Public Services Associations: Homing in on housing associations: The voluntary transfer of municipal property is popular with smaller councils. Does it have the same appeal for inner-city authorities? Paul Gosling reports

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THE DAYS of municipal housing could be drawing to a close. Although only 20 local authorities have so far transferred their housing stock to independent housing associations, the Government wants this greatly extended. About 160 councils were willing to follow this route after the Conservatives won the general election, as the only means of attracting extra money for housing.

It is Tory-controlled, smaller districts in the south of England that have led the move to voluntary transfer of housing stock. All but one of the housing associations involved have been specially formed for the purpose, borrowing from banks and building societies. The largest transfer has been in the London borough of Bromley, where Broomleigh Housing Association has bought some 12,300 properties for pounds 117.9m.

Keith Exford, chief executive of the Broomleigh association, says that the transfer has been successful, but that Voluntary Transfer Housing Associations (VTHAs) are especially vulnerable to economic fluctuations. 'Interest rates were high at the time of transfer. The best thing that could have happened to us was the withdrawal from ERM and the lowering of interest rates - our borrowing came down by pounds 10m. However, inflation has also come down, and our rents are tied to 2 per cent over Retail Price Index, which means our rental income has gone up by 4.6 per cent, instead of the 6 per cent expected. We are very susceptible to the vagaries of the market, including the effects on Right to Buy income.'

Several VTHAs have been badly affected by the loss of Right to Buy (RTB) proceeds, but Broomleigh was safeguarded by an agreement with Bromley borough for a comparatively low purchase price for the stock, instead passing back to Bromley most of the initial capital receipts from RTB. This has proved a more secure method of business planning and newly formed VTHAs are copying the model.

Swale Housing Association suffered considerable problems because of the loss of RTB income. Steve Howlett, chief executive at Swale, says that the association had to make fundamental changes in its organisation to cope with the loss of predicted income. 'We responded by restructuring, reducing the staff by about 30, which was 25 per cent. We were going to repair the PRC (reinforced concrete) houses, but now we have decided to knock down and rebuild to a greater density, which is more cost-effective through the use of grants.'

Mr Howlett was appointed last year, having previously been a director of planning and resources with Notting Hill Housing Trust. He says that it is important to change the culture inherited from local authorities, but that this can be achieved without wholesale replacement of the employees themselves. 'The staff have felt liberated by the changes, by working for a single- purpose organisation,' he says. The staffing changes have taken place at the top, with a completely new management team appointed in the last 18 months.

According to Steve Wilcox, a housing consultant at the University of Wales, even the few transfers so far undertaken, have had a significant impact on public housing finances. In a report on VTHAs, published this week, he explains: 'The transfers required pounds 1,275m in private finance, of which pounds 441m was used to repay, or be set aside against, the historic housing debt of the council. In public-spending plans this in turn offset the provision for government borrowing approvals to other authorities. pounds 193m of capital receipts became available to the councils concerned for new housing or other investment, while a further pounds 191m was required, in the first instance, to be used to pay off, or be set aside against, 'non-housing' council debt. Some pounds 450m of the private finance raised by the new landlords was used to finance a combination of catch-up repairs and improvements, and short-term operating deficits.'

The Association of Metropolitan Authorities (AMA) is wary about applying the lessons learnt from smaller often rural authorities to the big cities. The AMA's housing officer Mathew Warburton says: 'None of the transfers has divided up its stock, and none has been supported by an active tenants' movement. In metropolitan authorities the stock would have to be split up; the value of the stock is hardly above the value of the debt; and there are large and organised tenants' movements. The Government hasn't addressed these problems. Local authorities who have undertaken transfers have done so to achieve capital receipts, though some chief officers may also feel liberated to head up predatory housing associations. Some authorities have wanted to finance more houses, others want to build new civic or leisure centres, or to put money in the bank and bring down the poll tax. Our members want to know how they can improve a decaying housing stock, and how to address the homelessness problem.'

The creation of VTHAs also fails to address some of the problems identified both by the Government and the Audit Commission. Part of the rationale for selling off local-authority housing stock is to provide consumer choice.

Tenants have generally been less than enthusiastic about switching landlords. Of 44 possible transfers, 24 were killed off by tenants' opposition. Authorities also say they need to know about the future scope for the use of capital receipts beyond January 1994, as transfer arrangements initiated now will not be completed under the existing approvals for spending receipts.

But it is last November's consultation document from the Department of Environment (DoE) that has been the big dampener. The Treasury wants to impose a levy of 20 to 40 per cent on the sale price as compensation for paying out more on housing benefit. Councils whose housing stock generates a surplus on the housing revenue account are required to cross-subsidise housing benefit, reducing the Treasury's payments. Once stock is transferred, the cross-subsidy is lost. In the case of Bromley alone this costs pounds 7m per year.

The other serious problem is that the larger, particularly inner-city, authorities will not co-operate. They want to retain control of the stock, and seem to have the support of the tenants' organisations. At the same time these councils are stuck with housing which desperately needs renovation, but with no money to do it. The Institute of Housing (IoH) believes that the pragmatic solution is for the Government to approve the creation of local housing companies, which are not controlled by local authorities but are more accountable than housing associations. They would be outside the public sector and therefore able to borrow without being counted against the public-sector borrowing requirement.

John Perry, policy director at the IoH, says: 'These would be local authority influenced companies, with 30 to 40 per cent of directors appointed by them, exercising more influence than on housing associations. The idea is to make it attractive to inner-city authorities, which hold about 60 per cent of the stock. They could raise money on the asset value, and use more of the asset base to invest in the stock. We want to sell the idea to the Government as a way of getting investment into the stock, while breaking up the big housing monopolies. For the authorities it is a way of avoiding transfers and can avoid the bad effects of Compulsory Competitive Tendering.'

Mr Perry describes this as 'a political compromise'. The question is whether either the Government or Labour local authorities are in the mood for a compromise. Meanwhile, there are increasing numbers of people staying in temporary accommodation, and much of the housing stock barely fit for human habitation.

(Photograph omitted)

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