The
Committee consisted of the following
Members:
Chairmen:
†
Mr.
Joe Benton,
Mr.
Roger Gale
†
Blackman,
Liz
(Vice-Chamberlain of Her Majesty's
Household)
Blackman-Woods,
Dr. Roberta
(City of Durham)
(Lab)
†
Brown,
Lyn
(West Ham) (Lab)
†
Burt,
Alistair
(North-East Bedfordshire)
(Con)
†
George,
Andrew
(St. Ives)
(LD)
Gwynne,
Andrew
(Denton and Reddish)
(Lab)
†
Holmes,
Paul
(Chesterfield)
(LD)
†
Hurd,
Mr. Nick
(Ruislip-Northwood)
(Con)
†
Love,
Mr. Andrew
(Edmonton)
(Lab/Co-op)
Moran,
Margaret
(Luton, South)
(Lab)
†
Raynsford,
Mr. Nick
(Greenwich and Woolwich)
(Lab)
†
Shapps,
Grant
(Welwyn Hatfield)
(Con)
Slaughter,
Mr. Andy
(Ealing, Acton and Shepherd's Bush)
(Lab)
†
Smith,
Ms Angela C.
(Sheffield, Hillsborough)
(Lab)
†
Syms,
Mr. Robert
(Poole)
(Con)
†
Wright,
Mr. Iain
(Parliamentary Under-Secretary of State for
Communities and Local
Government)
Young,
Sir George
(North-West Hampshire)
(Con)
Hannah Weston, Committee
Clerk
† attended the
Committee
Witnesses
Kate
Gordon, Senior Planning Officer, Campaign to Protect Rural
England
Neil Sinden,
Policy Director, Campaign to Protect Rural
England
Derek Joseph, Tribal
Treasury
Services
Julian
Ashby, Tribal Treasury Services
Public
Bill Committee
Thursday
13 December
2007
(Morning)
[Mr.
Joe Benton
in the
Chair]
Housing and Regeneration Bill
Further
written evidence to be reported to the
House
H&R 04
RADAR
H&R 05
Northamptonshire County
Council
H&R 07 Campaign to
Protect Rural
England
9
am
The
Committee deliberated in
private.
9.5
am
On
resuming—
The
Chairman:
Order. Before we begin, I ask everyone in the
room to ensure that their mobile phones are switched off. Would the
witnesses like to say a few words of
introduction?
Neil
Sinden:
Thank you for the invitation to give
evidence, which we welcome. I shall kick off with a few brief words
about the four main areas of concern that the Campaign to Protect Rural
England has about the Bill, and the areas on which we would like the
Committee to focus its attention.
CPRE recognises that we need to
supply more homes to house a growing number of households. We believe
that the new agency and the provisions in the Bill should help
considerably in achieving that objective. However, it is also important
for the Committee to note that the delivery of new housing and
associated development has a significant environmental effect with
regard to land take and associated activity, so it is vital that the
new homes are provided in ways that meet housing needs and minimise
unnecessary harm to the environment, and that the planning system is
used effectively as a means of achieving that objective and engaging
local communities in critical decisions.
There are four areas that we
would like to focus on during this session. The first
area relates to the scope of the powers available to the new Homes and
Communities Agency and the possibility of conflicts of interest arising
in relation to the scope of its powers. The second area relates to the
agency’s role in promoting housing-led brownfield regeneration
and the extent to which the Bill provides an adequate framework for the
agency to focus on that objective. The third area relates to the extent
to which the agency should be subject to a duty to deliver sustainable
development and wider public benefit in its activities, including
powers to dispose of land, assets and buildings. The fourth area
relates to our interest in exploring the extent to which the Bill could
give a greater focus to the specific needs for affordable housing in
rural areas.
There are three aspects of that
agenda that we would like to talk about: first, the scope and potential
of community land trusts in rural contexts and the extent to which the
Bill could address that issue; secondly, the possibility of making the
agency subject to a target for the delivery of affordable homes in
rural communities, picking up on the Affordable Rural
Housing Commission’s recommendations; and thirdly, we wonder
whether it is possible to look at how a rural exemption might be
developed in relation to the leasehold enfranchisement legislation,
which we and other rural bodies fear might encourage a leakage of
affordable housing in the shared ownership sector in rural
areas.
The
Chairman:
Ms Gordon, do you have anything to add to
that?
Kate
Gordon:
That will do as a basic introduction, as we
shall come on to the
details.
Q
125125
Alistair
Burt (North-East Bedfordshire) (Con): I appreciate what
you have said in fleshing out your memorandum. I think that you will be
pleased with an amendment that we have already tabled, which mentions
community land trusts. We might explore that with the Minister this
afternoon to see whether is interested in helping with that
amendment.
There has
been a lot of focus on urban building, and I was interested in what you
said about the provision of housing in rural areas, but of course that
always raises more concern about land take and so on. Do you think that
there is any way in which those two important concerns can be
reconciled through the Bill? Will the Bill help to deal with the
problems of green belt pressure while meeting the need for affordable
housing in rural areas, or is there something in particular that you
would like to see inserted that would enable those two issues not to
conflict but to deliver what people
want?
Neil
Sinden:
Kate will deal with the details, but I think
that there are two specific areas, one of which I have alluded
to—the potential that the Bill presents to
give the agency a focus on urban brownfield
regeneration. First, we believe that English Partnerships, one of the
predecessor bodies, has done some extremely valuable work in helping
the Government to meet and exceed their commitment to reuse brownfield
land for housing over the past 10 years. English Partnerships has
played a key role in achieving significant improvements in performance.
We want that role to continue with the new institution, but we do not
think that the Bill necessarily has the right provisions in place to
secure that focus in the
future.
