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Why politicians must unlock investment rather than create more risk
The government should be helping the sector mitigate risks – not creating more headaches such as the shared ownership Right to Buy scheme, says Matthew Bailes
On one level, the strategic choices facing most providers are relatively straightforward, and really boil down to two questions.
The first is where to target our scarce resources – or, put another way, who to help. This is not always easy. For example, most of us wrestle with hard choices between services to existing residents – some of whom are really struggling – and investment in new supply to support those who aren’t adequately housed. There is no right answer, so the best we can do is strike an appropriate balance given our context and capabilities.
The second is how much risk we can afford to take in pursuit of these objectives. Clearly the answer is driven by our financial standing and our view of what the future may hold.
I have always felt that politicians spend a little too much time thinking about how they can influence the answer to the first question, and not nearly enough time worrying about the second.
The recent government announcement on a new shared ownership Right to Buy scheme is a case in point.
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There has rarely been a period in which housing associations have faced such significant uncertainties. The range of potential outcomes of Brexit and clouds gathering over the world economy means that the housing market could be just about anywhere in 18 months’ time – not good news given the rapid growth in sales exposures since the last recession.
Brexit also casts a shadow over other issues. For example, the Institute for Fiscal Studies has said that a ‘no-deal’ Brexit would dramatically increase public borrowing. The last time government faced this sort of challenge, following the credit crunch, it ended up reducing rents on social housing, going back on a 10-year ‘deal’. Could history repeat itself?
There are also major policy and regulatory risks to the core business of managing and maintaining existing homes. As a society we have been complacent about the quality and safety of complex buildings.
“A sensible policy approach would be to try to mitigate some of these risks. A good start would be to commit to grant funding beyond the end of the current programme in April 2022”
Now that Grenfell has forced us to take a closer look, we face a large and growing bill, which many of the developers and contractors responsible will do just about anything to avoid. This is closely linked to implementing the outcome of the Hackitt Review – the cost of which also remains uncertain.
Last but not least, there is uncertainty about what as a sector we will be expected to do on the greatest challenge of all: climate change. There simply is no route map to carbon neutrality and what it means for housing.
In theory we have 30 years to get there, and experience suggests that government will dither and then demand a wide range of expensive interventions just before it is too late, which at least suggests we won’t face big costs tomorrow.
However, there is also ample scope for the politics around the environment to change abruptly – perhaps as a result of unforeseen events – which might create an imperative to spend money sooner than we think.
All of the above suggests that boards will be (and should be) wary of taking the sorts of development risks that will be necessary to achieve a step change in the number of new homes.
A sensible policy approach would therefore be to try to mitigate some of these risks. It is not very hard to imagine what this could look like. A good start would be to commit to grant funding beyond the end of the current programme in April 2022 – to enable those of us that are not strategic partners to take on new land-led schemes.
And adjusting grant rates – including for strategic partners – which would mean schemes stack up without providers having to assume implausible levels of cross-subsidy from sales profits.
“Even if implemented, shared ownership Right to Buy may well turn out to be a damp squib”
Instead, government has introduced additional uncertainty with its shared ownership Right to Buy announcement.
Even if implemented, it may well turn out to be a damp squib – it is hard to see many renters taking on higher rent/mortgage costs and full repairing responsibilities to get a 10% stake in their home. However, it creates new risks around security, and will lead to providers trying to stress test their potential liabilities owing to the mortgagee protection clause in shared ownership leases.
We all know this is much more about politics than economics, but that excuse is wearing increasingly thin. Given the state of the economy and the scale of the housing crisis, we desperately need politicians to unlock investment, rather than creating yet more risk. When in a hole, stop digging.
Matthew Bailes, chief executive, Paradigm Housing Group
