Back office: It’s a write-off

Only a large injection of additional government funding through higher grant rates can deliver the 100,000 new social rent homes to be developed by associations by 2011.

But there are other options for housing minister Margaret Beckett to consider in her forthcoming housing review. Local authorities have substantial untapped financial capacity associated with their housing assets. Crucially, their housing debts average out at barely £8,000 per unit compared with nearly £20,000 at balance sheets of the developing associations.

Further, most councils are generating net surpluses after debt servicing and those surpluses can be used to raise additional borrowings to fund housing investment. But that will only be possible if the projected dismantling of the hated housing revenue account subsidy system is accompanied by changes in the rules on accounting for council borrowings.

As the Chartered Institute of Housing has been persistently observing, the government needs to bring its borrowing rules into line with those used across the rest of the European Union. A switch to the general government financial deficit (GGFD) accounting conventions would unfetter trading activities, such as council housing, so that they can borrow against their trading income, including rents.

Since long-term council borrowing from the public works loan board is costing nearly three percentage points less than housing association bond finance, it is difficult to ignore the funding cost benefits of GGFD for social housing investment. But is the social housing emergency sufficiently recognised by the Treasury that it will sanction the resumption of council borrowing to fund housing investment?

Or will Margaret Beckett be hung out to dry like so many housing ministers before her, unable to bring about the radical changes needed to deal with the social housing emergency?

It beggars belief. The speculative house building/social housing business model used by housing associations and endorsed by the government for its £20 billion 2008–11 mixed-funded development programme has been battered by the forces of the housing crash. But that hasn’t stopped the mechanics from seeking to retool the business model for consideration by Margaret Beckett in her review.

The broken business model has involved the use of capital cross-subsidies for social housing generated by profits landed on sales of speculative housing to homebuyers, including shared owners.

Now, the retooled business model is looking to cross-subsidise social housing through income from ‘intermediate’ market rent housing.

This is the disingenuous term for renting homes on assured shorthold tenancies at rents below the highest market rents in any particular area.

Entry of housing associations into competition with private landlords is justified by the assumption that the housing market will stage a dramatic recovery before too long, probably in 2010–11. At that time, associations will cash in their capital gains landed on their private landlord portfolios and their speculative house building/social housing business model will be back on the road.

Will the retooled business model preserve the role of housing associations as the government’s preferred social housing developers? If so, how will funders react to the addition of private rent housing to the ‘core’ activities of housing associations queuing up for loans? Another excuse to lift loan costs, perhaps?

Sebastian Taylor is a journalist.