My second
response, to return to my point about the appropriate use of the
planning system, is that the system operated by local planning
authorities across the country has played a part in delivering the
brownfield regeneration that has benefited many towns and cities. Of
course, the agency will be given quite extensive planning
powers—potentially both plan making and development
control—under the Bill. It is critical that, in performing those
functions, the brownfield-greenfield balance is struck
correctly.
Q
126
Alistair
Burt:
How do you feel about that? District councils are
often concerned about the green belt, because democratic pressure is
exerted by elected
councillors. There is therefore concern, particularly in rural areas,
that if local planning authorities lose their powers to another body,
it will become much easier for decisions to be taken which may damage
the environment. The agency could make such decisions on the basis that
not enough houses were being built in an area, so the local
democratically elected planning authority could be ridden over
roughshod. Is that a concern of
yours?
Neil
Sinden:
That danger very much exists and it is a
serious concern of ours. We urge the Committee to look at how it might
amend the Bill or associated provisions to reduce the possibility of
that danger emerging. Kate, did you want to say something about our
specific concerns regarding the planning powers of the new
agency?
Kate
Gordon:
The extent to which the powers are likely to
be used, and how often, needs to be clarified, as does the criteria
that the Secretary of State might apply to designate the agency as a
planning authority. That is not quite clear enough, because the Bill
relates to a number of different Acts. I understand that there is a
provision or duty in relation to a public health Act that has some sort
of tangential requirement for the agency when there is no local
planning authority to work with. It is not clear enough in the Bill,
and we feel that there is a danger that it will be used to impose
agendas on communities that do not want to go down a certain route. We
think that meeting housing needs and increasing housing supply is best
achieved by working with communities, rather than imposing particular
solutions or actions on
them.
The other thing
worth bearing in mind—and we called for this in the evidence
that we submitted earlier this week—is that the rules on best
consideration should be clarified to allow, require or encourage the
best outcome for communities regarding land disposals and land use,
over which the Housing and Communities Agency has influence and
control. That should be the overriding objective, which should secure
the most effective use of land in the public interest—sometimes
that will be development and sometimes it will be other things, but it
should not be wholly focused on the best market
return.
There is a
good opportunity when dealing with publicly owned land, or an authority
with planning powers, to achieve a broader outcome in the long term,
such as homes and communities’ interests and better
environmental standards. I therefore hope that the Committee will look
at that as an avenue for providing appropriate affordable housing in
rural
areas.
Alistair
Burt:
To follow up that point, do you share the concerns
about design? Do you think that design might be usefully included as
one of the objectives of the
agency?
Neil
Sinden:
We want to consider that carefully, because
the Commission for Architecture and the Built Environment has a strong
interest in the design agenda. We hope that, whatever happens, the new
agency will work closely with CABE or any successor body in ensuring
that we secure the standards of design that we need to see in terms of
environmental standards—we welcome the sustainability
certificate provisions, although we believe that there are
opportunities to extend the detail of environmental issues covered by
the certificates—and ensuring that we do not, in a rush to
deliver the numbers that Minsters want to see delivered, bypass the
need to meet high standards for the long term, so that we do not build
the ghettos of tomorrow.
9.15
am
Q
127
Ms
Angela C. Smith (Sheffield, Hillsborough) (Lab): I want to
ask about an extra element. There is a balance between using brownfield
sites and pressures on the green belt. Given the current debates about
the use of flood plains for building, the environment is becoming an
increasingly important factor in planning decisions. Do you not see
that this could be a further complication of the work of the HCA? Do
you see the need for the HCA to be required by the Bill to work closely
with the Environment
Agency?
Neil
Sinden:
I think it would be
welcome, as would greater clarity about the purposes of the new agency
in relation to the wider environmental agenda, particularly the
sustainable development agenda. Tackling the impacts of climate change,
flood prevention and so on is central. Any greater clarity that the
Committee can bring to those purposes would be very welcome and make it
easier for the agency to collaborate with the bodies that it will need
to collaborate with, in order to address the environmental challenges
that we face—not just the Environment Agency, but also Natural
England.
Q
128
Ms
Smith:
In the area that I represent we have steep-sided
valleys so we build either on the brownfield sites on the valley floor
or on the open spaces in the green belt on the tops of the valleys
because the sides are more or less built-up. Those are difficult
choices. Although it should work closely with the Environment Agency,
is it not important that that is with a view to finding design
solutions to enable us to build on flood plains, especially when the
site is on previous brownfield
land?
Neil
Sinden:
Yes, I think that that will be a challenge,
but I would point out that brownfield land, by definition, is land that
has been previously developed. Therefore, on the face of it, it is a
less risky option for redevelopment than an adjacent greenfield site,
which may already be performing a useful flood prevention function, as
part of a functioning flood plain. CPRE has addressed this issue in
connection with the Thames Gateway agenda. We believe very strongly,
and we have engaged in discussions with the Government’s design
champion Sir Terry Farrell on this, that one can achieve the
Government’s housing objectives in the Thames Gateway without
extending the urban footprint on to greenfield land or green belt land.
The flood risk, which is growing, increases the importance of
refocusing our attention on making better use of previously developed
land, if necessary, in ways that can minimise the risk of
flooding.
Q
129
Mr.
Iain Wright (Hartlepool) (Lab): May I take you back to a
line of questioning that Alistair Burt was pursuing, about the selling
of public land at less than best consideration? Clause 10 of the Bill
states that that can be achieved through the consent of the Secretary
of State. Given the need to balance the safeguarding of public funds
with the regeneration of
communities and the availability of homes, do you
think that that clause helps that balance? It provides democratic
accountability and parliamentary
accountability.
Kate
Gordon:
I feel that the clause as it is currently
worded is a little bit too negative. We understand that English
Partnerships has been rather reluctant and the power has not been
widely used. The local authorities can use the general disposal
consents orders to achieve disposals at less than best consideration,
but we feel that there should be more encouragement to get broader best
value, especially if it means delivering affordable homes and securing
other community benefits, which will be long-lasting and easier to
achieve. Some of these land exchanges are simply one Government
Department charging another.
