The decision today by the Office for National Statistics to reclassify English housing associations as ‘public non-financial corporations’ has a number of significant implications for the housing sector. However, the immediate impact of the change in the status of associations from private to public bodies is unclear.
The decision today by the Office for National Statistics to reclassify English housing associations as ‘public non-financial corporations’ has a number of significant implications for the housing sector.
However, the immediate impact of the change in the status of associations from private to public bodies is unclear.
In response the Department for Communities and Local Government (CLG) has said it will pursue deregulation of the housing sector and will ‘bring forward measures that seek to allow housing associations to become private sector bodies again as soon as possible’.
As such, Savills advises its clients to take the time to reflect on the how the following factors may affect their organisation.
First, the decision by the ONS to reclassify English housing associations as public bodies raises the following key issues:
- The credit worthiness of housing associations is likely to improve, due to the fact they are now backed by the state
- Controls over new housing association debt are likely to be required from the 2016 Budget onwards
- Controls over association income and expenditure would be likely because of the government’s determination to reduce the public sector deficit
- Lenders will be likely to assess whether loss-making loans can be re-priced, as the decision by the ONS could be said to mark a material change in the market
Second, the pledge by the CLG to bring forward deregulatory measures to get housing associations reclassified as private bodies raises the following points:
- To achieve this the controls in the 2008 Housing and Regeneration Act that the ONS took into account would have to be repealed. This would include the powers to give consent to dispose of assets and the removal of powers of intervention in the event of the failure of an association
- The government has an obvious opportunity to do this by outlining its plans in the upcoming Spending Review and Autumn Statement and then making any legislative changes through the Housing and Planning Bill currently going through parliament
- To what extent can such steps offset the impact of further government interventions in the sector since the 2008 Housing and Regeneration Act reviewed by the ONS? For example, the voluntary agreement to extend the right to buy to all housing association tenants; the 1%, four-year rent cut; the introduction of ‘pay to stay’ for high-earning tenants; the introduction of fixed-term tenancies
Robert Grundy, head of housing at Savills, said: ‘There was already a great degree of uncertainty in the housing sector, following recent policy developments, and today’s news has unfortunately increased this.
‘It is therefore very welcome that the government has quickly responded to the decision by the ONS and that it has underlined its commitment to ensuring that housing associations remain private, independent organisations.’
Mr Grundy added, however, that the government would face challenges in allowing the ONS to reverse its decision. This was because any future analysis by the ONS would likely consider the more recent policy changes mentioned above.
That said, Mr Grundy welcomed the opportunity for further deregulation of the housing sector in England. He said: ‘The removal of the powers to give consent to dispose of assets is in line with the current drift of policy-making and would be welcome, as it would free up asset management.’
However, Mr Grundy warned that the removal of powers of intervention in the event of the failure of an association might damage the credit rating of the sector. He said that one means of addressing this might be for the sector to create its own guarantee fund to underwrite debt and hence retain its credit quality.
The Savills Treasury team is available to advise on the implications for individual associations.