Housing associations building to 'lowest specifications allowed'

Housing association chief executives warned about the commercialisation of social housing and the impact of changes to government policies on their budgets, and their building projects, in a report published just days before the Grenfell Tower disaster.

For the report, Zurich Municipal – part of the Zurich Insurance group – interviewed a number of housing association bosses, and found while there had been an “almost universal acceptance among registered providers of social housing that a commercial mindset is needed to survive in an age of austerity”, views on how that has manifested itself varied considerably.

The report found that there was “no room for a Rolls-Royce service”, and that pressure on registered providers of social housing to save money saw some building to the lowest specifications allowed by building regulations and lengthening the timescale in which repairs were carried out.

Moves to cut social rents inevitably reduced income for housing associations, while the move to Universal Credit has meant that housing associations no longer had the guaranteed income stream they received when payments were made directly to them.

The rent arrears of those on Universal Credit were typically double the amount of those on housing benefit, the report said, and one chief executive remarked: “Given a choice of paying your rent and feeding your children, you feed your children.”

Another of the big challenges relating to funding is providers finding it harder to borrow money from banks at the interest rates they used to be offered. “There used to be covenants in place that allowed housing associations to get loans at incredibly low interest rates,” one respondent said.

“This is one of the reasons mergers and acquisitions are such a problem for housing associations. If they change their structure, their bank can break the covenant and renegotiate the loan at a much higher interest rate.”

One chief executive, whose organisation is making £20m in interest payments, told Zurich Municipal his organisation “faced a constant struggle to avoid having to renegotiate loans”.

However while a more commercial approach was clearly in vogue, the report highlighted that the social purpose of providing decent, affordable housing had not been forgotten. Housing associations may have become more commercially minded, it went on, but as one interviewee said: “We are not bottom-line obsessed”.

Another respondent said their organisation’s ethical standards were such that they often walked away from potential business opportunities.