Thursday, 23 October 2008

Closer to the Bankers

Time was Housing Associations were everybody's favourite puppy. Back in the day they were heralded as the original 'Third Way' for housing, sitting between the great, grey council estates and the serried ranks of owner occupied suburbia. Or so the rhetoric had it when I drifted into contact with them.

But that was a long, long time ago. Since the late 1980s Associations have had to raise capital monies on the markets to part fund the building new properties - or the repair and upgrading of properties they've acquired from former Council ownership. This has precipitated a cultural and managerial shift which one ex-Association manager caustically described to me thus,

"Once upon a time we wore jeans to be close to the tenants, now we wear suits to be close to the bankers."

These people will tell you, with some force, that this has transformed Associations into little more than private sector providers by a different name. I accept people should be able to stay tenants of the Council if they want to, without financial penalty or lack of hope of a repair programme, but I don't agree, not quite, with this characterisation of Associations as such. They may sometimes ape the private sector, but they can often be excellent landlords. & their original raison d'ĂȘtre often peeps through when they innovate in other areas – like sponsoring Credit Unions.

Increasingly, what Associations provide is not just socially rented stock but also shared ownership or low cost home ownership schemes. & that's good and proper and an advance – making it possible for people to move between tenures more easily is surely a Good Thing. In principle Associations should be well placed to help people during the recession by moving in with shared ownership schemes for people who get into mortgage arrears problems.

Should be - but probably aren't. Why? Because their capital funding regime is based on minimising risk and cost over-runs so that they can service their private loans more comfortably. It's usually less risk to build a new property than take on an existing building with unknown repair and maintenance obligations. Somehow, however, this 'scheme-by-scheme' caution has got caught up with a strategic throwing of caution to the wind, by some Associations at least. So they adopted business plans which depend on selling - in full or on a part-ownership basis -a sufficient quantity of housing to generate enough cash to fund the building or repair of other, socially rented stock. What could possibly go wrong?

Let me join the dots: when people don't buy enough houses, Association development plans become underfunded. If the building or repair contracts haven't been signed they get postponed - but if they have been signed there is a chance the Association goes belly up as they still have to make payments on the loans they borrowed to do this....

Rumours have been flying around for some time about one or more of the big Associations getting into trouble in this way. Now the housing press are reporting that the regulator is getting its' ducks in a row to organise an unknown but potentially significant number of bail outs.

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