage the for-profit bodies and the not-for-profit local authorities coming in? All that needs to wash through. But I hope that we will end up with a more effective regulator, which can recognise the differences between those organisations that are providing social housing.
Mr. Raynsford: My puzzlement is getting worse because we have established that this is a successful market, that there have been no failures, that you have been fully consulted about the new regulatory regime, you have fed into it and you are broadly sympathetic to it. Yet you say to us that it is all very risky and the chance of continued investment is not certain.
Paul Stevens: No, I do not think that we are saying that.
Mr. Raynsford: The tone of what seems to be coming across is that you are nervous about continued investment in the sector.
Paul Stevens: No, we are saying that there should be no dilution or perceived dilution of the current regulatory environment that underpins our lending to the sector. I talk of more effective regulation because there must be a recognition that RSLs, particularly the more progressive, highly developing ones, are taking on increasing risk. They are far more exposed these days to market forces in relation to build for sale, because they try to create more social housing out of less grant, so they supplement the grant by getting involved in areas that carry more risk.
Mr. Raynsford: But their balance sheets are very much stronger and larger than they were about 15 years ago.
Paul Stevens: Well, it depends how you measure that, of course. They are gearing up their balance sheets considerably so, from a lenders risk perspective, that carries greater risk. We all understand why they are significantly gearing up their balance sheets; they are sweating their assets because that is what they are being asked to do. Therefore, from a lenders perspective, there is more risk attached to it.
Q 111 Mr. Raynsford: I turn to the issue raised by the National Housing Federation about whether the new regulatory regime might put at risk the classification of RSLs as non-public sector bodies. Have you given consideration to that issue?
Andrew H e ywood: Yes, in a general sense. Clearly, the ability of the housing association movement to access private finance depends on its status as being outside public sector borrowing. So, to that extent, yes, we have.
I do not think that we would claim that we have a huge technical grasp of the particular triggers that, at any one point, might be sufficient to change that status
We focus on financial performance in government, because we feel that that is key to underpinning the material existence of the movement. Indeed, the focus on that allows the movement the discretion to undertake some of the things that it has done on its own initiative, which an excess of regulation could conceivably stop.
Paul Stevens: I find it hard to contemplate. Given that one of the key drivers for introducing private finance for RSLs was to take it off the public sector borrowing requirement, I find it hard to contemplate why this Bill would seek to do anything other than maintain the private status of RSLs .
Mr. Raynsford: I am sure that that is the intention; I cannot believe that it is not. The Cave report said that the possibility of the Department for Communities and Local Government being the regulator would have disadvantages because it would cast doubt on the private sector classification of housing associations. A concern that has been voiced to us is that the Secretary of State for Communities and Local Government could direct the regulator under the legislation, and that might imply a chain of command. That is essentially the argument. I do not believe that it is the intention, but it could be a consequence, and that would be unfortunate.
Paul Stevens: One concern that several of my customers have expressed is thatwhether this pans out to be the case or not, I do not know quite what drives thisif they are regarded as public sector organisations, they might move out of the sector, because they do not want to work for a public sector organisation. We have seen an improvement in the quality of executive management of RSLs, and I would not want that to disappear.
Andrew Heywood: There are strong practical reasons why making the Government the regulator or the Government too closely directing the regulator is a mistake. They have a particular interest in boosting housing supply, and in stock transfer. If they have too much leverage in relation to the regulator, that could mean that the regulator does not look objectively at its job of balancing the various interests at stake. There are practical reasons as well as the ultimate quasi-constitutional reason of the PSBR.
Q 112 Mr. Wright: Gentleman, I suggest that you are excellent and worthy successors to Alan Greenspan. You have been speaking for a while, but the cryptic tone of your message is such that I do not understand what you are saying. Let me try to obtain clarity.
