Whose homes are they anyway?

While publicity on the Housing and Planning Bill has been rightly focussed on the forced sale of council homes and Right to Buy, there has been little mention of a late Government amendment, made to the Bill in the Lords last month.

But it may prove to be a very big deal.

It potentially puts hundreds of social homes at risk of being lost to the sector, and could result in tenants losing the protection of regulated rents and landlord services.

The amendment was made to Chapter 5 of Part 4 the Bill, which deals with the insolvency of registered providers of social housing – in other words, what will happen if a housing association goes bust.

This part of the Bill was originally included by Government to bring legal clarity to such situations.  It follows the near-collapse of Cosmopolitan Housing Group in 2012 as a result of acute liquidity problems.  Cosmopolitan ‘came within a whisker’ of having its social homes seized by lenders.  A last minute rescue deal brokered by the social housing regulator – the Homes and Communities Agency (HCA) – resulted in Sanctuary Housing Group stepping in to save the homes.

This Sanctuary deal saved thousands of much-needed social homes, not to mention allowing individual tenants to have the continued protection of a regulated landlord (on rents and other issues).  But, more importantly from the sector’s point of view, it averted a loss of lender confidence, and subsequent increased borrowing costs, at a time when associations are under renewed pressure to raise private finance to build new homes.

In 2014, the HCA published a ‘Lessons Learned’ report, which concluded that the problems arose because the newly-merged Cosmopolitan had an overly complex group structure, an over-ambitious development programme and had used guarantees to put its social housing assets at risk.

A new Special Administration Scheme was therefore seen as a necessary part of a package of largely deregulatory reforms, which will mean HAs will no longer need permission from the HCA before they merge, restructure, sell, or dissolve.

So in January, new clauses were added to the Housing Bill, with Minster Marcus Jones stating: ‘The provisions could be used in the unlikely event of a housing association becoming insolvent, thus retaining confidence in the sector’s lenders’. The Government clauses set out that the first objective of the administration scheme would be to ensure that ‘the registered provider’s social housing remains in the regulated housing sector’.

So far so sensible.

However, then came reports that – following pressure from lenders and HAs – the Government would change the wording of the Bill so that the primary purpose of the scheme would be to safeguard creditors’ interests, rather than ensure social homes remained in the sector.  The amendment was made at the beginning of April.

When pressed on the amendment by Lord Beecham, the Minister stated, that although the sale of social housing stock would be a matter of last resort: the objective to service creditors takes precedence over the objective to keep social homes in the regulated sector’.

While we understand the Government’s dilemma over lender confidence, these new clauses potentially put thousands of social homes at risk of being sold off on the open market should a major registered provider of social housing collapse.  A series of recent mergers have resulted in ever larger and more complex group structures.

We must learn lessons from the Dutch social housing sector, where financial liberalisation in the mid-1990s led to social housing being ‘rocked to its foundations’ following the 2012 financial collapse of a major provider, and recent Dutch Government reform subjecting housing associations to stricter supervision, and giving tenants a legal say on major changes, like mergers.

Should another English housing provider face the risk of insolvency, the HCA’s aim would no doubt be to do its level best, via the new administration scheme, to again save the social homes.  But, as the Bill currently stands, this would not be possible if other options, including market sale of the homes, would provide a better outcome for creditors as a whole.