Big numbers for the big players

There is never a quiet week in housing policy, but perhaps we should have known something would happen at this week’s national housing federation summit. And lo Theresa May came down from the mountain bearing many warm words and a policy intervention or two. Oh and what looks like a huge sum of money and a sensible amount of time to spend it.

Now, I’ve spoken before about politicians bearing cheques with lots of numbers on. You’ve got to be careful to understand what sort of a scale we are looking at, how it fits into the wider framework and if this is new money. To paraphrase what we know so far, it is £2 billion over 7 years, starting in 2022 and is expect to deliver around 40,000 affordable homes across this period. So £285 million a year and an average (although it will be skewed towards the end of the period) of 5,700 homes a year. That’s all very good, but it won’t set the world on fire, particularly if high land values persist.

We don’t know where the money is coming from because 2022-2029 is part of the next spending review. Essentially what the Prime Minister has done is earmarked part of government spending in the next long term period. So in one sense the money cannot be “old” in the sense of transferred from somewhere else as the entire long term budget of the government has yet to be decided. The spending review will move money all over the place and like most magician’s tricks you won’t be able to tell where the card in your pocket came from. So a slamdunk “this came from reducing x fund” won’t happen in quite the same way. Sorry.

Nothing I’ve said above hasn’t already been discussed a huge number of times already and at first I was content to take my daughter to the park rather than repeat what everyone else is saying. But one thing I’ve noticed hasn’t been discussed much is what this change might do to the housing association sector.

The funding has been announced as an extension of the “strategic partnerships” the government has already undertaken with many of the very big housing associations. I can only imagine that this will continue, perhaps with some smaller proportion going to the simply big and medium sized organisations and a small amount to the actually small ones. The big organisations will be the ones who can deliver on the scale the government are looking for, who can speak the same language as the government and articulate a large vision. They are likely to share social contacts with ministers or senior civil servants. They will often have a greater degree of financial security and an ability to speak to the markets in a language they will understand. My point is, it is the big boys (gender intentional) who will win at this game. That’s the way the funding is structured.

What does this mean for the smaller housing associations? What should they do. Their options are:

  1. Rely on other funding. Keep purchasing sites from developer’s section 106 agreements or using whatever other affordable homes funds we all expect will exist in the next spending round (even if it is smaller).
  2. Act like a bigger organisation. Get in a management team who can talk the talk (and might need paying to do so) and go to the right conferences, summits and soirees.
  3. Become a bigger organisation. Do what the big players have done and conglomerate, start acting more like a business, maybe look at poaching a manager from one of the larger organisations (perhaps one that already has a deal).

None of this means that a couple of smaller organisations may get deals, but I strongly predict that they will be the exception rather than the rule. For all of the talk about the housing associations’ Victorian beginnings, this looks like another step towards having fewer, bigger, more commercially minded and deal orientated organisations. Whether that is a good thing or not isn’t really my place to judge, but this is something boards will need to think about as they prepare for 2022.

And what does this mean for the homes that will be built? Well, that’s really left to the organisations and the government to decide between themselves, on a rolling basis. This is in part going to respond to housing needs, but let’s face it, it will also be a carve up between the associations and government. If housing associations are designing whole schemes containing market, “affordable” to buy, “affordable” to rent, shared ownership and social housing then their ability to balance these out will be the key factor on how big a difference this can make. But there will be an economic logic- it will have to depend on what they have paid for the site. The bigger, more commercial organisations may also have to balance out any losses made elsewhere.

So what I’m coming to is that there will be a pressure towards the top end of the market- either a greater proportion of market prices or the supposedly affordable homes. Social rented homes will get squeezed unless the government is forceful about demanding these in high enough proportions. Even with the much warmer words on social rent (by which I mean “tepid” compared to Cameron/Osborne’s “absolute zero”) the plethora of price points open to housing associations plus the economic logic as a site’s costs inevitably increase mean we may see fewer social rent units than anticipated.

In conclusion, if I had been an the summit I would have perhaps clapped, but I wouldn’t have got on my feet. This is a large but limited amount of money, may quicken the change of the housing association sector to an oligopoly and may mean there are fewer social rented homes than if the money had gone into the affordable homes programme. It doesn’t do anything to affect land prices and will be very limited for councils, who (to repeat myself for the umpteenth time) really only need a single accounting rule to be changed to get on with building new council houses.

What it really means in totality won’t be known until we see the spending review. That’s not for a while yet and who will be standing at the dispatch box to deliver it may make all the difference.

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