Written evidence submitted by David Hall [FSS 071]

 

About me

  1. By way of background, I have been self-employed for the last 10 years after spending the previous three decades in the local authority finance and social housing consultancy sectors latterly in a director role.  I was also Chair of Finance and Development for a decade on a medium sized housing association in South London which grew substantially in that time.

 

  1. During my period in consultancy, I spent a significant amount of time working on housing stock transfers from local authorities to housing associations and was one of the original architects behind the HRA Self-Financing reforms which the government introduced for local authority social housing in March 2012.

 

  1. A key issue which I feel needs to be considered in relation to this review is the impact of the HRA Self Financing Reforms in 2012 and the impact this had not only on the council sector but also the wider social housing sector during the last decade.

 

Stock Transfer 1988 – 2012

 

  1. Prior to 2012, for over two decades, authorities were encouraged to voluntarily transfer their stock (after a tenant vote) to housing associations in order to release more investment in their stock and build more housing, primarily because of tight controls on council spending.

 

  1. In total around 1.3m homes were transferred from around half of stock owning local authorities by 2012.  This left around 168 authorities (initially) with housing stock which were then included in the Self-Financing reforms.

 

  1. Most of the authorities which transferred their stock after 1988 set up new housing associations although since then a significant number have been brought into larger housing association groups.

 

  1. One of the macro-economic arguments used for stock transfer was that operating outside the public sector enabled the social housing sector as a whole to grow more rapidly through greater economies of scale and cross subsidisation thus enabling more development.

 

History of Self Financing Reforms 

 

  1. The proposal to introduce Self Financing initially came about as a consequence of a desire to give high performing ALMOs more financial freedom during the early 2000s but eventually evolved into an idea to give all authorities similar freedoms to housing associations (and thereby avoid having to transfer their stock) through a one off ‘big bang’ adjustment.

 

  1. The original principle behind the proposal (based on a paper I prepared for a government research group in 2008) was to redistribute the existing local authority housing debt of around £18.8bn across remaining authorities thereby avoiding the annual redistribution through the old unpopular HRA Subsidy system.

 

  1. However, the final consultation proposals capitalised an additional £8bn of notional future revenue to the exchequer leading to a total debt of £26.8bn being distributed to local authorities in 2012. The Housing Revenue Account Self-financing Determinations (publishing.service.gov.uk) and 2077754.xls (live.com). The £8bn was effectively a payment to government which went into the wider government coffers at the time rather than the social housing sector.

 

  1. The original idea of Self Financing was to give authorities more scope to borrow against their assets to fund stock investment and service improvements but the imposition of borrowing caps and limitations on grant funding for new housing combined with the extra debt meant that the new system was a pale imitation of the freedoms exercised in the housing association sector.

 

Impact since 2012

 

  1. Hampered initially by the controls over HRA borrowing a number of authorities decided to set up separate housing companies (such as Brick by Brick) to get round those limitations and explore other forms of tenure. 

 

  1. I have not spent much time studying the impact of those companies but from my limited experience of these businesses many lack the necessary resources or capacity to develop at the same scale as housing associations.

 

  1. Following the HRA Reforms in 2012 the stock transfer programme has also declined as authorities burdened by extra debt would now find it difficult to make it financially viable, even if they wanted to. Indeed the last guidance is now several years out of date: Housing transfer manual: period to 31 March 2016 - GOV.UK (www.gov.uk)

 

  1. The burden of the £8bn debt added to the local authority housing sector was further exacerbated in 2016 when the Government introduced a four-year 1% rent reduction.  The 2012 formula allowed for the self-financing agreement to be reopened where this occurred, but this was never done, so whilst the tenants benefitted from the reduction local authorities were further constrained. I presented evidence on this in 2015 here: Welfare Reform and Work Bill Committee (16th October 2015) (parliament.uk)

 

Wider Impacts and Conclusion

 

  1. There have of course been further significant impacts on the sector in recent years not least the Grenfell Tower disaster, Brexit, Covid, the Ukraine War and climate change all of which have had wider impacts on building standards, resourcing and cost inflation.

 

  1. The belated release of the borrowing cap in 2019 will have helped the local authority sector.  However, the impact of the original extra £8bn debt without any consequent economic benefit on the housing sector will have added to those wider challenges identified above.

 

  1. The proportion of social housing relative to overall housing stock (and indeed overall population) in England has continued to decline from around 30.1% in 1981 to 16.6% in 2021 - LT_104.ods (live.com). Whilst there has been a small net increase in the provision of social housing of around 3.5% since 2008, net social housing development has not kept up with population growth due in part to the continuation of Right to Buy and other sales programmes.

 

  1. I no longer spend much time working in the social housing sector as I have increasingly focussed my voluntary input towards other local community objectives in recent years.  My general feeling from my years in the sector is that whilst there are economic benefits from merger and growth well designed local delivery is vital to meeting community and tenant needs.

 

  1. The housing association sector is now very mixed, and some rationalisation makes sense but a clearer vision for the wider housing sector including the role of the local authority and private sectors is essential to meet the demands of the future. I am no longer in a position to offer much comment on the operations of DLUHC and the regulator or certain aspects of the review but do feel that clearer regulation of the growing private rental sector is long overdue.

 

  1. Notwithstanding that, as a concluding observation, I would contend that whilst the social housing sector continues to face significant challenges the most economical way to support it would be to invest more government money into new provision.

 

  1. Recent evidence on housing benefit shows that private housing benefit costs have increased from around £4.7bn in 2008 to £10.5bn in 2021 outturn-and-forecast-tables-spring-budget-2023.ods (live.com) as that sector has grown. Aside from channelling money via changes to the Infrastructure Levy and S106 (and reinvesting the £8bn) I believe the most effective way of supporting the sector and the economy is directly through capital grants in development (and targeted public land) rather than housing benefits to private landlords.

 

May 2023