Memorandum submitted by National Housing Federation (H&R 2)
What is the National Housing Federation?
The Federation represents 1,300 housing associations in England. Housing associations are independent, not-for-profit social businesses set up to provide affordable homes for people in housing need. The majority have charitable status. We support and promote their work and we campaign for better housing and neighbourhoods.
Housing associations vary in size from fewer than 10 homes, to more than 50,000. They offer support for people with a range of needs including older people, people with disabilities and learning difficulties, and people who have been homeless.
Housing associations are not-for-profit businesses and are part of the third sector. Many receive government funding, for example for building new homes, providing specialist housing or regenerating neighbourhoods, but most of our income comes from rents, which are regulated by the Government.
As independent businesses, we are able to borrow against our property holdings on the private market. Using this model we are able to match each pound of public investment with £1.50 of private investment and deliver more homes without expanding public borrowing. Housing associations reinvest their surpluses in the community with initiatives such as employment training, regeneration and projects with children and young people. Collectively, our members provide over two million homes for five million people and community services for many millions more. Their collective turnover is around £7bn per year, of which around £500m is invested in neighbourhood and community services. Further information can be found at www.housing.org.uk.
The Housing and Regeneration Bill
We welcome the Bill and believe that it provides a once-in-a-generation opportunity to improve the delivery and function of social housing for decades to come.
The Federation welcomes Part 1 of the Bill which creates a powerful new Homes and Communities Agency (HCA) to invest in urgently needed homes. We welcome its proposed range of objectives and powers and are particularly pleased that its objectives recognise the need to invest in communities, not just bricks and mortar.
We have one significant concern with this part of the bill as presently drafted. In Clause 10 it says "The HCA may not dispose of land for less than the best consideration which can reasonably be obtained unless the Secretary of State consents." The Federation believes that the test for disposal of land is that it should be for the greatest public benefit.
We also support the creation of a new independent regulator in Part 2 of the Bill, the Office for Tenants and Social Landlords (OTSL) or Oftenant. However, the Federation has some grave concerns about how the regulator will operate.
These concerns are based upon what we believe the proper role of an independent regulator should be. We contend that the primary purpose of a regulator should be to protect tenants, to ensure that organisations do not engage in mismanagement or misconduct and to protect the historic and current public investment in the sector.
The regulator as it is currently framed goes well beyond this role:
1) The regulator, as a public body, is empowered to set standards for associations which poses a significant threat to their public body status
2) The Secretary of State is empowered to 'direct' the regulator
3) OTSL may regulate non-housing community activities
4) There is not a level playing field between profit-making and non-profit providers
We also have practical objections to the way the regulator is to be paid for:
5) Paying for the regulator through fees would cost 7,000 new homes
The threat to housing associations' non-public body status
Under the previous regulatory system, 'guidance' was given to housing associations in a number of areas by the Housing Corporation and the regulator intervened only where there was evidence of 'mismanagement or misconduct' by the association.
However, under Clause 173 of the Bill, the relationship between the regulator and associations has been fundamentally changed. The clause gives the regulator the power to set 'standards' with which housing associations would have to comply and failure to meet a standard would trigger one of the regulator's intervention powers.
This means that the regulator can set standards on issues such as investment strategies, allocations policies and use of reserves, all issues that are properly the legal responsibility of the Board. The regulator can also set standards on anti-social behaviour, education and training, benefits rights or any other political policy areas, whether or not they are supported by public funding, as long as they are consistent with the objectives of the regulator.
We believe that this goes beyond the proper scope of a regulator's function and allows the government of the day to use the regulator to deliver its policies through the regulatory system. It puts the decision making of the regulator above the decisions of the Board and could lead to Boards being undermined in delivering effective corporate governance. This in turn reduces the proper accountability of the Board.
We believe that the failure of a housing association to adopt a policy, or direct its work, according to the wishes of the Government or the regulator should not, in itself, be grounds for regulatory enforcement. Housing associations are independent organisations and not government bodies or agencies.
In fact, these proposed powers for the regulator could threaten the non-public status of housing associations by effectively making them subject to management direction by the state.
The Federation has commissioned the Centre for Economics and Business Research (CEBR) as an independent body to look at how the Bill would affect the non-public status of housing associations.
CEBR have identified a significant risk to housing associations non-public body status in the proposal in the Bill that regulatory sign-off will be necessary for any changes to rules or articles.
CEBR also conclude that there is a "strong credible case" that the imposition of standards, the regulator's proposed powers around management and land transfer and the fact that the regulator can intervene even where there is no evidence of mismanagement or misconduct collectively increase the risk of public sector status.
Losing their public status would prevent housing associations from matching the millions of pounds invested in the sector through state grants with a similar sum raised through private borrowing, which they are only able to do as third sector organisations able to borrow outside government borrowing limits.
