This piece originally featured on 24Dash.com and is shown here with their kind consent.
Imagine you lived in a remote village with a single store. Because you have no access to internet, car or bus you and your neighbours have no choice but to shop there. For the past twelve years its prices have increased well above inflation. The shop has carried out a few repairs and improvements of late, but its basic service is unchanged and its operating costs are broadly stable. Interest rates have been at historically low levels for years past, so borrowing costs are also low.
Recently, the shop has scrapped its ‘Basics’ range for new customers and replaced it with a pricier ‘Finest’ range, although, apart from the packaging, the contents appear to be exactly the same. About seven in ten of the village’s population relies upon benefits for their daily income, and these customers have their grocery bills paid directly by the government, so the store has an easy ride.
Not surprisingly, the shop is making huge profits year after year.
Imagine also that there are 1,500 of these shops across the country, varying in size, some with many branch stores and overlapping areas of operation, and around one in ten of the population are dependent upon them. Many of them are run by highly paid senior executives, all benefitting from the taxpayer largesse that keeps them in business.
Can you imagine the public outrage?
Yet this is broadly the position that housing associations find themselves in today. As Harold Macmillan almost once said, “You’ve never had it so good”.
In recent years housing associations have become very profitable organisations. Profits (although they prefer to call it ‘surplus’) have increased to £2 billion a year, mostly as a result of inflation-busting increases on social rented homes, and are set to increase to a total of £10bn by 2018.
Housing associations like to make the case that this profit/surplus will be re-invested to provide new homes, although it is not quite clear where and how this is happening. When I recently threw out a challenge to London’s largest housing associations to put their money where their mouth is and step in and try to save the New Era estate - an act that would achieve huge positive publicity for the housing association sector – there was an eerie silence.
(Just to continue the store analogy for a moment, running a supermarket is a highly complex business. Each store contains thousands of products that they must order, store, stack and sell, monitoring them daily for sell-by dates and freshness. In comparison, being a landlord is simple. You build homes, you let them, you manage them and you collect the rent. The homes don’t move, they don’t need daily attention, they last for a very long time. Yet just about every housing provider in the country seeks to over-complicate this basic process by wasting millions of hours and pounds on needless bureaucracy, pointless business plans, endless meetings, wasteful conferences, futile ‘innovations’, you name it. Much of this is hidden from tenants and the general public.)
Given the easy ride that housing associations have had over the past decade, you would expect them to keep their heads down and not do anything to disturb this rather pleasant state of affairs. But no. Recently, some of the larger ones have floated the idea of breaking free from government control, turning themselves into ‘free housing associations’ that can set their own rents, choose their own tenants and buy and sell properties without government permission.
Instead of fighting for a better investment settlement, they have instead accepted defeat. Taking a depressingly fatalistic view of future public spending, they think they can live in a world without it. This has been condemned as backdoor privatisation by many commentators in the sector. This led to a fierce exchange of views between Alistair McIntosh, of the Housing Quality Network, and Mark Henderson, CEO of Home Group, on these pages.
Critics of the Policy Exchange report cite the example of the building societies, who thought they could survive as independent banks in a post-mutual world but were quickly swallowed up by the big banks. Going back to the store analogy, they seriously believe they can compete with the likes of Aldi, Waitrose and Tesco.
I and many others think they are naïve to believe so. Housing associations have £45bn of historic grant sitting on their balance sheets and £52bn of debt, but their property portfolio of over two million homes is worth at least £350bn on the open market. This would amount to a privatisation of public assets on a scale never before seen in the UK. Rents would rise, security would fall and the losers would be tenants, the badly-housed poor and the millions of taxpayers who have funded this valuable public asset over the past century.
The real danger is that a few hubristic housing association chief executives have released a genie from the bottle and put this noxious idea into the heads of ministers. With both Balls and Osborne desperate to reduce the deficit the prospect of a massive windfall receipt from the flotation of housing associations could be a temptation that could be hard to resist.
This would be political short-termism writ large – the very short termism that has created this housing crisis in the first place. A here-today, gone-tomorrow capital receipt would be outweighed by a soaring housing benefit bill and a cut-throat housing market for almost everyone in the long term; but then politicians rarely think about the long-term.
The housing associations and their representative bodies who are promoting this dangerous vision should desist.