Who's in the driving seat?

As one ODPM insider puts it: "It is absolutely the case that the Treasury now takes a much greater interest in housing – particularly social housing – since a year ago. In many areas this is good for us, but some areas of the ODPM find it not so productive in terms of the restrictions the Treasury places on what can and cannot be done."

For years, the Treasury has happily doled out cash to be spent by John Prescott's team or their predecessors. But recently the Treasury has begun to intervene in key housing decisions, such as the move to strip the Housing Corporation of its inspection powers and hand them to the Audit Commission to form a single housing inspectorate, the proposal to pay social housing development grant to private developers, Kate Barker's review of housing supply and the Audit Commission review of the management efficiency of housing associations.

So why has chancellor Gordon Brown now put housing under the spotlight? Just what is it that the Treasury wants?

Why now?
A session at next week's National Housing Federation annual conference will attempt to answer this question. However, speaking last Tuesday at an event to promote ethnic diversity, Paul Boateng, chief secretary to the Treasury, offered some insights.

"The days when [housing] felt relegated to the margins of social and economic policy are gone. Housing is now central to our agenda," he said. "By 2005-6 we will have doubled, in real terms, our investment in housing from 1997-8, but there is more to do. Additional resources need to be accompanied by significant policy reforms. Housing is a vital public service in which we need to ensure the taxpayer gets value for money. It needs to attract new resources. The comprehensive spending review needs always to make sure those are being applied effectively and resources are linked to reform."

So, it is concerned about ensuring the hike in spending this year that will give £22bn to Prescott over the next three years is bringing tangible results, without any loss in value for money. Fair enough. But hasn't it always been the case that funders want to ensure the security of their investment? The Treasury has always managed to do this before without demanding, as it now has, that housing associations submit to a scrutiny of their housing management processes and techniques.

Jim Coulter, chief executive of the National Housing Federation, says: "Clearly, throughout Labour's first two terms, the Treasury has regarded itself as the political authority between the management of the economy and delivering social justice. Perhaps it is overdue that the Treasury has now turned its attention to housing."

Further clues to what it wants can be found on the Treasury's website – with particular regard to the Budget and the widely publicised decision on whether or not to hold a referendum on joining the euro.

One passage from this year's Budget reads: "A stable and flexible housing market is essential to a healthy economy and housing market imbalances are a potential brake on economic development. Strong cycles in the housing market have been a striking feature of the UK economy over the past three decades. This volatility has affected the wider economy.

The big question is what the ODPM will prioritise if – as seems likely – the Treasury gives it a smaller settlement

Jim Coulter, NHF

"The government has recognised that reforms are needed to help increase the supply of housing, reduce volatility and promote stability in the wider economy. The effect the housing market has on macroeconomic stability will be much more significant should the UK join the European monetary union. The housing market forms an important part of the monetary transmission mechanism, the means by which interest rates affect the wider economy."

That's the official line – the surges in house prices hit the economy and hinder our chances of ever joining the eurozone, and this argument seems entirely sensible. There are also issues around "labour mobility" – the ability of people to move easily to where they can find jobs. However, housing professionals experienced in negotiating with Whitehall feel there are other issues related to social housing that need attention. The looming comprehensive spending review, alluded to by Boateng, is something that associations and councils should be wary of. Everything is up for review – as per usual – but this time the Treasury is serious when it says it has much less cash than it had hoped, due to falling tax revenues and sluggish economic growth.

A Whitehall source says: "Housing resources have increased markedly since 1997 and the last thing anyone would want is for this to be reversed, but there can be no guarantees in the present climate."

It remains to be seen what results from the knowledge the Treasury is gathering on housing supply (Kate Barker's review), skills shortages in construction (Sir John Egan), the feasibility of increasing the use of long-term fixed-rate mortgages (David Miles), and the efficiency of housing associations (the Audit Commission). All of these are due to report by the Budget next spring, but will it mean good or bad news for the sector next July when the spending review is unveiled?

The NHF's Coulter feels the scrutiny can only turn out for the best. "To date, the Treasury has not changed the framework for the key housing policy areas of stock transfer – although it wants to improve it – the private finance initiative and arm's-length management organisations. In fact it has ploughed more resources into all three areas to help councils invest in their sub-decent housing stock.

"The big question for the spending review is what the ODPM will prioritise if – as seems increasingly likely – the Treasury gives it a smaller settlement.

"Will it concentrate on stock transfer, where private finance is combined with public? Or will it plough more cash into ALMOs, which are all publicly funded? I suspect the answer could well be the former."

A further piece of work currently progressing behind the scenes – this time commissioned wholly by the ODPM – is a review of housing policy over the past 30 years. It is being done by high-profile academics such as Professor Christine Whitehead of Cambridge University and the London School of Economics and her colleagues at Glasgow and Edinburgh universities. Its views on what has and hasn't worked are set to underpin the funding bid submitted by the ODPM for the next spending round.

Rough ride for private developers
Coulter adds that, although associations may be forced to swallow some bitter pills after the Audit Commission efficiency review, private developers could be in for a rough ride as well. "Over the years, the fall in the overall level of housebuilding has been due to a drop in the level of social housing built," he says. "One of the fundamental questions the Barker review wants answered is why the market hasn't filled the void. As far as I can see, the Treasury has become increasingly distrustful of the lobbying stance of private developers, in that they are constrained by the planning system in building more homes. There are concerns that developers are hoarding land because it looks good on their balance sheet – hence Kate Barker's review."

Local authorities are already being scrutinised as far as housing supply is concerned, through the comprehensive performance assessments conducted by the Audit Commission. Again, this year's Budget doesn't mince its words: "The government is also committed to ensuring, through intervention if necessary, that local authorities in high-demand areas deliver housing numbers set out in regional planning guidance. Local authorities should not just be operating the planning system, but also ensuring that the necessary level of house building happens … Performance against this criterion will influence local authorities' comprehensive performance assessments as well as the allocation of resources recommended by regional housing boards for new affordable housing."

Coulter says: "The overriding theme of what the Treasury always wants is to improve performance and efficiency in return for the money it releases. It may not always prove welcome, but the Treasury likes to have its cake and eat it. It wants to be able to get improved results while clamping down on what it sees as inefficiencies.