There need to
be safeguards to avoid abuse, but equal weight should be given to
social, economic and environmental benefits, rather than giving
overriding weight to what are usually short-term financial
considerations. When these issues are looked at in the slightly longer
term, the financial case probably stacks up as well. Of course those
wider benefits should be demonstrated over the longer term, but the
broader best value needs to be in the equation, rather than as an
exception to the rule, especially when dealing with
assets.
Q
130
Mr.
Wright:
To push that further, let us suppose that a scheme
is potentially available, but a private developer says, “In
terms of the value of land, I cannot make the numbers stack up.”
If the price of the development was lowered, the developer would be
able to consider a range of affordable and mixed housing. Surely that
goes back to what the Secretary of State said—that could be
beneficial for the wider community and for regeneration purposes,
although it means losing the maximum potential for public money. Do you
not think that it is right and proper that the Secretary of State has
that focus on accountability and provides that
approval?
Kate
Gordon:
I think that schemes should demonstrate that
they are achieving these wider benefits, and not just the highest
financial return. That is how I put it—the benefits need to be
broader. Perhaps the rules need to be clarified. I understand that some
people feel that best consideration does take account of those other
benefits, but in some situations it has not meant that; it has just
meant maximum financial return. We need clarification on those rules,
and some encouragement for the rules, and the exceptions, to be
used.
Q
131
Lyn
Brown (West Ham) (Lab): What is your definition of
sustainability? You have talked about sustainable communities a couple
of times, and it would be interesting to know your view.
Kate
Gordon:
We very much like the definition in the UK
sustainable development strategy, especially where it says that our
activities are within environmental limits and should be given equal
weight in a lot of decisions. We feel that perhaps sometimes it is not
given the weight that it deserves. The implications of that particular
part of sustainable development need to be brought out in legislation
and practice. Perhaps part of the reason
that we are here is that we do not feel that the Bill sufficiently
addresses the environmental aspects and implications of the things that
must be done to achieve development activity within environmental
limits.
Q
132
Lyn
Brown:
I will go on to the second point that you raised
that interested me, and try to link it to the first one. You said that
you felt that in the development in the Lea Valley, there was no need
to encroach on the urban footprint. You think that there are designs
that could enable that to happen. Could you talk a little about those
designs? Are we talking about high rise and high density?
Neil
Sinden:
No, we are not necessarily talking about high
rise, but we are probably talking about higher densities than we have
seen delivered on average in housing development across the country. We
believe that there are considerable sustainability gains to be made by
the Government continuing to focus on the need to increase the average
density of housing development. That not only reduces pressure on
environmental resources but encourages the development of sustainable
communities and activities within those communities—people can
access services, leisure facilities and shops by foot, bike and other
ways than the motor car. We can have a wide range of gains through the
promotion of higher-density mixed-use development, and that does not
necessarily mean high rise. In fact, if you look at some of the
high-rise developments of the 1950s and 1960s, they are, when you take
account of the overall area of the estates that they are often on, much
lower density than some of the most desirable residential areas in
parts of central London.
Lyn
Brown:
For me, when we talk about sustainable communities,
we are talking about a living environment. That includes the
environment, but we are talking about a living environment. I have some
problems with things that I have heard and I would be happy if you
could put me right and tell me that I am wrong. In London, there is a
population density of 45.6 people per hectare. In my constituency in
east London, according to the 2006 population estimates, we are looking
at 72.4 people per hectare. At 45.6 people per hectare, London is
already the third most populated part of Europe. The city is huge and
very densely populated. Currently, 15 per cent. of England’s
population lives on less than 1 per cent. of the
land.
For
me, if we are talking about a higher density still, we are talking
about people living in very crowded conditions. Frankly, that does not
seem to be sustainable because people need space, even if they live in
London. I am hoping to see the Lea valley developed in such a way that
it will take some of the pressure off the city and provide people with
a good quality of life
elsewhere.
Neil
Sinden:
Kate will come in with the detail, but I know
the Lea valley well. I live in east London—a very densely
populated part of east London as well. Green space is critical to the
vibrancy and vitality of urban communities. I believe that there are
enough design solutions and examples of best practice, which English
Partnerships and CABE have generated, to show that one can achieve both
objectives at the same time—higher density sustainable
communities with accessible and valuable green
space.
Kate
Gordon:
We need to look carefully at assumptions
about town-cramming and population densities being too high. Our
situation is not anything like Victorian times, since household sizes
are so much smaller. One of the big problems is that we do not manage
the relationship between traffic and people—especially in the
public realm. That has a huge effect on quality of life in towns and in
the
countryside.
The
main issue that needs to be tackled is how we can live communally in
places that work. We know that you have to have a certain number of
people in an area to make shops and services viable. If the densities
get too low, they are not viable. As a social consequence, you might
not have a local shop. There are also the environmental consequences of
having to devote so much land to roads. Damage is caused by cars in
terms of land take, pollution, danger and noise, creating unpleasant
conditions.
It
is worth bearing it in mind that urban areas can be redeveloped in a
positive way. For example, an area may have become very run-down. A
former industrial estate that was very low-density and had a lot of
hard surfacing may be redeveloped. There are examples of previously
developed land in green belts, which can be redeveloped in a way that
is greener. You can get the environmental gain, an improvement in flood
protection, and some homes and other
facilities.
To
assume that focusing the majority of developments on brownfield sites
will lead to town-cramming and too high a density, is completely flawed
because there are so many opportunities to get gains on almost every
level.
Grant
Shapps (Welwyn Hatfield) (Con): On that point, I think
that Kensington and Chelsea is the most densely populated area in the
country.
Lyn
Brown:
It is also very
rich.
