In March, the idea of giving social housing grant directly to housebuilders was just a few paragraphs at the end of a consultation paper. Today, it's one of the hottest arguments raging in the sector. James Hughes met both sides.
It was a seemingly innocuous consultation paper, issued alongside the Draft Housing Bill in March. It might have been ignored, if it weren't for four short paragraphs at the end. Almost as an afterthought, Increasing the Effectiveness of Powers to Regulate Registered Social Landlords proposed that the Housing Corporation should be able to pay social housing grant to private developers. Four months on, the suggestion has become one of the most hotly debated topics in the sector.

The consultation ended a fortnight ago and responses are likely to be published in the autumn, but so far, five housebuilders have publicly backed the move. St George, Taylor Woodrow, Bellway, Barratt and David Wilson Homes argue that paying social housing grant directly to them will boost housing supply, introduce competition and cut bureaucracy (HT 11 July, page 8, and 4 July, page 16).

Meanwhile, registered social landlords, including members of the G15 group of London's 15 biggest housing associations, have registered their trenchant opposition. They are concerned that the private sector will get public funds without being subjected to the same regulatory controls as RSLs and fear housebuilders would resign the affordable homes to the least desirable parts of their developments.

At present, under section 18 of the 1996 Housing Act, the Housing Corporation can only pay social housing grant to RSLs. Last year, it dished out £1.4bn to more than 800 of them. To get the money from the corporation's approved development programme, schemes must fulfil criteria on sustainability, value for money and financial viability. In some cases, associations get the funds through local authorities, which then reclaim the money from the corporation. The thinking behind extending the approved development programme to private developers is simple: last year, 19,600 social housing units were completed, compared with 20,700 in 2001, and that's simply not enough. Among the developers that have publicly backed the move to direct social housing grant payments, for instance, Bellway sold 562 units to RSLs in 2002, and in the same year, less than 5% of homes built by David Wilson Homes were affordable.

The idea of handing the money to developers is not entirely unfamiliar. Last year, the Office of the Deputy Prime Minister paid Taylor Woodrow £400,000 to build 20 homes for teachers under the starter homes initiative. In fact, though, the company has completed 36 homes in Chelmsford using just £300,000 of this money and will use the remainder to build six more.

The case against
Objection to the move ranges from the ideological to the practical. Richard McCarthy, National Housing Federation chair and Peabody Trust chief executive, questions whether private developers are attuned to the needs of the social sector. He says: "We are opposed because housing associations are efficient developers, borrow their private finance at better rates and will always put the benefit to the community first." Jim Coulter, chief executive of the National Housing Federation, has warned that the plan will result in "a dual standard of regulation" and questions whether the Audit Commission will be obliged to inspect the housebuilders. The members of G15 agree with him.

RSLs also wonder whether they will have a role in managing the homes, and whether developers will end up making large profits when homes are sold on. Anu Vedi, chief executive of Genesis Housing Group, says: "What happens when a developer gets into difficulty? If it is forced for whatever reason to sell homes, what happens to the money or the tenants?"

Housebuilders don’t seem to realise that the Housing Corporation will want access to their books and to make the decision on where the money goes 

Derek Joseph, Hacas Chapman Hendy

All those in favour
However, not all RSLs are against the plan. Some believe that they should not have a monopoly on the sector; in particular, bigger landlords that do not need social housing grant are welcoming the potential new players. Brendan Sarsfield, chief executive of New Islington & Hackney Housing Association, says: "Introducing private developers will mean wider quality, better prices and more innovation so it is hard to object. Associations that oppose the move may come across as if they are protecting their own self-interests if they appear too defensive."

Pierre Williams, spokesman for the House Builders Federation, agrees. He says: "One skill the housebuilders have is building cost-effectively. By giving the grant direct to the developer, it will encourage them to build more social housing."

The housebuilders who have backed the proposal say getting hold of grant funds will speed up the construction process. Terry Fuller, partnering director at Taylor Woodrow, says: "Competition not only leads to lower costs but also leads to greater innovation. Housing associations are too worried that we will take all the housing grant when that will not be the case. They will just have to get more inventive."

Some housebuilders argue that schemes like gap funding mean they already receive public money. But are they being naive? Many wrongly think they will have a lot of freedom with the money, says Derek Joseph, managing director of consultant Hacas Chapman Hendy. "They don't seem to realise that the Housing Corporation will want access to their books and will make the decision on where the money goes. I can't imagine they'll let them pore over their books and tell them what to do."

For its part, the Housing Corporation says it is far too soon to argue over details.

A spokesman says: "We suggested the plan really to see what everyone thought, to put feelers out, but we are still in the early stages."

Source

Housing Today