ONS reclassifies housing associations as public bodies

The logical endpoint of this trend could be the privatisation of housing associations


On Friday, the Office for National Statistics published its pivotal review of the national accounting status of housing associations, reclassifying them as public bodies. Long anticipated by the social housing sector, the ONS decision moves the collective £60bn of debt which housing associations have accumulated to build affordable housing for decades, onto the national balance sheet to fit in with the European System of Accounts.

The ONS review is based chiefly on changes stemming from the Housing and Regeneration Act 2008, which was passed by the last Labour government. Changes relate primarily to the disposal of social housing assets and winding-up of housing associations.

But the ONS review doesn’t consider shifts in the social housing terrain announced by the government since the General Election in May, although these might receive attention at a later date.

These include the extension of the Right to Buy to housing associations, currently agreed voluntarily with the government, ‘pay to stay’ in social housing by better-off tenants, imposed rent reductions, and time-limiting social tenancies – all examples of direct government interventions that conceivably confirm the ONS decision.

The National Housing Federation (NHF), the representative body for housing associations, has warned that the ONS reclassification represents greater state control of associations, and could limit their borrowing from the private financial sector to support their house-building programmes into the future.

The political fallout from the ONS decision will precipitate Treasury action to mitigate the effects of raising the national debt by around 3-4 per cent ahead of the Comprehensive Spending Review on 25 November. Housing association debt will now be considered in the same way as other public sector debt; notably that of local authorities.

Any additional private borrowing to support desperately needed new homes will add to the UK’s national debt at a time when chancellor George Osborne has pledged to be back in surplus by 2019.

Successive governments since 1988 have deployed the housing association sector as a means of transferring council housing and leveraging large tranches of private investment into social and affordable housing without taking a hit on what used to be called the Public Sector Borrowing Requirement.

Since 2010, the previous and current governments have been set on fundamentally reshaping the social housing in England. The replacement of public investment in social housing by minimal public funding of the ‘affordable’ rent programme, and emphasis on the social housing regulator, the Homes and Communities Agency, as a champion of ‘VFM’ and consumer standards, have both ironically pushed housing associations towards a more commercial approach.

This trend may now reach its logical endpoint in that housing associations may need to be privatised to dispose of the £60bn debt that will appear on the public accounts from next April. Former Policy Exchange director Alex Morton, who is now installed in Number 10 as an advisor to the prime minister, has championed ‘setting housing associations free’.

The government’s initial response to the ONS decision, reported in social housing trade magazine Inside Housing, has been to pledge to bring forward measures to allow housing associations to become private bodies again ‘as soon as possible’. This suggests a period of de-regulation to overturn the ONS reclassification rather than nationalising then privatising association assets.

The result will be high-stakes poker between Number 10 and 11 over the next year or so to determine the fate of a sector that predates council housing and has its beginnings in late 19th century philanthropy.

Social tenants, those on waiting lists and the homeless will seemingly be left with their faces pressed against the window pane as power politics shapes the future of the sector they depend upon so deeply for housing and community support.

Kevin Gulliver is a contributing editor to Left Foot Forward and a director of Birmingham-based research charity the Human City Institute and chair of the Centre for Community Research. He writes in a personal capacity

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5 Responses to “ONS reclassifies housing associations as public bodies”

  1. Richard MacKinnon

    Kevin, You seem to know about housing associations so please explain how is it possible that housing associations have run up 60 billion of debt?
    For my benefit lets take an fictitious HA with 4,500 units and an average rent of £350/month (probably the average rent is a lot higher). That equates to an income of 19 million per annum. Take staff costs, office expenditure and maintenance of the properties off the turnover of 19million and you are left with, …….., what do consider is a reasonable number Kevin?
    How is it possible for a housing association to be in debt?

  2. debrastorr

    Richard, housing associations borrow to build. They usually get land at a reasonable rate and often some grant – but there is still borrowing. The rent needs to cover this borrowing, maintenance, voids and bad debts, and administration.
    Most of the borrowing is from banks and is secured against the properties.

  3. Richard MacKinnon

    Debrastorr, Thanks for your information. I am afraid I am more confused than before. If I understand you properly, you are, I think comfortable that a housing association which owns 4,500 rentable properties still needs to borrow money to function then we cannot agree. Even with a figure of 20% of turnover for running costs (private companies manage rented properties for a fee of 10% of the rent collected) our fictitious HA would still have a year end surplus of 15 million on a turnover of 19m.
    Is it any wonder George Osborne smells a dripping roast.

  4. Luke Blakey

    A Housing association can take the rent it will get in the future for buildings it owns today and use that as collateral to get very cheap loans to build more buildings today, and further increase its stream of rental income in the future, from which it can then borrow more to invest more. A debt today merely indicates they are using loans to ‘time travel’n or smooth future incomes treans to allow spending today where they see fit, rather than a stop start approach of budgeting and saving up for something tommorow like a individual might. the fact an HA has 4,500 units rather than just say 45 (one tower block say), means the value of each tower block and street, and the rent paid by tenants therein, can be shifted around all 4,500 where and when it is most needed/ (or most mismanaged), so for instance allowing a roof to be fixed not when the 25 people below it have paid for it, but whenever the 5000 people collectively can afford it (ie today, rather than months later, with tenants living with a leaking roof, but still paying full rent for squalid conditions)

    HAs have also borrowed to improve the buildings they own, double glazing and external wall insulating being expensive but very beneficial examples, they do so, dramatically improving the lives of tenants, who are both warmer and benefit from cheaper energy bills, but at year end only put up the rent by a % or two, despite housing being much nicer places to live, with less chest infections etc. Tenants are more able to pay, and arrears may decrease, but One time rent increases might not justify massive one time improvements, even if fitting double glazing all at once, rather than bit by bit is cheaper overall. Debt is used here to make it possible to ever improve whole buildings/estates all at once.

    Finally somewhere in the system subsidy and cross subsidy exists in order to house those on no incomes, those who have been born since a HA stock was built, those with no right to work, and negate the impact of those in rental arrears who in the end never pay. Central government funding new money for new buildings, or for non payments stopped decades ago, allowing future government revenues to be hocked off to money lenders partly filled the gap.

    Government funding changes during the year, and loans may have been to top up this difference. Again income smoothing using debt to bring money forward and push losses backward.All in all £60 billion pound is probably eminently affordable and responsible, but it does sound like a huge figure.

  5. Richard MacKinnon

    Good try Luke. I am happy to leave it at that.

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