Q
133
Grant
Shapps:
Yes, but it is interesting to see that sometimes
density is desirable, and at other times is not. I want to lead you
back to a question that you skipped over. The HCA is taking on
considerable powers, not least because it is combining the powers of
English Partnerships and the Housing Corporation and adding in a few
more powers besides. Your direction of argument seems to be one of
localism. You are concerned that the power that local authorities have
at the moment might get trampled over. However, do you think—as
I am sure the Government must—that in order to get this large
number of additional homes built, some agency powers are required, or
has the Bill just got this wrong? Which direction do you go
in?
9.30
am
Neil
Sinden:
Very much the latter direction. Although we
want to emphasise the importance of local communities and a sound
democratic basis for the way in which the agency carries out its
planning functions, if it is given any planning functions for
particular areas, sites or forms of development under the framework in
the Bill, we welcome the potential that the new agency brings to tackle
some of the very difficult problems that are inevitably associated with
difficult-to-redevelop sites in certain locations. We welcome the
direction of the Bill, but safeguards, checks and balances need to be
put in
place if not in the Bill then at least in associated policy guidance or
secondary legislation governing the way in which the new agency carries
out those
functions.
You
have mentioned the two main agencies that the new agency will be taking
over responsibilities from, but the powers that it will take over from
the Commission for the New Towns are arguably more considerable than
that in terms of the issues that concern the CPRE to do with the
planning and plan-making functions that the new agency will inherit
from the Commission for the New Towns. That is why we are particularly
keen that the Committee considers the potential for conflicts of
interest between the roles that the agency will play as a landowner, as
a planning authority and as a developer, and carefully bears in mind
the need for local communities, community engagement and public
confidence in the way in which the agency carries out its function as
being central to the success of the new
arrangements.
Q
134
Grant
Shapps:
What I am driving at is a characterisation of the
CPRE’s position. You seem to be saying, “Yes, we need
more homes,” but as an organisation, you believe that those
homes can be largely built on brownfield sites and that the powers of
the HCA may be too overwhelming. If that characterisation of your
position is correct, what, in your view, would be the safeguard against
insufficient housing being built? The whole thing could just seize up,
some would argue, if there is not pressure from above. What do you
think the mechanisms should be to ensure that that does not
happen?
Neil
Sinden:
I am not sure whether I accept the premise of
your argument. The agency will play, one hopes, a crucial role in
addressing certain problems surrounding the development of particular
sites. It will perhaps be able to bring together different agencies,
developers and landowners more effectively than the current
arrangements. In doing that, it will be backed by financial resources
that will enable it to deliver, one hopes, significant quantities of
affordable housing. However, one has to recognise that market housing
provision will probably remain the predominant means by which the
nation’s housing needs will be satisfied in the long run, and
one cannot help but observe in relation to the current economic climate
surrounding the housing market that we are likely to see less output
from the private sector over the coming decade as a result of market
conditions than we have in the previous
decade.
It
is important that the reality of that situation is understood and that
the Committee and the Government in particular recognise that there are
limits to what they and a new agency can achieve in terms of sustaining
overall levels of housing supply in the long run. That is not to say
that we do not welcome the potential of the agency to ensure a
significant increase in what we would describe as the affordable
housing component of housing supply over the next few years, because
that is where the need lies
predominantly.
Q
135
Mr.
Nick Raynsford (Greenwich and Woolwich) (Lab): You have
just made a remarkable comment. You have said that you expect less
housing output from the private sector over the coming decade than
there has been over the past decade. Do you really believe that,
because it means that the whole Government objective of increasing
output to 240,000 new homes a year is
unachievable? It also means that what the house building industry is
saying is wrong. I have taken evidence, in a different context, from a
major house builder who believes that it is possible to achieve that
level and that the current downturn will be only short term. Are you
saying that you think that the house builders and the Government are
wrong?
Neil
Sinden:
One hopes that they are wrong. We were
involved in John Calcutt’s review of house building, which came
to the same conclusion as you that the house building industry can
deliver the Government’s housing targets. While we welcome the
thrust of the Calcutt review and its focus on brownfield
regeneration—we are very encouraged that the house building
industry sees a future in brownfield regeneration—I am not sure
that the evidence is there in the scope of that review to justify the
confidence of some parts of the
industry.
I
think that it is important to reflect on history. Kate will correct me
if I am wrong, but over the past few decades, private sector housing
output has been stable within the parameters of 10,000 to 20,000 homes
per annum. It has fluctuated in response to economic cycles on a
five-year or 10-year basis, but we have not seen the sector
significantly respond to political pressure to increase housing output
for some time now.
It would be
wrong to suggest that the Government have only just woken up to the
scale of the housing challenge. Successive Governments have been
arguing for increases in housing output, but from the evidence before
us, the private sector has not been able significantly to increase
output in response to the scale of that need. That is why we welcome
the fact that the focus of both the new agency and the spending review
in terms of the housing settlement is on increasing the funding
available for affordable housing provision through registered social
landlords and, hopefully, through local
authorities.
Q
136
Mr.
Raynsford:
Given the shortages, and the
widespread acceptance that we have underprovided significantly in
recent years, are you seriously suggesting that there will not be an
upturn in private housing provision over the next decade? What evidence
do you have? Is it just a hunch, or do you have economic evidence,
which is a different
thing?
Neil
Sinden:
There is evidence that house builders are
beginning to constrain output in the light of the downturn in the
market.
Q
137
Mr.
Raynsford:
In the short
term?
Neil
Sinden:
How long is short
term?
Mr.
Raynsford:
Not 10
years.
Neil
Sinden:
One hopes that we will see
through the downturn in the cycle in a shorter space of time than the
next decade—perhaps I should correct my rather risky prediction
and say that the cycle may be shorter than a decade. My point was that
we will continue, as a nation, significantly to depend on the market
sector to meet the housing needs of the nation. We need to be realistic
about the way in which the private sector responds to market signals. I
do not believe that the Government have the full reality of that
situation in their view.
Q
138
Mr.
