Fundind Social Housing - Essay Example

Running Head: FUNDING SOCIAL HOUSING Funding Social Housing [Name Of Student] [Name Of Institution] FUNDING SOCIAL HOUSING Introduction It is argued that social housing in the UK currently faces affordability and investment problems. Rental payments are highly dependent on housing benefits and more investment, with higher rent levels and lower direct subsidy, requires more expenditure on housing benefits if affordability problems are to be avoided. The increasing role of private finance in funding housing association developments is reviewed. Here I will analyze whether debt is really bad or not? There is an examination of the institutional relationship between social housing expenditure and the public deficit. The case for new forms of social housing organizations, which are less restricted by public expenditure controls, is examined. It is argued that new social housing institutions will contribute more to the resolution of the investment than the affordability problem. The relationship between finance and social purpose is explored. It is concluded that there is a continuing need for redistributive measures if social housing is to achieve its essential purposes. Current Scenario Social housing in the UK currently faces a number of problems: --Tenants' incomes are low and highly reliant on state benefits. --Government support for development has been reduced--largely for macroeconomic reasons. --There is continuing pressure to restrict public expenditure on housing. --There are increasing pressures for efficiency gains from housing providers. --There is a substantial backlog of council housing repair and maintenance work. --There is a large and acknowledged need for more social housing. There are, in summary, affordability and investment problems. Rental payments are highly dependent on housing benefits. More investment, with higher rent levels and lower direct subsidy, means more expenditure on housing benefits. Government is worried about an escalating housing benefit bill. It has introduced measures to restrict benefits (Pearse, 2001, 22). Local Authority Housing Local authorities that once received large subsidies to assist in their provision of dwellings have dominated social housing in the UK. That role has, however, diminished considerably. From managing 28 per cent of the English housing stock in 1981, their position changed so that by 1994 they managed only 18 per cent of the stock. Since 1988, the government has made it clear that it wishes local authorities not to be housing providers but to be `strategic enablers'. The enabling role means that authorities oversee and monitor housing provision in their area, working particularly with housing associations, but do not get involved significantly with new developments (Brimley, 2000). Council house building was about one-third of all housing completions in 1980 but by 1994 was less than 1 per cent of house building. This reduction was a consequence of government controls on public expenditure. Local authorities have submitted annual housing investment programmes (HIPs) to central government. These statements set out a strategy for housing development and improvement based on a review of housing conditions in the locality. Government reviews bids for the use of resources in the HIP statements and allocates permissions to borrow and spend on housing-related activities. By cutting back on permissions to borrow money for housing development by local authorities, central government has brought about a massive reduction in the building of council houses. The main route for subsidies to council housing has been through central government contributions to local authorities' housing revenue accounts (HRAs). All current costs and payments related to the ongoing provision of council housing pass through these accounts. Each local housing authority has a HRA. The costs of financing debt and maintenance and management expenses are paid from this account. The income to the account includes rent and subsidies. Since 1980 subsidies have been progressively cut and rents increased. Under the `Right to Buy' legislation of 1980, 20 per cent of the receipts from sales could be used per annum for reinvestment, but the remainder could be carried forward to the next year so that with the `cascade effect' all the receipts could eventually be reinvested. Legislation in 1989 changed the position in England and Wales so that 25 per cent of receipts could be used in any year but the other 75 per cent had to be reserved to redeem debt or set aside for future debt redemption. These reserved receipts have, somewhat oddly, been classed as `negative public expenditure' for the purpose of public accounting (Pearse, 2001, 22-8). A major financial benefit of council housing has arisen historically from the consequences of `rent pooling' whereby notional surpluses on part of a local authority's stock, where rental income exceeds historical costs, have been used to offset deficits on other parts of the stock. This `internal subsidy' or redistribution has, in the past, helped to keep down rents on newer properties. In the 1980s, an increasing number of authorities began to make surpluses on the whole of their stock. Legislation in 1989 prevented these surpluses from being used to finance non-housing activities. The HRA was ringfenced. Surpluses were, however, to be used to help pay housing benefit costs. The Treasury was to save money at the expense of local authority housing. The ability of council housing to perform its traditional roles of promoting an increase in the provision of low-cost housing and maintaining the quality of that provision has been curtailed on both ideological and financial