Treasury to probe RSL efficiency

The government is to scrutinise how well housing associations manage their assets as part of a wider Treasury-led drive to squeeze better performance from the sector.

In the first part of a two-pronged approach, the Office of the Deputy Prime Minister has appointed a financial expert – believed to be from bank HBOS – to investigate whether registered social landlords are building as many homes as their financial clout allows.

Whitehall sources have indicated that the Treasury believes housing associations could spend their resources more effectively and make better use of their existing asset base.

The second part of the government's scrutiny of the sector will focus on the delivery of services to tenants, with specific focus on the wild variation in management costs.

The Treasury gave a broad hint of its agenda in the Budget in April. It included a chart of association operating costs and pointed out the "threefold variation" in the figures (graph, above). It is "actively looking into these variations" and how they can be reduced.

It said these fluctuations could be justified by better service, but added: "Where … variations cannot be explained by external factors alone, the task for government is to uncover and resolve their underlying causes."

The move comes as the Treasury is sending out frantic signals to all Whitehall departments not to expect significant investment in upcoming spending rounds in the autumn and next summer's spending review.

A Whitehall source said: "A big feature of the spending review will be about efficiency and the Treasury will review the RSL sector with a view to driving up performance."

The ODPM's financial expert will explore a change in the legal definition of social housing grant so it is not classified as a government loan. This would encourage more lenders to lend to the sector: Places for People Group calculates that the change could allow it to borrow up to £100m more.

The National Housing Federation is also understood to be conducting a review of the balance sheet capacity of its members, which could tie in with the expert's work.

A source close to the Treasury said: "In the Treasury's mind, any review will be linked to the wider labour and housing markets. They feel housing associations could operate in a way that is more responsive to these crucial areas. The other link that will be occupying Treasury thoughts is that housing associations are the one area where there has been a significant and successful injection of private funding. Nobody has gone bust and the Treasury sees this as a big win for the sector."

It is understood that the government could encourage arm's-length management organisations to strengthen their role. This would encompass development grant, but also managing stock developed under housing private finance initiative deals.