If associations lost their non-public status it would mean that the over £32bn of private borrowing they have secured to date as well as the estimated £12bn of additional debt they will take on in the 2008-9 to 2010-11 period will transfer into the Public Sector Net Cash Requirement (previously known as the PSBR).
Ability of the Secretary of State to 'direct' the regulator
Clause 177 of the Bill states that the Secretary of State may direct the regulator to set standards and that "the regulator shall comply with any direction".
This gives the Secretary of State power to direct the regulator in the setting of standards and could subject housing associations as not-for-profit businesses (the majority of which have charitable status) to an unprecedented degree of direction by the state.
The regulation expert Professor Martin Cave specifically identified this as a problem with the present regulatory system. The Bill would make this worse by establishing a direct unbroken chain of command, backed by statutory force, from the Secretary of State potentially down to the most detailed activities of associations. In his Review of Social Housing Regulation, commissioned by Communities and Local Government, Professor Cave stated:
The practice of securing the implementation of a range of government policies through the regulatory system is an endemic feature of the present arrangements - these are the policy costs of regulation. It is the main cause of 'regulation creep' and strongly discouraged by the Better Regulation Commission. Recent years have also seen the introduction of a range of overarching policy objectives for the whole social housing domain, including the Decent Homes target, rent restructuring, tackling anti-social behaviour (the Respect agenda) and Choice Based Lettings (CBL). But imposing a stream of policy burdens on providers without regard to the costs is poor regulation. (2.59 Cave Review, 19 June 2007)
Threat to housing associations' community work
In Objective 6 of the new regulator, "to encourage registered providers of social housing to contribute to the environmental, social and economic well-being of the areas in which the housing is situated" the Bill proposes to give the new regulator scope to regulate the non-housing activity of housing associations.
This would stifle innovation in community services such as crèches, employment schemes and community centres. We argued strongly, and successfully, to the Cave Review that the innovative neighbourhood activities that housing associations have pioneered and which are growing exponentially have come about precisely because they are free from such regulation.
We believe that these activities would be difficult to define and vary locally depending on what residents want and need. These activities are usually paid for by surpluses which are reinvested in the community by an association as part of a contractual agreement or from charitable sources with conditions attached. They are usually not directly government funded. This means that the Government is often not funding this work but is attempting to regulate it.
Where an association does receive public money for non-housing services such as community work, supporting people, or drugs programmes, there are already systems of monitoring that guarantee probity, quality and value for money. Any attempt to regulate this activity twice would amount to unnecessary red tape.
We cannot envisage how this regulation would be implemented in practice because we believe that these activities would be extremely difficult to define and impossible to regulate. They are in any event activities which should be defined and managed locally and in cooperation with the residents and wider community.
The lack of equity between profit-making and not-for-profit bodies
In Clauses 123-126, the Bill proposes to set up a registration system for all providers of social housing. All presently registered housing associations are automatically registered. Local authorities and ALMOs are currently excluded but are scheduled to be brought into the domain within two years.
However, profit-making organisations only need to register if they own and manage low cost rented housing and NOT for their development activities or if they receive funding for Low Cost Home Ownership (LCHO) housing.
This means private developers developing rented housing or providing shared equity schemes would not be subject to the same regulatory burden as housing associations and other registered bodies.
Associations, who reinvest their profits in the community, would be put at a competitive disadvantage to private organisations, who distribute their profits to shareholders. We believe that regulation should create a 'level playing field' with the same standards and information reporting requirements.
Funding the regulator through tenants
Clause 113 of the Bill provides for the funding of the regulator in the form of fees. This fee system is based on the utilities models where private companies pay the cost of regulation themselves. However, whereas in the case of utilities the cost of regulation falls on their shareholders, housing associations are not-for-profit social businesses who reinvest their surpluses back into the community and whose rents are capped by government.
This means that rents paid by tenants would either have to increase or existing income would be moved away from service provision to payment for regulation.
The cost of £20 million amounts to a charge of approximately 20p weekly per property. However, if Government continued to pay for the regulation of the sector as it does now, that 20p charge could instead be used to build 7,000 homes per year. This is because housing associations can use their revenue to lever in significant additional finance through borrowing. So whereas the Bill would seek to return £20m to the Treasury, housing associations would be able to use this sum and multiply it many times by accessing private finance in order to deliver homes.
The creation of the Homes and Communities Agency and the Office of Tenants and Social Landlords is a huge opportunity for the Government to change the nature of housing provision in this country.
This opportunity risks being lost however, by introducing regulatory changes that will undermine the independence of the sector, threaten the non-public status of associations and restrict their ability to build the homes and provide the services which are desperately needed.