In the current political environment, with housing at the top of the agenda and substantially increased public investment in the housing sector, I would have thought that you would regard this as a sure-fire bet. You seem to be suggesting that the relationship between the risk profile of some housing associations
Richard Hughes: I think there may be an unintended consequence of the Bill. We have been lending in the sectorI personally have done sofor approaching 15 years, and we are comfortable with our arrangements with the Housing Corporation. We have a good relationship with its regulatory side, and it has a 100 per cent. track record of sorting out problems, although it may not be as good at heading them off at the pass. With the splitting of the investment and the regulatory rolesI am more than willing to accept that I am wrongI am reading into the Bill a change in the role sought by the investment agency, and that it no longer sees grant given to housing associations as sunk-free money. It sees grant given to housing associations as a potential equity investment. We have never had clarity in the relationship between the grant that the Housing Corporation makes in terms of priority of repayment and our investment as a senior secured creditor.
Clauses 36 and 37 provide the investment agency with the ability to demand money back from housing associations based on any sumsit does not just say grantso we see a potential equity investor with the ability to demand money back, and a regulator, which is another arm of government, enforcing that liability to repay money, so where do we sit as senior secure creditors? Yes, you are absolutely right that risks have been very low. Yes, it is a very safe bet. That is why we are charging margins that are exceptionally low. As I said in my earlier example, they are probably 20 per cent. of the margins that a private rented sector business would be charged if it was not regulated.
We are nervous of a change in the status quo that blurs the relations that we have had with the corporation and that we have had with the money that the Government have invested in the sector. We are seeking clarity. If the intention is that our position as senior, secure creditors will continue and that the grant will be subordinated to our investment, we will be happy. We are seeking some form of reassurance that that is the case. That is the basic premise of where we are coming from.
In terms of the regulation, I should declare an interest in that I am the chair of an RSL in an unpaid, voluntary capacity. There is an issue that came up in the Cave report about regulatory creep. Housing associations have suffered, for a number of years, from having Government policy imposed on them through the regulatory regime. That seems to be codified in the Bill with a number of additional constraints being put on them in terms of what assets will be regulated and what outputs are expected from RSLs. That will undoubtedly add to the cost base and will impact on the delivery of additional housing.
Q 113 Mr. Wright: To summarise, following a very turbulent summer in the financial markets, you are probably more risk-averse than you would normally be.
Richard Hughes: That is fair, but I would go beyond that. There are things in the Bill that, through possibly unintended consequences, could undermine our investment. We are nervous about that. If we can get some reassurance about where Government grant will rank compared with us as senior, secure creditors, we would get some substantial comfort.
Q 114 Mr. Love: I hope that the Minister has heard that loud and clear, but I want you to spell out your concerns about ranking. What is it that makes you think that there is the possibility of a change in your ranking and of not being above the possible retaking of grant?
Richard Hughes: I am no lawyer, so forgive me if I get my legal terminology wrong. At the moment, in England, a housing association grant is an unsecured creditor to RSLs. We are secure creditors. In this situation there is a statutory obligation on the regulator to look after Government money, but no statutory obligation to look after private finance. It is a situation whereby assets can be transferred between RSLs, purportedly without the consent of funders, with no reference to funders charges. That creates uncertainty about the situation.
You are right that currently we have a bit of an uncertain situation with the ranking of grant, but it has always been deemed to be unsecured. Now we have situations in which an equity-type investor, which the HCA seems to be, potentially ranks as an unsecured creditor. In the rest of our business, an equity investor ranks below any creditors. Those are the levels of uncertainty.
We would like a fairly bald statement of where grant would rank or where any liability to the HCA would rank in an insolvency and some clarity about the ability to transfer assets and those sorts of things. These are probably quite small changes and I am quite aware that they may have been unintended consequences when the Bill was drafted. It is just that we are nervous about what impact it might have.