Raynsford:
May we turn to a different question,
because time is short? You put a strong emphasis on planning powers
being
“exercised by
democratically-elected local planning authorities which take account of
public consultation.”
I
am taking words from your written submission, which you have reinforced
with your verbal evidence. Let me tell you a story. Five years ago, on
a brownfield site in my constituency which, as you know, is in the
inner city, a developer proposed an infill housing scheme for 130 new
homes, entirely in conformity with the London plan. However, there was
a strong local protest. People did not want to have new houses built
outside their front doors. As a result of that protest, which produced
more letters and e-mails of protest than the Iraq war—that is an
indication of the extent of the community concern—the local
authority overrode the officer’s recommendation to grant
planning consent and refused it. Was that
right?
Neil
Sinden:
It is difficult for me to comment on a
particular case, but the CPRE recognises that opposition to housing
development is sometimes not fully justified. There may be some
justification for opposition in the light of, for example, the
availability of, and access to, green
space.
The
Chairman:
Order. Sadly we have run out of time. Perhaps
you would like to continue your comments with Nick Raynsford at some
later stage. On behalf of the Committee I thank you, Mr.
Sinden, and Ms Gordon for attending and for your contribution this
morning.
Good
morning, gentlemen. Thank you for coming. Would you like to give an
introduction?
Julian
Ashby:
I am Julian Ashby, a director of Tribal Group,
as is my colleague Derek Joseph. We both have more than 30
years’ experience of working in the social housing sector, and
our main expertise is probably in relation to part 2 of the Bill. We
have both been involved in rescues, when there have problems and
housing associations have got into difficulties. I was the independent
housing adviser to the Cave review, so I am aware of that context,
too.
Q
139
Mr.
Raynsford:
I have already given a general declaration of
interest, but I should make it clear that some years ago, when I was
working as a housing consultant before I became a Member of this House
in my present constituency, I sold the business that I then ran to a
company that was then controlled by our two witnesses. I do not think
any current interest is involved at all—it was 15 years
ago—but it is right that that interest is made clear before I
ask any questions.
I want to ask
for a comment on the lengthy time it has so far taken and is likely to
take to bring the Homes and Communities Agency into operation, on the
basis of the stated intention to bring it into operation by April 2009.
That is a long time scale, which would not apply in the case of a
merger in the private sector, and it must pose certain challenges to
delivery. Will either Mr. Ashby or Mr. Joseph
comment on that and on the measures that they would like to see taken
to minimise the problems that flow from the protracted process of
merging English Partnerships and the Housing Corporation and bringing
the new HCA into existence?
Julian
Ashby:
It is a long time, and that creates
difficulties for those who have to keep grant and development flowing
in the intervening period. I guess that the full burden will fall on
those who are operating the interim arrangements, and that is largely
outside our experience, but we understand there are interim
arrangements in place to try and overcome those difficulties. However,
it is usually the case with mergers that, once you have decided to do
one, the sooner you can give effect to it the sooner everyone can
settle down into their new relationships. It is therefore better to do
it quickly, so I agree with that
concern.
Derek
Joseph:
A couple of technical issues have arisen.
First, the cost of finance for registered social landlords
is—
The
Chairman:
Order. I am sorry to interrupt, Mr.
Joseph, but can I ask you to speak
up?
9.45
am
Derek
Joseph:
One of the key delivery
aspects for registered social landlords is the cost of finance to
housing associations from the banks. The banks are now using a new risk
measure for assessing, known as Basel II. That means that they have to
assess the risk of default. It has been quite difficult for them to
move to that. There have been other crises in the banking sector
recently to distract them. They have not had an understanding of what
level of intervention there will be from the future regulator. One of
the results has been more reluctance from the banks to lend to housing
associations. Margins have crept up because of that interpretation of
risk, which has an effect on the viability of projects. The delays have
also affected the viability of projects.
The other
effect has been that housing associations in their own business
planning cycles have been saying, “Well, with this level of
uncertainty, we need to diversify.” So they have tended to move
into non-grant areas, away from social housing into market and
affordable housing. In a sense, that it is to protect themselves
because they are uncertain about the future level of programme. It has
had an influence on activity too, as well as creating a degree of
uncertainty through the programme.
Q
140
Mr.
Raynsford:
Another element of uncertainty that has been
voiced is whether the new regulatory powers might affect the
classification of housing associations as non-public sector bodies.
That has been voiced by, among others, the National Housing Federation.
Do you have any observations on that?
Julian
Ashby:
We are concerned. When working on the Cave
review of social housing regulation, we sought advice about the
classification because we were keen that the recommendations should not
put that at risk. The aspect of the Bill that gives me concern relates
to clause 177, in which the Secretary of State will have the power to
direct the regulator not simply to set standards in particular areas
but to set the content of those standards. It seems to undermine the
purpose of having an independent regulator if the Secretary of State
then determines the detail of the standards that were for the regulator
to set. That ability of the Government to determine exactly how
registered bodies should undertake
their work brings the risk that they will be classified as public
bodies.
The overall
assessment of whether something is a public body is made on a rounded
judgment. It is not a single-issue matter, but the more the Government
have the power to intervene directly, the greater is the risk of
classification as a public body. It is an enormous risk to run in that
a change in the classification would at a stroke transfer some
£30 billion of debt on to the public sector net cash
requirement. In terms of the future programme, in very round terms, the
Government expect the private sector to contribute roughly twice the
level of grant into the provision of the new homes programme.
Therefore, if all of that debt is treated as public sector debt, it
would be quite unfeasible. Personally, I feel that it is not a risk
worth
running.
Q
141
Mr.
Raynsford:
You have so far in your
evidence highlighted various areas where uncertainty or delay may be
damaging to the delivery of the programme and where an element of risk
and uncertainty could be very problematic. Have you any thoughts about
practical steps that can be taken to minimise the period of uncertainty
and to bring greater clarity to areas that are currently open to
different
interpretations?
