A big reform of Britain's housing associations could hit the poor

LAST year 140,000 houses were built in Britain. One-fifth were put up by housing associations—private, non-profit organisations regulated by the government, of which there are about 1,500 in England. With a view to easing an acute shortage of homes, the government is mulling big changes to how housing associations work. George Osborne, the chancellor, is likely to set them out in his autumn statement, a mini-budget, on November 25th.
Housing associations got going in the mid-19th century but only became really important in the 1980s, when Margaret Thatcher’s government seized upon them as a good alternative to council-owned housing. Responsive to local needs, they could also borrow without adding to the public debt. These days housing associations own one-tenth of the housing stock, most of which they let out at below-market rents. This is made possible by government funding of about £1 billion ($1.5 billion) a year; the government’s total stake is worth about £45 billion.
In recent years this happy public-private relationship has looked less healthy, however. In 2014/15 ground was broken on 32% fewer new affordable homes (defined as those sold or let below market rates) than in 2009/10. Reduced funding from the government may be partly to blame, says Neal Hudson of Savills, an estate agent. From 2008-11 the grant for social housing covered about 40% of the total cost of development, but in 2011-15 it accounted for just 14%. According to Policy Exchange, a think-tank, some housing associations are getting around this problem by taking on extra debt—about £100,000 for each new affordable rented house, compared with £70,000 a decade ago. But it is tricky to do this on a large scale: banks are unwilling to extend much credit to housing associations.

Government regulation may also hobble building. Housing associations own plenty of valuable homes: roughly one-fifth of all social houses are priced above the median house price. Selling them and investing the proceeds in cheaper areas would boost housebuilding. But shunting stock around is tricky. Local authorities have long waiting lists for social housing—1.4m households in England are in the queue, at last count—and they do not much like the thought of selling off houses and then waiting for new ones to be built. In response, they block such sales.
What can be done about all this? Greg Clark, the secretary for local government, has spoken of a “package of deregulatory measures”. Mr Osborne may be keen on a more radical plan: to sell the government’s £45 billion stake in housing associations to investors and thus free the associations from Leviathan’s clasp (and, perhaps, also reduce the grant they receive). Chris Walker of Policy Exchange estimates that with more freedom to set rents and manage their existing stock, housing associations could build 100,000 houses a year; that would allow the government to hit its informal overall target of 200,000 a year.
Deregulation could indeed boost housebuilding, but with it might come a change in the kind of people that housing associations serve. With less government help, some housing associations are already turning to wealthier tenants, says Anna Clarke of Cambridge University. “Affordable rent” dwellings, which are let for up to 80% of market prices, form a growing chunk of new-builds, at the expense of “social rent” houses, which are rented out at about half the market rate. Mr Walker’s estimates show that any increase in housing-association construction linked to deregulation would be driven largely by greater provision of housing at market prices.
The chancellor’s plan to impose cuts in social rents of 1% a year for the next four years (which one industry insider says may soon increase to 2% a year) will eat into housing associations’ margins, making them less likely to offer cheap tenancies. And the Conservative manifesto commitment to build 200,000 “starter homes” for first-time buyers by 2020, which would sell at about 80% of the market price, may crowd out the construction of new rented accommodation, which is more widely used by people on low incomes. All this will squeeze Britain’s poorest, with no sign of house prices falling any time soon.....