Q 115 Mr. Love: I am sure that the Minister will think very carefully about that. I do not want to raise your anxiety levels, but I fear that I am going to. In the previous section, when we were dealing with the right to manage, we heard that it has not been, or is not likely to be, extended to housing associations. The reason given by the Government is a potential loss of lender confidence. Would you lose confidence in a situation where the tenants of a housing association were given the right to manage it?
Richard Hughes: That depends on the circumstances of the organisation. Certainly as previous speakers noted, we have been more than happy to lend into community gateway models of stock transfers. On a
Q 116 Mr. Love: Let me press you on that. The last report that I am aware ofthere may have been subsequent reports as this one dates back a few yearsshowed that tenant-managed organisations were more efficient, collected a higher proportion of the rents and ran the organisation with fewer staff as compared to local authorities or indeed housing associations. Does that not reassure you that the reality is that where there is a strong group of tenants, they can do it better than others?
Paul Stevens: There is a danger that we are generalising in terms of tenant involvement in RSLs. RSLs can be very different. It could be a sleepy, local RSL, that is not developing, that does an effective job in terms of managementit is not necessarily using its assets to its full capacity, but it is doing an effective job. Or, it could be the largest developing RSLs which, as we have heard, take on very different risks. When we make an assessment about lending to an RSL, we consider the management in the light of their operating environment, their business plan and the challenges that they face. We make a judgment in terms of whether that board, and the executive management, have sufficient skills and experience to manage it. We are not necessarily saying that a tenant-controlled board is a bad thing. It depends on the RSL in question, and whether we feel confident that that board has the ability to manage effectively.
Q 117 Andrew George: Those are two sides of the regulatory coin, particularly in relation to Oftenant. Given your opening remarks in which you indicated that you obtain comfort from increased regulation, and given that Oftenant will only be regulated with respect to the provision of social housing, are you concerned that it is so restrictedso many housing associations have different arms to their operations, dealing with shared equity, low-cost home ownership and other private investments? Would you like to see that regulator extend its reach? Would you get greater comfort from that?
Richard Hughes: That is a difficult question because it depends on the impact of that non-regulated business. The question is what reliance on that unregulated business is there within the core business of the RSL to which we are lending? How dependent is it on that unregulated business to service its core borrowing?
We are happy to invest in non-core activities by RSLs, and we will do so on a commercial basis as if they were a commercial entity. We are also happy to put in sufficient controls and covenants as we would do with a private business, but the issue arises if you have
Q 118 Andrew George: At the moment, you are content with, and would not wish to expand, the current draft of the proposal, or what is contained within the regulatory powers of the proposed regulator. You do not think that the Council of Mortgage Lenders would seek to give greater comfort through extended regulation?
Paul Stevens: There is a question mark over the definition of social housing. The Bill, as it stands, seems to be anything that is below over-the-market rental levels. The inference, therefore, is that it would capture non-core activity. Apart from a build for outright sale, our sales are involved in intermediate and sub-market rents to supplement income.
There is a danger of regulatory creep. My experience of the Housing Corporation on the regulatory side is that there seems to be a recognition that many of our sales are taking on these increasing risks. Its position seems to be that that is okay providing it does not put at risk existing publicly funded assets. I am not sure whether that is particularly well monitored or policed at the moment. It is one of those aspects of detail that we would like to work through with the new regulatories. How are you going to monitor the increasing risk over here, which essentially is being forced on our sales by the lower grant levels?
Q 119 Andrew George: The other side of the coin is that there are many parts of the country in which an intermediate market has developed. That is because the open market is dysfunctional. There are many families who fall between the ability to obtain any kind of social housing and the ability to make the stratospheric leap into the full market. The creation of this intermediate market is contained within the Bill itself, and yet there is some difficulty in getting that market going. Is there anything that can be done within the Bill to give you greater comfort to create a more dynamic intermediate market, which includes shared equity accommodation and so on?
Richard Hughes: The issue with shared equity accommodation is that there is no such thing as free money. If a house costs £250,000, that is what it costs. It does not matter whether that money comes from a private sector or a Government investment. It is the basic cost that is the issue.