Julian
Ashby:
We are talking about two agencies. That
process can start as soon as possible, once the new regulator’s
scope of operation has been determined and he can say how his
organisation intends to go about its role. That should start giving
comfort to people, so they should begin to understand how things will
work out. Above all, it is uncertainty that is causing
problems.
Similarly,
even if no way is found to accelerate the establishment of the HCA, the
sooner that interim bodies can indicate how they will operate and how
the following years’ programmes will operate, and so on, the
more uncertainty will be
reduced.
Derek
Joseph:
One thing is causing concern above all on
regulation, which is that during the past few years the Audit
Commission has become pre-eminent in inspection of housing
associations. That is partly because the Housing Corporation has been
more concerned about its future role than in pushing the way in which
it regulates, with the result that regulation has been pushed more into
the management side of the organisations and less into financial and
development capability, which do not earn stars from the Audit
Commission.
We still do
not know whether the Audit Commission governing instruments will be
changed, or whether two layers of regulation will remain. We do not
know which will be more important. In the larger housing associations,
enormous resources and time are spent just in trying to please the
Audit Commission. Financial viability and development of programme
concerns have been pushed back, and are less important, which has been
a continuing cause of damage.
It would help
to deal with uncertainty if the future scope of regulation and the role
of the Audit Commission could actually be determined and announced,
such that the associations knew their working
parameters.
Mr.
Raynsford:
You have highlighted a
tension between different aspects of the business and the emphasis that
is given to them. Might there be a lesson from history that points in
slightly the opposite direction to the one
that you have suggested? It is arguable that, for a period of
time—certainly in the 1960s and 1970s, local authorities gave
more attention to development than to management and maintenance of
their stock, and that some of the problems that we have inherited in
lack of good management and maintenance result from that. The outcome
has been a terrible legacy. Is there a risk, as housing associations
get larger and as attention focuses increasingly on a small number of
them doing a lot of development, that exactly the same culture will
develop, whereby development is perceived as the attractive and
exciting part of the business, and management and maintenance are
relegated?
Julian
Ashby:
The role of the new regulator has a clear
focus on services to residents. That is one of the reasons why the Cave
report recommended that there be an independent regulator and that its
functions should not co-exist with the HCA. I think that my colleague
was making the point that, even with the new regulator’s focus
on housing standards, it is still unclear whether the Audit Commission
will retain a role. So there is an outstanding question not just of
double regulation but of triple regulation, which is
unhelpful.
It is
entirely appropriate that there should be a continuing focus on the
standards of housing management. What happens to the existing stock
will continue to be much the most important element, however. However
successful the new housing programme is, the existing 4 million homes
in the social housing sector are the major resource. Even if you add to
it 40,000 or 50,000 homes a year, that is still a drop in the ocean
compared with the 4 million, the use of that 4 million and the
standards of that 4 million at
present.
Q
142
Mr.
Andrew Love (Edmonton) (Lab/Co-op): May
I pursue what I think was going to be the next train of thought? We
have seen a lot of amalgamations take place involving housing
associations. Certainly the developing housing associations are getting
much larger and, in a sense, much more distant from the tenant down on
the ground floor. That process is likely to continue with the new HCA
and yet at the same time Oftenant will say to the HCA, “No, no,
you need to have a priority for management and maintenance”. Is
there a tension there and, if so, should we be examining how we can
ensure that that tension is not as taut as it might turn out to
be?
Derek
Joseph:
I think that the inspection and regulation
regime at the moment is one of the key drivers that have pushed housing
associations into amalgamation. It is rather a defensive strategy for a
lot of smaller and medium-sized housing associations to go into those
groups. I think that there has been a lack of strategy about how the
regulator and, in a sense, how the Housing Corporation as the promoter
have wanted to see the industry of housing associations and the
structure of that industry. There has been pressure from the different
types of regulation and also from the way that the funding of schemes
has been developed; obviously, the Government wanted to push down the
level of grant. There is a danger that housing associations are
amalgamating for reasons that are not about the levels of service; the
reasons are more about dealing with financial pressures and regulation.
That is a problem.
There have
been two regulating inspectors who, over the last few years, have
effectively had a turf war between them. As a result, housing
associations have felt very much that they are on the defensive and
that they have had to deal with too much regulation. One of the
consequences is that a lot of governing bodies who are voluntary or
whose remuneration is very low have felt that there is too much
pressure; it is like trying to run a big business with a lot of people
on your back. They have said, “Well, actually, we are better off
in a bigger organisation”. So I think that the reasons for those
mergers are, very often, not to do with the levels of service. That is
a danger for the
future.
Q
143
Mr.
Love:
Should there be a role for Oftenant to comment on
that process of
amalgamation?
Julian
Ashby:
Our view—it is also expressed in the
Cave review—is that the regulator should have the power, which
the Housing Corporation currently has, to approve any merger. We
believe that, in addition to the reasons or criteria that the Housing
Corporation has tended to use, the competitiveness of the sector should
be a criterion in the future, as it is in the consideration of mergers
in other sectors. You should not allow a situation to arise in which a
particular provider becomes so dominant in an area that, effectively,
there is no choice between providers. That is an important issue, and
the approval of mergers should be a power of the new regulator, which I
think is what has been
proposed.
Q
144
Mr.
Love:
Finally, there is a drive for housing associations
to move into market housing, which will become an increasing part of
their activities. Should the regulator be able to comment that perhaps
the focus of the organisation is changing to such an extent that its
requirements under the regulator are not being looked
after?
Derek
Joseph:
Yes. The regulators do that to an extent, at
the moment. In a sense, they run various tests on the process. The
problem is that on one side they are saying that you must drive down
grant through cross-subsidy, and on the other that you do not want to
take too much risk. You cannot have it both ways. If you want to drive
through cross-subsidy for what, in effect, is the construction and sale
of property, if you just sell off the for-sale land to a developer, you
reduce the level of cross-subsidy that you are going to get. In a
sense, there needs to be a line on the strategy about what is expected
and how those pressures will be balanced.
