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Public or private? Housing’s identity crisis

8 October 2015 • Jo Loake

As housing has risen up the political agenda in recent months, anyone with half an eye on developments in the sector – or just on PMQs – would be forgiven for being a little confused about the fundamental question of what housing associations actually are. Thanks to journalists, commentators, and even the Prime Minister, there has been much muddying of the waters – are RPs public bodies or private organisations?

The ONS clearly sees RPs as private bodies, given the potential for them to be reclassified as public, with the price tag of £60 billion that would be added to the national debt.

The Government seems undecided; it expects RPs to be house builders, but using their own resources. And the HCA is asking boards of RPs to take more responsibility for risk and activities. This differentiates RPs from Local Authorities, giving them certain freedoms over their decisions and choices.

And of course, prior to the sector voluntarily agreeing to the NHF’s RTB deal, the Government planned to force RPs to sell social housing and charitable assets under RTB legislation; can a Government legislate to control the activities of non-Government-owned organisations?

Next came PMQs, with David Cameron stating that the housing sector needs to be more efficient, citing that it is part of the public sector which has not been through efficiencies and has not improved its performance.

To muddy the waters further, the Policy Exchange think tank has suggested that nationalising the sector and then privatising it, in order to release that £60 billion debt that would be added to the national balance sheet.

Confused about the thinking on the position of the sector? No one would blame you.

Technically private

RPs are, in technical, legal terms, private organisations. They are not owned nor controlled by the Government, nor subject to the constraints that Local Authorities are. They are private registered organisations with Boards usually made up of tenants and independent members. Some, usually LSVTs, have a number of Local Authority board members too.

RPs do business. This is more than simply managing housing stock (whether that stock has been transferred to it by a Local Authority, or whether it was set up as a ‘traditional’ RP). RPs build houses for a range of different occupiers, on a range of tenures, they provide services to the sector and outside of it, and they operate commercial businesses outside of the sector. And from this activity RPs generate their own surpluses – not payable to any Government entity – which they then reinvest into their business.

RPs raise funding. Crucially, this funding is not necessarily from the Government. A large portion is private funding from banks – lending that is usually predicated on the business plans of the RPs and subject to terms and conditions, regular repayments, and interest, just like any other business loan.

However, RPs’ income is primarily generated through the rents they receive, and the majority of those rents are from tenants who are in receipt of benefits which are paid by the Government. This seemingly makes it clear that a high percentage of RPs’ income is arguably publicly funded. To add to this, RPs receive Government grant. This is subject to successful bidding, complex terms and conditions and to repayment.

The vast majority of RPS are charitable, and in order to achieve charitable tax status an RP must prove that the majority of its beneficiaries are charitable beneficiaries. Often the test used is whether the majority of beneficiaries are in receipt of benefits.

So, perhaps it is true to say that RPs are not in the public sector, but they work for the public sector?

So where do go from here?

If RPs remain as private sector bodies, then arguably the Government must minimise interference with their operational activities, whilst balancing the requirement to protect social housing assets.

The RTB deal may have pushed reclassification into the long grass, but if RPs were to be classified as public sector, what does this mean for the national balance sheet, with an extra £60 billion of debt on it? How will this be managed by the Government, and how will it apply any new powers over RPs and their businesses?

If RPs were to become public sector organisations, would the Government decide to privatise them and sell off the assets? If so, to whom? How will this look any different from the RPs that exist now? And what will happen to those assets, and to the people they house? And perhaps there are RPs that may even welcome reclassification?

Unfortunately, we do not have all the answers! But Croftons can help you answer the key question: what can your organisation do to protect its position, to remain independent and to satisfy the Government that you are efficient and performing well?

If you would like to discuss any of the issues raised in this article please contact Jo Savage, Head of Governance and Regulatory.

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