Confused? You will be, by John Perry

14 Sep 06
Housing finance is all at sixes and sevens, what with the new DCLG secretary reassessing policies, a range of reviews and reform pilots on the go and the Comprehensive Spending Review just around the corner

15 September 2006

Housing finance is all at sixes and sevens, what with the new DCLG secretary reassessing policies, a range of reviews and reform pilots on the go and the Comprehensive Spending Review just around the corner

While it's understandable that Ruth Kelly needed to begin her term at the Department for Communities and Local Government by reassessing current policies, the coincidence of her review period with the run-up to the Comprehensive Spending Review has increased the uncertainty over the future for local government.

The odd thing is that in housing, unlike local government, we have had a fairly wide-ranging consultation paper. From decent homes to sustainable communities was published in June, but it has not reduced the confusion over housing finance.

In fact, the opposite is true. For a start, the long-running review of the future of arm's-length management organisations, which now run half of all council housing, has ended with some administrative reforms and a commitment that Almos will be allowed to 'continue their work'.

But the idea that councils with Almos should have a range of different financial options, including access to private borrowing, has been reduced to a set of pilot exercises involving three high-performing councils with Almos, but also three without.

This and other passages in the consultation paper give the impression that Almos are no longer going to get special favours. Councils that retain their housing stock but manage it directly can achieve many of the same freedoms.

The main difference is that they won't (like Almos) get extra subsidy — but then these councils have all submitted business plans arguing that to achieve the decent homes standard they don't need it anyway.

This produces a double dose of uncertainty. First, although the DCLG now sees Almos as a permanent feature, will this be enough to satisfy the parent councils, once Almos have come to the end of the subsidy they get for achieving decent homes?

The argument for wider-ranging reforms was partly that they would give Almos teeth to tackle wider issues. Will they still get those teeth? If not, why should councils carry the extra costs of maintaining an Almo?

The other uncertainty is that stock-retaining councils now seem to find much more favour than before — but will this lead to any significant changes? There is already renewed talk about a 'fourth option' for council housing and, despite denials, the fact that extra freedoms are being floated is bound to give the idea credibility.

What unites both kinds of council is their desire for major reform — if not abolition — of the Housing Revenue Account subsidy system. The pilot exercise holds out the promise of some councils being able to leave the system. They would become self-financing, with a sustainable level of debt and some potential for further investment, based on their rental income alone.

But the DCLG paper also floats a completely different idea. This is that the major funding streams for housing could be taken into Local Area Agreements.

The Local Government Association itself called for this in its Closer to people and places document in May. The problem here is that most housing investment is either HRA subsidy, most of which is cash recycled from one council to another, or grants for new build, run by the Housing Corporation. How could these be brought within the Local Area Agreement framework?

It is far from clear. Might decision-making on grants for new build be devolved to local authorities? If so, how would this fit with the government's housing targets?

Also, if the pilot schemes to take councils out of HRA subsidy really are the sign of things to come, why complicate matters by suggesting a contradictory reform involving LAAs?

Uncertainty is not restricted to finance issues. The review of the future of the Housing Corporation and English Partnerships has now been widened to delve into the housing functions of the DCLG itself. The department has commissioned Professor John Hills, director of the London School of Economics' Centre for Analysis of Social Exclusion, to carry out a review of the whole purpose of social housing. And the decent homes target is to be less prominent, as the new department finally recognises the need to go beyond it and aim for 'decent communities' — but without yet suggesting the parameters for what 'decent communities' might mean in practice, nor how the extra investment will be funded.

Perhaps a period of flux after a new secretary of state takes over is understandable, and even welcome. If these uncertainties were to last only a few months, that would be no great problem. But of course the biggest uncertainty of all — the outcome of the Comprehensive Spending Review — will not be resolved until the middle of next year.

Housing practitioners can't be blamed for raising one little query themselves: is a department that is asking so many questions about the future of housing finance best placed to defend its corner in the tussles with the Treasury that are about to start?

John Perry is policy adviser at the Chartered Institute of Housing


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