10
am
Q
145
Mr.
Wright:
May I take you back to the
regulatory regime, the risk of double or triple regulation and the role
of the Audit Commission? My feeling about the proposed regulatory
regime is very clear: the Audit Commission will continue to have a
role, and the regulator will commission work for the Audit Commission,
but there will be no routine inspections, which will be risk-based and
based upon a particular organisation or area where residents have
raised concerns. Is that not well understood? Have the Government been
lacking in articulating that clearly? What else should we do to advance
what I think is a very clear line?
Julian
Ashby:
My understanding, which may not be correct, is
that there has been no repeal of the Audit Commission’s power to
inspect housing associations as
and when it wishes. It may be the intention that it should do so only
when commissioned by the new regulator, but as I understand it that is
not how the powers remain at the moment. If it is clear that the Audit
Commission’s remit is only to undertake commissions on behalf of
the regulator, that would indeed be an important clarification, which
would resolve the dilemma. However, at present that is not the
case.
The
Audit Commission has the ability to inspect as and when it wishes. It
may, as a matter of policy, decide not to do routine inspections, but
that is its judgment and not that of the Housing Corporation. At
present, the Audit Commission is in no sense answerable to the Housing
Corporation in terms of commissioning inspections. Unless you change
the legislative basis, those underlying powers will run on under the
new legislation. It is important that that matter is
clarified.
Derek
Joseph:
There is an expectation that
logic will dictate when there will be inspections. Inspections will
cover all the activities of the organisations and will not just
concentrate on part of the activities, which are seen as very difficult
to manage at the moment. Even if that is understood, there is an
expectation that logic will dictate when the new regulator will have an
inspection regime, which, when it happens, will cover not only
management activities, but all the activities of the registered
body.
Mr.
Wright:
Mr. Benton, may I take a separate line
of
questioning?
Q
146
Mr.
Wright:
On Tuesday we took evidence from the Council of
Mortgage Lenders, which mentioned similar things to you in terms of
more onerous requirements as a result of Basel II. It was probably more
risk-averse and timid than perhaps it should be, and I want to press
you on the points that you raised earlier. Given that housing is at the
top of the political agenda, there is a commitment for 3 million new
homes with a massive role for housing associations. For lenders in a
risky and turbulent financial market, that would be a sure-fire bet.
Are you seriously telling the Committee that because of increased risks
and reduced margins lenders may take a commercial decision to pull out
of lending to housing associations for
building?
Derek
Joseph:
Last week, one of the big lenders pulled out
of the sector and sold its book, although new lenders may be coming in.
I do not think that a lot of them will pull out, but they are pushing
up margins. It is difficult at the moment to identify which reason is
pushing up margins, because there is so much turmoil in the financial
markets. The housing associations have stepped back from negotiating
new loan deals over the last few months for the same reasons, hoping
that the market will stabilise and margins will come down. However,
there is reasonable evidence that the lenders have more concerns. In
the past, the small and medium-sized associations have virtually had
the same margins as the larger associations, because the role of the
regulator virtually means that there is a level playing field, whatever
size your assets are and whatever your background is. Over the past six
months that has noticeably changed,
with the larger more asset-rich associations getting lower margins,
which means that their projects are more viable. That also pushes
mergers
forward.
What
you have at the moment is the starting point for some concerns. It is
quite difficult, in the messy financial world at the moment, to know
exactly which direction things are going in, but there is some evidence
that associations do not see it as totally risk-free, and therefore one
of the benefits of being in the sector is starting to move away from
them, in which case they look for either a higher margin or less
exposure.
Q
147
Mr.
Wright:
I take your point, but even in the context of
virtually zero risk—there has been no default over the past 20
years or so—and the feeling that margins have been squeezed,
this is ultimately virtually risk-free
investment.
Derek
Joseph:
The history has been one of zero risk,
because the regulator has intervened. It is not that registered
landlords have not got themselves into trouble, but that intervention
always ensured that the lenders received their debt back at the end of
the day. There is a nagging worry now that that may not be the case in
future. Whether lenders are using that as an opportunity to push up
margins or not, you hear that point every day, and some worries in
respect of this sector are coming back from the
lenders.
Julian
Ashby:
I want to add, first, that the number of
lenders in the market that can consider the really major lending
opportunities is quite narrow. There are about half a dozen such
lenders, so not a lot of lenders are currently actively lending into
the market. Secondly, they are apprehensive simply because there is a
degree of uncertainty about how the new regulatory regime is going to
work.
The
third element is probably not simply the turmoil in the financial
markets, but the combination of increasing reliance on sales income for
the viability of development programmes and what might happen to house
prices, combined with the fact that there are now larger RSL groups and
a worry about the ability of the Housing Corporation, or the new
regulator in future, always to be capable of solving each financial
problem as it arises, predominantly by finding another group to take
over the troubled one. That could become more difficult, because if,
for example, one of the larger ones got into difficulties, that option
might be much harder to
exercise.
I
share your overall view that this is still a very attractive market to
lenders, but there are a number of factors at present that have given
them increased anxiety, making them more reluctant to lend either until
those uncertainties are removed or until they up the price, which there
is evidence that they are doing at the
moment.
Q
148
Mr.
Raynsford:
Can I press you on this? We have heard two bits
of evidence that seem to go in opposite directions. First, we have
heard that, recently, larger associations have been getting better
margins, presumably because lenders feel more confident in
them.
Secondly,
we have heard about the risk that the existing regulatory regime may
find it more difficult to cope if larger associations get into
difficulty. There is no evidence whatsoever that the existing
regulatory regime
cannot work at the moment. The Ujima situation over the past few weeks
is a classic illustration of where it appears to have worked rather
well so far—although it is, perhaps, premature to say
that—to avert a problem. If there really were a worry that the
risk might be greater with associations getting bigger, surely lenders
would not be offering them better margins than smaller
associations.
