Feature Story

Home and dry?

Social housing is likely to be the next big thing in the PPP/PFI sector, with increasing numbers of local councils looking to the sector to provide solutions to their housing stock issues. Added to that is the uncertainty of a general election year and the real possibility of a change of government.

In an interview with PPP Journal Editor, Michael Thame, HCA Chief Executive Sir Bob Kerslake urges clarity of commitment, funding and change when it comes to social housing.

When considering the effects of the global credit crunch and the impact on the house building sector in the UK, the timing of the creation of the Homes and Communities Agency (HCA) on 1st December 2008 can perhaps be considered extremely unfortunate.

However, looking to the future, and with a general election looming, HCA Chief Executive Sir Bob Kerslake discusses what the next government must do to make sure enough homes of the correct standard are being built.

What does the social housing sector need from government after the next general election?
The first thing I would say the sector needs is a signal of commitment to the importance of housing generally and the social housing sector in particular. That is both in terms of investment and management.

Beyond that, we will be looking for early clarity of the expectations from government, the underpinning funding that will be available to deliver that, and any changes they are looking for as well.

Because of the nature of what we do, investment has long lead times, so if you want to change the way you do things, or the scale of it, you need to give an early steer.

Those three things are what the next government, whoever wins the next election, needs to address: a clarity about commitment, clarity on funding and a clarity on changes of what they may be looking for in terms priorities between, say, low-cost ownership and build for rent.

How can the HCA maintain the levels of new build housing necessary as well as providing a framework to regenerate poorer social housing stock?
We start from pretty challenging market circumstances, which have undoubtedly impacted on the levels of new house building. Whilst things have improved over the last year we are still in what I would call a recovery phase. So I think the task for the HCA is to understand the nature of the recovery and then look at ways in which it can intervene to support and accelerate that process.

Specifically, it is about seeing through the Housing Stimulus Programme, which is absolutely critical, and secondly, it is about looking at how we manage the transition between the current Stimulus Programme, which was clearly intended to be temporary and targeted, and a transition into a new regime that is a more permanent model of funding and support.

A third specific we are going to have to work through is new interventions. I think we are going to see recovery in the market, but we need to see change as well. That is why two initiatives we, for example, are working on are critical: the Public Land Initiative to bring public land into development and indeed to change the model of development of that land; and secondly, the Private Rented Sector Initiative, which we believe can bring new institutional investment into housing.

There will also need to be a continuing close dialogue with the industry. One of the features of the last year is that we have worked very closely with industry to understand what the barriers are to them. Existing stock is a different challenge. It works in a number of different ways. We have the existing Decent Homes Programme (DHP) and it is important that is maintained and delivered.

Clearly in recent times, as the programme matures, we will start to see challenges in terms of the resources that we are going to have to carefully manage. That covers the bulk of the DHP, which is well under way now, but there are local authorities, particularly those that I would call ‘retention authorities’ who have not gone down the transfer or Arms Length Management Organisations (ALMO) route, where there is still work to be done to establish their investment plans to deliver decent homes.

We have a big job still to do to progress the delivery of the DHP and tackle the issues that still stand: those local authorities who are still to get two stars, those who have plans that were in effect funded from the authority themselves, which would now appear to be quite challenged, especially given the market and the falling off of receipts, into a new world with a review of the Housing Revenue Account (HRA) and what that might bring.

The main issues are on the relationship between the DHP, the remaining local authorities that still have to bring their homes up to decency, the ambition of local authorities to go beyond decent homes and then finally the review of the HRA.

And if that was not complicated enough, we also have to think about how retrofitting is achieved and financed. There is a lot to work through here and the interrelationship with the private market is critical. The private funding source is critical.

To what extent do you see the private sector playing a role in satisfying the need for improved social housing?
It is critical in a number of ways. Firstly, housing associations have needed to access private finance to deliver their ambitions. The evidence is that they are now able to secure funding but it has typically been shorter term and at higher cost. They had very beneficial arrangements and I do not think anyone realistically expects it to go back to those arrangements.

You can say that, at least in the short term, the appetite and funding is still there for Registered Social Landlords (RSL); it is pretty secure and a strongly regulated sector, but how it looks beyond the short term is an interesting question – whether RSL will want to tap into other areas of the private funding market, particularly principally working through debt financing, and how they will work towards greater use of bond issues. They are important issues.

Beyond the social housing sector itself, it is important to say that a lot of the social housing we have secured has been through Section 106 agreements on private housing developments.

So the access to private finance for house builders is critical as well in this agenda. Again, the evidence suggests that the bigger house builders are able to secure that finance, but there are still some issues to work through for the more regionally-based house building companies, some of whom still have a lot of work to do on restructuring.

Has the credit crunch and the expected tightening of the public sector’s purse strings made the possibility of social housing PPPs more or less likely?
It has made it more challenging and I think it has challenged some particular models, for example, the Local Housing Company model, but I do still think we will see PPPs as part of the future. I think we will see more flexible models to local circumstances and local needs, with probably the public element in terms of risk being a stronger feature because the appetite for long-term finance and risk for the private sector has diminished. I do not think we will see fewer partnerships but the nature of those partnerships will change.

Is social housing the next big thing for the PPP sector?
There is huge potential here not least because the demand is very strong. We have clearly gone from a period where, even at its peak, we were not hitting the underlying need for housing. The fall-back from the downturn has been reduced output, at least in private housing; much less so in public housing, although it has impacted on that as well. PPPs have many of the characteristics that are very attractive, particularly for institutional funders, in that it is sustained income strains with relatively low risk.

So there are a lot of reasons why I think there is significant potential to bring new players into
the market.

A key factor will be the impact of any review of priorities on public funding and the availability of public resources, but in every other sense it has a lot of potential, and ought to be attractive
to private sector looking for lower risk, longer return opportunities.

Sir Bob Kerslake
Chief Executive
Homes and Communities Agency
www.homesandcommunities.co.uk