Significant changes are afoot in the way government forms and enacts policy. For investment in social housing, challenging times lie ahead, writes Steve Douglas of Aquila
It is clear that the new government will be fast paced, driven and likely pretty radical in its approach to policy. Read any of the blogs by Dominic Cummings – the prime minister’s new top advisor – and the intention is that this will be a government in a hurry.
I remember the Blair government of 1997 and the mantra “hit the ground reviewing” – and their regret after the second election that they did not go far enough or fast enough with the reform agenda.
And the 2010 coalition approach to policy, which was to push out ideas and to see “if they stuck”.
This feels different again. There appears to be a conviction that change must happen, soon, and be radically transforming.
I think there are likely to be three major impacts of such a transformative approach for social housing policy.
For investment in social housing, this could be the most challenging of times. Building the case for investment in social housing will require a different narrative. Rather than the argument of the intrinsic social good that comes from building more homes and investing in communities, it will need to evidence the impact on GDP and economic prosperity. And, conversely, to demonstrate the negative impacts of underinvestment in housing. Data and evidence will be the new oil.
As a member of the Commission for Housing in the North, I saw the Northern Housing Consortium build the evidence base for investment, slowly and meticulously, and talking to commerce, industry and retail in the process. The impact on regional economies was strongly evidenced, as well as the development of a set of allies and partners that reached beyond traditional housing ‘stakeholders’. Constantly talking to HM Treasury, ministers and special advisors, so that there was an understanding of the northern context and equally that there was an understanding of the political priorities and issues.
A not dissimilar dialogue is happening now with the G15 group of London’s largest housing associations on the funding for building safety works.
As I said at the Social Housing Annual Conference in December 2019, there is a difference between campaigning and influencing. The sector will wish not just to campaign but to be effective at influencing over the next five years.
I also spoke at the conference about the importance of all of those involved in housing appreciating just how significant the social housing sector actually is. The Regulator of Social Housing’s most recent global accounts review for the 2018/19 period shows that the sector now has £164bn worth of assets underpinned by £76.9bn debt.
Ten years ago, this debt to public sector ratio stood at 1:1, and in my time as chief executive of the regulator, we jealously guarded the fact that this was the most successful public private partnership in Europe.
Securing and building on the strength and security of that investment was one of the key reasons that an independent regulator was chosen to be set up, as government was determined to split the Housing Corporation’s investment and regulatory functions.
The Audit Commission was an option for the regulatory function, but lenders quietly let their concerns be known and the alternative was chosen. Today, the ratio of debt to public sector investment for new activity has shifted to 2:1.
Loans to the social housing sector have nearly doubled and are set to grow, with a record of £13.5bn borrowed in 2018/19 principally from banks and capital markets. The success of the current regulator in protecting social housing assets and ensuring that the social housing sector is a viable investment proposition for existing and new lenders should not be underestimated.
The Social Housing White Paper will almost certainly bring change to the nature of regulation. However, it is important to be wary of moving deckchairs that undermine or confuse the fundamental regulatory construct. With a new building safety regulator and a strengthened social housing ombudsman service, there is a danger that there is lack of clarity around regulatory roles and responsibilities.
And, if there is one thing that spooks lenders, it is uncertainty and lack of clarity. Lenders crave stability and ministers risk undermining this stability at their policy priority peril.
Finally, there is likely to be a new discussion on how investment in social housing is financed. The pressing issues of fire safety, health and climate change are now making significant demands on housing provider revenues. In London and the South East, in particular, the model of cross-subsidising new social homes through open market sales is now under significant strain, and it is clear that housing association margins will fall in future years.
If government does wish to maintain and increase the levels of new supply through social housing providers and new entrants, a new model of investment will be required. But in doing so, government should acknowledge the undoubted success of the current model and not be reckless in its reform.
Steve Douglas CBE, group chief executive, Aquila Services; and chair, One Housing Group