Half the new homes will be for first-time buyers and homes classed as having an affordable rent. The other half will be either for sale or for tenants paying rent at the market rate. Economies of scale and merging of back-office facilities are expected to generate savings of £50m a year within five years.
It all sounds too good to be true, and to some extent it might be. Housing Associations have attracted a good deal of criticism in the past couple of years, prompting a series of government initiatives that some might see as a wake-up call. The other side of the argument is that these measures simply make it harder for housing associations to fulfil their primary function.
Housing associations are essentially non-profit-making organisations, or more specifically any profits are ploughed back into the business. In the early 1990s, social housing grants, a euphemism for taxpayers' money, made up three-quarters of the cost of building affordable homes, but a series of cuts brought this figure last year down to just 14 per cent. This necessitated a shift towards raising their own funds, either through borrowing or bond issuance. However, the financial crash meant that borrowing became more difficult. One way of raising funds would have been to sell off the most expensive homes in desirable areas, freeing up funds to build more homes. This was effectively kicked into touch in the last Budget, which introduced new right-to-acquire options for existing tenants at prices deeply discounted to the market value. Another blow came with further legislation that requires housing associations to reduce rents by 1 per cent for each of the next four years.
A temporary way to raise fresh finance would be to build houses to sell into the private sector. The danger here is one of potential 'mission creep' whereby the amount of social housebuilding slowly gives way to private home construction. This has already happened. In August last year, one of the largest housing associations, Genesis, announced that it would no longer build social housing, but would only build homes for sale, for rent at the full market rate, or for shared ownership. It further turned its back on its initial social housing remit, by adding that it is considering the sale of its existing social homes when they become vacant or at least raising rents. De-registering as a social housing provider would require the paying back of social grants and the loss of charitable status, leaving them to compete with the listed housebuilders.
In 2014, before the recent Budget developments, private housebuilders stepped up a gear and built 115,000 new homes, while the 1,500 housing associations managed to build just 23,300 between them. They will argue that without the ability to raise finance and without support from the government, the incentives to build have been slowly eroded. But the critics are unlikely to go away. For example, there is a significant gap between what housing associations claim is the cost of building a home and figures provided by the Home Builders Federation.
This brings us neatly back to where we started with the latest proposed consolidation. Whatever the rights or wrongs of the current set-up, it is clear that housing associations are not making up in any way for the collapse in social housing construction by local councils - in 1977 they built 121,000 council houses. Not enough houses are being built, and it may be that housing associations will have to move with the times and include a greater element of private housing in their building plans as a way of raising funds and accelerating their social housing programmes. Given the housing shortage, it can't come soon enough.