grounds. The key financial limitation of council housing has been that all its expenditure counts as public expenditure. This is the point, which is addressed by ideas for local housing companies and local housing corporations . LSVT--An Escape from Expenditure Controls In 1989, many types of council began to realize that they had housing stocks, which were valued at more than their debt, so the possibility of transferring their stock to a new landlord, redeeming the debt and being left with a surplus became attractive. The new landlords were housing associations. Without their expenditure being limited by public expenditure controls, they have been able to improve and repair where local authorities could not. By 1995, over 171 000 dwellings had been transferred to housing associations set up by local authorities and about 6000 to existing housing associations or specially created subsidiaries. Several housing associations also have `trickle transfer' arrangements whereby they take over houses as tenants move out (Hawksworth, 2000, 48). Over 17 per cent of the stock of housing associations has come from transfers. This is nearly as much as the increase in the stock through development (Voluntary Housing, 1995). Private borrowing wholly finances these transfers. The executive director of the financial institution UBS has stated that It is becoming increasingly evident to fenders that lending to Large Scale Voluntary Transfers (Lasts) represents a sound and safe investment generating a reasonable rate of return. The on-going need for good quality housing at affordable rents is undisputed and the stability of a rental stream largely free of the vagaries of movements in property values is both attractive and comforting, notwithstanding the occasional ministerial statement on housing benefits! (Mew, 2003, p. 26). Local Housing Companies The most detailed evaluation of the concept of local housing companies is in the Joseph Rowntree publication Local Housing Companies: New Opportunities for Council Housing. This report seeks to examine the prospect for local housing companies in the light of three main objectives. These are: --Increasing social housing investment without increasing public expenditure. --Providing local housing authorities with a means of competing on equal terms with housing associations. --Maintaining local accountability to local authority tenants. The financial arrangements for local housing companies could be similar to those applied to LSVT or they could take the form of `transfer at outstanding debt' or `revenue payment transfers'. It is claimed the Local housing companies provide a vehicle to take council housing outside of the inherent financial constraints imposed on bodies that are inevitably part of `general government'. At the same time they should more readily secure tenant support, as fitting successor bodies, with local councils retaining a continuing and important measure of influence over the rented housing they have developed over the last century, with all the continuity and confidence that can bring (Wilcox et al., 2002, p. 88). It is also suggested that they offer the prospect, not of the end of council housing but have a fitting and beneficial evolution (Wilcox et al., 2002, p. 88). Private Social Housing Companies? Social housing is distinguished by its allocation, profit and subsidy characteristics. These can be more significant than the legal niceties of who owns the housing and whether the housing is classified as public or private (Oxley, 2001). Allocation according to some sort of needs criteria rather than ability to pay can be part of a social housing agreement to which the landlord is bound. Any surpluses or `profit' generated by social landlords can be controlled. There can be rules which require that surpluses are reinvested in housing or that they are limited and therefore keep rents down. If a private-sector entrepreneur wishes to sign up to such controls, there may only be dogma which prevents this happening. The redistributive mechanism of social housing ultimately requires subsidy. Such subsidy, when it is an object subsidy, can be provided with allocation and profit conditions attached. Finance and Social Purpose As we look to the future, and ponder the way that the organization and financing of social housing may develop, it is useful to consider some very basic questions about the financing and the purpose of social housing. Why do social housing organizations need finance? (1) To manage, maintain and improve the existing stock. (2) To service outstanding debt. (3) To provide new housing. (4) To facilitate changes of ownership. Where can this money come from? (A) Tenants' income from work. (B) Tenants' income from state benefits. (C) Borrowing--ultimately to be repaid from tenants' incomes or from contributions from the state. (D) Grants from the government. (E) Landlords' surpluses and reserves. (F) Sales of landlords' assets. As long as money is forthcoming from some source for purposes (1), (2) and (3), investment will occur. If money for purpose (4) makes it easier to obtain funds for the other purposes, this also promotes investment. The investment problem is thus addressed. Whether or not the affordability problem is addressed is, however, dependent on the combination of sources and their relative significance (Pearse, 2001, 22). The provision of social housing constitutes, above all else, one means of ensuring that access to decent housing is not limited by insufficient personal resources. If this aim is to be achieved, a social housing system must involve an effective redistributive process. If it does not, it has no significant economic or social function. The redistribution could come from: (a) Society in