Julian
Ashby:
Relatively, the margins for the larger
associations are better than for the smaller ones. However, my
understanding is—subject to my colleague correcting
me—that all the margins have increased. It is not simply an
issue of the relationship between the two. There has been a general
increase in margins to the larger and the smaller
ones.
Q
149
Mr.
Raynsford:
That is despite the very good track record of
the regulatory regime to date and despite the fact that problems in the
sub-prime market are not part of the problem for your
sector.
Derek
Joseph:
It is still seen as a very low risk. When we
are talking about margins increasing, they are still well below what
commercial companies pay. Bradford and Bingley was able to sell its RSL
book ahead of any of the other books that it was trying to sell because
the market saw it as an attractive thing to
purchase.
You
are talking about levels of risk, but there is a reason why the large
RSLs are seen as less risky. On the whole, they tend to have a bigger
portfolio of older stock. The equity of a housing association is in the
properties that it developed in the ’60s and ’70s, where
it has virtually paid off the loan and grants are very little, so if it
needs to sell properties to pay debt, it has a good stock of them. If
you are a newer association, such as a stock transfer where you do not
have long-term security, you are inherently more
risky.
There
have been other reasons—little pin pricks. For instance, the
Council of Mortgage Lenders mentioned that the Financial Services
Authority has pushed up the weighting that is used for calculating the
margin on RSL debt, which has pushed that up a bit. There are still
lots of unresolved tax issues on shared ownership that everyone has
been waiting to resolve. A whole set of issues has made the lenders
slightly more nervous than they were six months
ago.
Mr.
Raynsford:
And, of course, the situation is not resolved
yet.
Q
150
Mr.
Love:
There is a procedural point that I am anxious to get
your view on. We discussed the issue of the tenants’
right to manage with the Council of Mortgage Lenders, and there was
some concern on the part of the lenders about whether tenant management
was an appropriate way to organise the affairs of a housing
association. On balance, the lenders said that you need to deal with
every case on its merits rather than taking an in-principle decision.
How do you view
that?
Julian
Ashby:
We looked at that area very closely in the
context of the Cave review and concluded that the track record of
tenant management organisations is varied—the approach has been
successful in some places
and unsuccessful in others. It has worked best where landlord and tenant
groups have worked together to set up an arrangement, and our view is
that that should be encouraged. However, if you made that an absolute
right, it would not necessarily be worked up between tenant and
landlord, and in that situation it would be very difficult to do well.
Where it has the co-operation and support of the landlord, it has the
best chance of success, which points to a voluntary rather than a
compulsory
arrangement.
Q
151
Mr.
Love:
I want to pursue your point about the role of the
lender. I remember when large-scale voluntary transfer was going
through. The lenders kept knocking on the door saying,
“Don’t bring us in at the end of this process. Bring us
in at the beginning.” Is there a role at the beginning of a
process where tenants might want to express their right to manage, for
bringing a lender in so that they are reassured all of the way through
the process that it is
viable?
10.15
am
Julian
Ashby:
In most situations, tenant management is
likely to involve a particular part of an association’s
stock—if the situation involved a large association, the small
percentage would be small, so there would be no point in bringing in a
lender. In our experience, lenders are generally supportive of tenant
involvement, because they want homes, which are their security, to be
well maintained, but they would not be keen if standards of management
or maintenance were to decline as a result of an imposed initiative
,because that would not be in their interest as lenders. Generally
speaking, however, you would not find a situation in which all of the
housing association’s stock was going to be transferred to
tenant management, and it is really only in that context that lenders
would need to be involved from the
outset.
Derek
Joseph:
Stock transfer is slightly different and my
experience is helpful because, if the tenants understand that there is
a charge on the property, what the role of the lender is and what the
lender expects, there is a better understanding of what is expected.
When you are talking about the right to manage existing stock, the
lenders just look at the housing association as being responsible for
controlling
that.
The
Chairman:
We have no further questions, so I would like to
thank you, on behalf of the Committee, for your attendance this
morning. Feel free to add anything
further.
Julian
Ashby:
If you will indulge us on one point, I want to
add that we had a concern relating to the regulator’s
intervention powers, and it bears on some of the issues that we have
discussed. It is welcome that the new regulator will have a more
graduated range of powers available to it than the Housing Corporation,
because it is helpful to have the ability to lean as a regulator, as
the only other option is a nuclear one. Intermediate powers are
helpful, but the Bill sets out a rigmarole of a procedure for the use
of any of the enforcement powers—our understanding is that that
is because of concerns about the Human Rights Act 1998. However, if you
take a situation in which a provider is
not keeping up to date with their gas safety inspections—that
issue has come up on a number of occasions—you would want a new
regulator to be able to issue an immediate enforcement notice to get
something done about it. Under the procedure, however, the new
regulator would have to give a month’s warning and listen to
representations that might be made at the end of that
process—there is space for possible challenges—and only
at the end of that could it do something. If the issue were to involve
a draconian power, such as removing a manager or forcing a re-tender of
the management of an association’s stock, it would be
appropriate to have longer periods of time, but if it were the
straightforward enforcement of something that evidently needs to be
done, it would be too much of a rigmarole.
In the context
of associations getting into difficulty, which they have from time to
time, it is important that a regulator can act quickly in an emergency,
but there is no provision in the Bill to exercise that kind of
judgment. There is a single process that is fairly drawn out for all
levels of intervention, and it takes no account of how dire the
situation is at the time, which is potentially a
defect.
The
Chairman:
Thank you for that, I am sure that that comment
has been noted, and thank you again for giving
evidence.
Further
consideration adjourned.—[Liz
Blackman.]
Adjourned
accordingly at nineteen minutes past Ten o’clock till this day
at One
o’clock.
