In a move that is clearly Treasury-led, the Government has decided that its grants to housing associations will be cut from 72 per cent of the cost of new homes to 55 per cent by 1995 / 96.
The decision, announced in the Chancellor's Autumn Statement, has alarmed the housing associations. It means they will have to raise a much greater percentage of their money from the capital markets. It will put up rents, and might mean that far fewer homes will eventually be built.
Today the National Federation of Housing Associations (NFHA) will launch a campaign to protect the future of social housing in Britain. Jim Coulter, director of the NFHA, said yesterday: 'Affordability is the first and last test of the effectiveness of the Government's housing reforms. The proposed cut in grant rates would result in growing welfare dependency, a situation which is clearly anathema to government philosophy.'
At the end of this month the federation will present to MPs an independent economic forecast drawn up by UBS Phillips and Drew. This will show that projected rent rises would put housing association homes beyond the reach of most low earners. On average 85 per cent of tenants would be dependent on housing benefit, rising to 90 per cent among two-parent families.
Housing associations have been a remarkable success story. There are 2,179 in England and they own 608,300 homes and 54,900 hostel bedspaces. The majority are small, with over half owning 25 homes or fewer. They provide about 50,000 new homes a year compared with the meagre 5,000 homes built by local authorities in England in 1991.
The homes are largely for rent and provide essential accommodation for low-income families, young single people, homeless, elderly and disabled people and minority groups with special housing needs.
Because of the groups of people they deal with, many of them are able to claim housing benefit for their rents. This is security for them, and also for their landlord associations.
But it has a negative effect. It can mean that a large percentage of people can only afford to rent the property because of housing benefit. It therefore creates a 'ghetto' - a word used by the associations themselves - of people in a particular income class.
The other problem is the poverty trap. Tenants earn very little or are unemployed and so claim benefit. But if their income rises, or they find work, then they may lose their entitlement to housing benefit. The rise may not be enough to pay the rent. Because of the rates at which benefits are withdrawn for each pound of additional income, 'there is a massive work disincentive', according to Len Bishop, chief executive of Hyde Housing Association, one of the largest of its kind.
A campaign called Right to Build has been launched by 15 housing associations in an attempt to get the Government to change its mind. They are very concerned about the effect on rents. Mr Bishop says: 'Only people receiving housing benefit, which will also have to rise, will be able to afford the new higher rents.
'This will lead to the creation of 'welfare ghettos' with all their social problems.'
More than 52 per cent of the homes owned by the associations are in Greater London or inner city areas. About one- quarter of all stock is in Greater London. Margaret Moran is a spokesperson for Housing for Women, an association which provides homes for single women on low incomes and single women with children. It was formed after the First World War when women were thrown out of employment when the men returned. The single women it helped then, aged over 30, were deemed to have no chance of marriage.
Now the association concentrates on giving help to women in London boroughs and Ms Moran speaks for the Right to Build campaign. 'A lot of the people we house are the backbone of the economy. They keep London, and other cities, at work. These people cannot afford private sector rents. Rents have been rising about 20 per cent a year, so it is already very difficult for our existing tenants.
'It costs London authorities about pounds 1m a week in bed and breakfasts, looking after people who have no permanent housing. We want to take people off the streets.'
Another fear of the housing associations is that if their grant is reduced in the way the Government proposes, the City will not be forthcoming with investment funding. Because the properties are tenanted, lenders may feel there will be less security for their loans.
Ms Moran says investors are already very edgy. Charlotte Desorgher, a spokeswoman for the Right to Build campaign, says City funders are also concerned about larger estates housing only people who are unemployed. 'They see greater problems, such as vandalism. It is more difficult to maintain the fabric of estates. At the moment housing associations are good landlords. If they have to become large estates of people unemployed there may be problems later.'
There is a further dimension. Because of the problems the associations may find in attracting sufficient private funding, the Housing Corporation, which monitors the organisations, wants to reduce their numbers. One plan being considered is to reduce the 600 or so institutions which receive government grant to just under 90, by a series of mergers.
But as Mick Sweeney, chief executive of the Community Housing Association, points out: 'One reason the Government wants housing associations, rather than local authorities, to build homes is because we are small and responsive to local need. If we go down to around 90 organisations then we will become large and unaccountable.'
Another reason they have been popular is that homes are on small sites, and of good quality, and avoid the problems associated with large, sprawling council estates, of the type built in the Sixties by local authorities.
The housing associations are supported in their aims by the House Builders Federation. Alan Cherry, secretary of the federation's social housing committee, says there must be question marks about how much finance can be obtained from lending institutions.
Even if the funding is available it will be more costly because of the greater risk, and this could lead to lower standards of homes and higher rents. 'The continuing existence of successfully balanced communities that housebuilders and housing associations have created' would be at risk.
And, more to the point: 'The reduction in capital funding could, ironically, lead to a greater demand on the public purse through increasing demand for housing benefit payments by housing association tenants'.
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