general to social housing tenants. (b) Social landlords to social housing tenants. (c) Some social housing tenants to other social housing tenants. If landlords are well off, redistribution process (b) will achieve some success for a while but ultimately is sustainable only if landlords' resources are continually enhanced. Redistribution from (c) may occur through rent pooling and the recycling of rent surpluses hut, again, this is not sustainable unless there is significant income- and cost-differentiation within the tenant and stock populations (Pearse, 2001, 33-5). Redistribution from (a) is essential if social housing is to maintain its social purposes. Social housing tenants are poor and they are getting relatively poorer. Nearly half of all housing association tenants rely on income which is wholly derived from state benefits. Only 18 per cent get no state benefits; 66 per cent of current tenants and 83 per cent of all new tenants are on housing benefit. There is a relative concentration in council housing of households with no earners or with unemployed heads. As social housing has housed a smaller proportion of the population, it has increased its share of the lowest-income households (Murie, 2003). Recent research (Burrows, 2004) points to a continual process of residualisation in the social rented sector as a consequence of the characteristics of those moving in and out of the sector. New households entering social housing are shown to be differentiated from new house holds entering other sectors in several ways, but especially by their greater probability of being headed by someone who is economically inactive. The rent-paying capacity of social housing tenants is highly dependent on state benefits and this will continue to be the case whatever happens to ideas about housing companies and housing corporations. These ideas are primarily about getting more private finance into the sector to promote more investment. They are driven by the desire to find a way around public expenditure constraints. They may be able to promote some redistributions of types (b) and (c), above, but redistribution of type (a) is essential in the long run if the income to housing organisations is to be sufficient to service debt and new investment is to be viable. Conclusion The main developments in social housing in recent years have involved transfers of ownership from local authorities into homeownership and to housing associations. Investment has been increasingly dependent on receipts from sales and private finance. Though it isn’t necessary that debt always has bad impacts but in the current and past situation, it has only exercised a destructive impact on the normal public. Very large volumes of private finance have been attracted into the sector with public subsidy being used to obtain leverage. The social housing sector has become more residualised and a large need for social housing remains unmet. An important expectation is that new types of social landlord will emerge. There are still, in detail, several forms which the new institutions may take, but one can imagine much more diversity in future with a range of non-profit landlords, including housing associations and new companies or corporations, all operating alongside each other. There might even be `competition' from privately owned social landlords. Such diversification and more blurring of the division between the public and private sectors is likely whatever government is in power. The redistributive purpose of social housing will not, however, be reinstated without more radical changes than those currently on the agenda. Some redistributive processes through tax concessions or the provision of `cheap' land, for example, may not impose heavy charges on public expenditure. Subsidies in the form of grants to landlords or households will, of course, require such expenditure. The case for housing subsidy will increasingly be argued in terms not just of the housing consequences, but also the wider effects on health, crime and education. The old debate about object versus subject subsidy will continue. It will not be resolved. The case for both will have to be reinforced if, whatever the institutional arrangements, social housing is to have a social purpose. References BRAMLEY, G. (2000) The enabling role for local authorities: a preliminary evaluation, in: P. MALPASS and R. MEANS (Eds) Implementing Housing Policy, pp. 127-149. Buckingham: Open University Press. BURROWS, R. (2004) The changing population in social housing in England. Housing Research Findings No. 202, Joseph Rowntree Foundation, York. HAWKSWORTH, J. and Wilcox, S. (2000) Challenging the Conventions: Public Borrowing Rules and Housing Investment. Coventry: Chartered Institute of Housing. MEW, B. (2003) The state of the LSVT market, Voluntary Housing, February, pp. 26-29. MURIE, A. (2003) Beyond state housing in directions, in: P. Williams, (Ed.) Housing Policy: Towards Sustainable Housing Policies for the UK, pp. 84-102. London: Paul Chapman. OXLEY, M. (2001) Private and social rented housing in Europe: distinctions, comparisons and resource allocation, Scandinavian Journal of Housing and Planning Research 12, pp. 59-72. PEARSE, B. (2001) Social housing: some new realities, Housing and Planning Review 51, pp. 22-23. PERRY, J. (2000) Long live the revolution, Inside Housing, April, pp. 14-15. VOLUNTARY HOUSING (1995) LSVTs: a part of the movement, 25, pp. 25-31. WELLS, A. (2004) City Money, Housing, 32, pp. 26-27. WILCOX, S., and HAWKSWORTH, J. (2002) Living on borrowed time, Roof, 11, p. 11. WILCOX, S., BRAMLEY, G., FERGUSON, A. ET AL. (2002) Local Housing Companies: New Opportunities for Council Housing. York: Joseph Rowntree Foundation. Read More