Budget reveals potential ticking time-bomb

In her latest blog, Thrive Homes Chief Executive Elspeth Mackenzie looks at the reality behind the headlines of George Osborne’s summer Budget.

As the number-crunchers begin analysing the long-term implications for the winners and losers in the summer Budget, there appears little doubt that it amounts to an attack on the social housing sector. I cannot remember a previous budget where the social housing sector was named.

It seems to me that the government’s actions are a symptom of the relationship that our sectorhas developed with the Conservative party that regards us as part of the culture of costly dependency that it is on a mission to change.

We made our views clear on welfare reform and benefit cuts, concerned as we rightly were about the impact on our tenants and on our business models. But we rose to the challenge and delivered. Some housing associations, including Thrive, actually improved their rent collection performance and reduced their arrears. Point proved – we are heavy with resource that we are too inefficient to apply unless pressed.
In the same way, despite grant funding cuts, housing associations are now developing more homes than in previous years. Largely due to the sector’s willingness to take greater commercial risks. You might very well think that this would resonate but even this is tainted by the debate on the levels of surpluses generated by ‘charities’.

The nitty gritty

Despite the headline-grabbing new national living wage, which is welcome in principle – other announcements indicate that what the Budget gives with one hand it takes with the other.

The reduction of social housing rents by 1% a year for the next four years will impact on the potential support of our lenders and has already generated a negative reaction from the ratings agencies. Under the Budget plans, better off tenants will have to pay market rents. While not disagreeing with the principle, the reality is that we do not have the power to extract this information from customers – and faced with the move to market rent, those who can may make the rational economic decision to exercise the right to buy. A decision that may be good for now but unsustainable if interest rates rise. Like so many of the inconsistencies the budget measures create – many of these ‘better off’ families will be in receipt of in-work benefits. Cuts to the annual household benefit cap – to £23,000 in London and £20,000 for the rest of the country – will cause a particular issue in the Home Counties, where we operate, as tenants pay higher rents reflecting property values but are not within the London geographical boundary.
With rents being reduced and a possible increase in the Right to Buy, if interest rates rise we will find it more difficult to develop the same number of new homes. This challenging climate may even put some housing associations at risk of going out of business altogether. But there is a view that there are already too many associations – so maybe a bit of rationalisation wouldn’t hurt?

Where to now?

So where does this all leave us? I believe that it’s a wake -up call – times have changed and failing to recognise this will get us nowhere. We need to develop a new dialogue that demonstrates our role in UK plc so that it remains open for our kinds of businesses. This needs some radical thinking.

Clearly we have to do what we need to do to work through the challenges in the short term but if this is all that we do – we will enable the hollowing out of our businesses and fail in our roles as custodians of the opportunity for a happy productive life that home represents.