Andrew George: On many occasions, it is the notional unfettered value of the land that counts if it were released on to the open market. Often it is not necessarily money, it is a notional value which is held in equity by social landlords.
Richard Hughes: But you still have to access that land.
Richard Hughes: It either has to be accessed through the planning system or a public subsidy to acquire that right.
Q 120 Andrew George: Both the potential residents of those properties and the housing association are saying, to an extent, that they have difficulty in getting mortgage lenders to back many of these schemes. Therefore, is there anything more that can be done within the Bill to give you the greater comfort to enable the intermediate market to take off to a greater extent than it has?
Andrew Heywood: Sorry, may I just ask a question of clarification here? Are you referring more to the shared equity schemes through which borrowers can access the properties, such as the Governments open-market homebuy schemes, rather than the issue of building the properties?
Andrew George: It is primarily the individuals. You need to have the buyer coming into that market, and able to take advantage of what the housing associations bring forward. There have been many difficulties in getting agreements for those part-purchases to go ahead.
Paul Stevens: To me, that sounds like more of an issue for our colleagues looking after retail mortgage lending, as opposed to our position, which is focused on lending to the RSLs to enable them to develop a property.
Andrew Heywood: Having said that, the CML has worked closely with the Government on the shared equity retail schemes. Without wanting to go into a lot of detail, and to digress too far, there have been problems with take-up of those schemes. Those problems tend to centre on the degree to which the schemes are straightforward and comprehensiblefrom the point of view of lenders training up staff to undertake very low-volume work, and the degree to which they are attractive to and comprehended by buyers. It would be fair to say that there have been problems on both those counts. We have made suggestions to the Government, but I am not sure that those problems could be easily addressed within a public Bill of this sort, to be quite honest.
Q 121 Mr. Raynsford: May I take you back to the issue of tenant control? Your written memorandum specifically asks us to remove the reference to control from clause 173(2)(i), which deals with rules applying to regulators. I understood Mr. Stevens to be saying that there is nothing inherently wrong with tenant-controlled organisations, and that the key issue is the nature of the management. Are you really asking us to remove a reference that would allow tenant-controlled organisations, when you do not appear to be inherently opposed to them? Or are you just expressing caution, once again?
Paul Stevens: The point was that we do not want the Bill to be prescriptive and to say that tenants must control the RSL.
Andrew Heywood: It is also about the paradigm for involvement. I do not think that RSLs, tenants or lenders disagree that tenants should be involved. The
Q 122 Mr. Raynsford: The other way of looking at it is that if they wanted to get involved and to have that degree of control, would you say that they must pull back and be in a position only to influence the more professional managers?
Andrew Heywood: I do not think that it is an issue of discrimination, but of asking, when a tenant wishes to get involvedall the feedback suggests that only a very small percentage of tenants wish to do sohow that can best be done. We would prefer alternatives to broad-brush, prescriptive treatments that imply, at one or two points in the Bill, that the regulator ought to be saying to tenants, Come on chaps, you ought to want to be involved. Frankly, I do not think that it is the mark of a good tenant that they should be actively involved in that way.
Q 123 Mr. Raynsford: You would not want to be labelled as the people who say that tenants should not be involved?
Andrew Heywood: No.
Andrew Heywood: As my colleague suggested, we are saying that it needs to be looked at specifically. If a tenant is interested and genuinely committed, involvement is a good thing. However, it would be a mistake, on a point of principle and across the board, to try and get people involved whether or not they are committed and interested.
Andrew Heywood: Indeed.
The Chairman: Order. We have come to the end of the session. I thank you, gentleman, on behalf of the Committee, for your attendance.
May I also take the opportunity to remind Committee members that we are meeting on Thursday in the Grimond Room, so do not leave any papers here.
Further consideration adjourned.[Liz Blackman.]
Adjourned at Seven oclock till Thursday 13 December at Nine oclock.
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