This action might not be possible to undo. Are you sure you want to continue?
Alex Marsh School for Policy Studies University of Bristol
Housing associations and the path to 20331 I am very conscious that prediction is a hazardous business. This short paper starts by looking a little at social processes and asks whether the 2015 General Election is likely to be a critical juncture on the path taken by the housing system. It then turns to some of the contextual factors we can be reasonably confident about over the next twenty years. Finally, it speculates briefly about what housing associations are going to be like in 2033 and how we are going to get there. Path dependency and housing policy I’ve been thinking about path dependencies and critical junctures. I’ve been thinking about directions of travel and the drivers behind them. Path dependent processes tend to be self-reinforcing. Once a social system sets off in one direction it creates feedback mechanisms that reinforce the direction of travel, unless something intervenes to disrupt the process. That something may well take the form of an exogenous shock – a shock from outside the system. Critical junctures are key points in the process at which decisions are made that set us off on one path rather than another.2 Is it useful to frame what is happening in housing in these terms? We might think about our current problems with housing supply in terms of path dependency. The rise of owner occupation, coupled with the move to asset-based welfare, has resulted cohorts of people with an interest in protecting the quality of current neighbourhoods and sustaining house prices. This results in calls for greater local control. The localism agenda provided those people with the mechanism to protect their interests. Localism leads not to more houses being built but to greater restriction on development. Hence we face the problem that the planning system persistently fails to release sufficient land for development. That feels like a part of the story. But it clearly isn’t the whole story. The current rapid process of tenure transformation is another candidate for a path dependent process. Propping up house prices means that existing owners have equity they can release. Difficulties in the credit market mean that those who have equity can raise money more easily to purchase second properties than can first time buyers to purchase primary residences. This sustains prices and prices first time buyers out the market. Those would-be first time buyers then become a ready market for properties to rent. Rents reflect high prices and mean that renters cannot accumulate a deposit, and so are stuck renting.
This is the text to accompany a brief presentation at the NHF Hothouse Event, Exeter, 02/10/13 If you’re interested in path dependency and critical junctures in policy then they are concepts that form part of the literature on institutionalism. A good place to start is Lowndes, V. and Roberts, M. (2013) Why institutions matter: The new institutionalism in political science, Basingstoke: Palgrave MacMillan.
Again there is something to the idea that this is a self-reinforcing process. But I don’t think it’s the whole story. The idea of path dependency has been big in political science and policy studies for quite a few years. But it has limitations and it has been criticised. One big criticism is that path dependency can account quite well for why we carry on in one direction, but it offers a much less ready explanation for how we ever get off one path and on to another. The framework can account of continuity but is not a very good account of change. Invoking unexplained exogenous shocks to “explain” the occurrence of a critical juncture and therefore to explain change is not much of an explanation at all. This weakness can be illustrated by another aspect of recent housing policy. The move to mixed funding for housing associations and the stock transfer programme were underpinned by financial institutions taking comfort from the predictability of the income streams resulting from housing benefit.3 The reliance of the whole system on housing benefit led some authors, drawing on notions of path dependency, to argue that governments would struggle to make changes to housing benefit because it would risk bringing the whole edifice down around our ears. Arguably that was why the Labour government never delivered on its intentions to reform housing benefit in the social sector. And it is clear in the way the Coalition is trying to give lenders assurances about the future of housing benefit that the Coalition is mindful of this risk. So path dependency clearly has some relevance. And yet the welfare reform agenda - including the underoccupancy penalty, changes in the formula for uprating, universal credit and the overall cap on benefit - is curtailing housing benefit and presenting housing associations with much greater challenges and risks around income streams. So the system is less locked-in to a reliance on housing benefit than a focus upon path dependency alone would suggest. Governments – and presumably other policy actors – do have the latitude to effect significant change. It may, of course, be that in this case the path dependent account is right all along. Ultimately the attempt at welfare reform will cause the whole edifice to collapse. We just haven’t got there yet. Equally we might argue that the global financial crisis represented a critical juncture in the sense that it was an exogenous shock that disrupted old understandings of the rules of the game. It allowed the Coalition government to slash conventional capital funding and introduce the “affordable” rent programme. The combination of limited grant funding and the “affordable” rent programme is setting us off on a new path, which is effecting a rapid transformation of the sector.
This, of course, sits alongside other important factors like the robust regulatory framework for housing associations.
The next critical juncture? Does the shape of current housing policy debate suggest that the 2015 General Election is going to be a critical juncture? Or is it going to see the direction of housing policy continue along the current path? You might argue that current rhetoric points to a change of direction. Housing is higher on the agenda than it has been for years. All the parties are making louder noises about the need to build more houses. The Conservative Renewal group is calling for a million homes over the course of the 2015-2020 Parliament. Ed Miliband promises we’ll be building 200,000 a year by the end of the Parliament. His suggestion of a ‘use it or lose it’ policy on developable land is potentially novel. It draws support from organisations like the IMF, even though it has got the right wing commentariat into a lather. Current Liberal Democrats housing policy is calling for 300,000 new units a year. So there is a lot of talk. But we could argue that at the moment that is all there is. Conservative Renewal doesn’t particularly have the ear of the party leadership. Ed Miliband’s pronouncements on housing were rather short on detail. It wasn’t even clear whether his 200,000 a year included social housing or not, or how he plans to deliver this. Whether ‘use it or lose it’ can be or will be delivered is an open question. And whether Liberal Democrat policy will have any bearing on the matter in hand after 2015 is a rather moot point. We have had relatively little structural reform of the supply side of the housing market over the last three years, and it doesn’t look like there is a lot more on the agenda for the next couple. This is a missed opportunity. Perhaps the one area of novelty is that there have been calls from across the political spectrum for us to revisit the policy of new towns and garden cities. So, unless Labour comes through with ‘use it or lose it’, all things supply side are very likely to be trundling along on their current path after 2015. It is clear that the increase in private renting is forcing change on the government – in particular recent announcements from DCLG about encouraging longer term tenancies – but these signal the likelihood that current directions are going to be reinforced rather than reversed. Unless there is a radical rethinking – for example regarding the benefits of subsidizing bricks and mortar rather than people or on the appropriate definition of public expenditure – I don’t see a substantial change in policy direction happening at the moment. And I see no sign that any such rethink is likely in the medium term. Yes, it is likely that local authorities will be given more freedom to exploit the headroom available following the localisation of the HRA. But, while valuable, that on its own is not going to solve our affordable housing crisis.
Some pretty well known knowns and some not too risky speculations Some parts of the story of our journey to 2033 are already known with reasonable confidence. We know that there will most likely be a lot more households. We know that there are going to be a lot more smaller households. A lot more older households. And a lot more single parent households. The current government has not really done much about rebalancing the macroeconomy away from reliance on financial services and upon London and the south east. So the south east, plus areas like the M4 corridor, is going to where economic growth is going to concentrate for the foreseeable future. Although there have been promises of infrastructure investment to increase access to the regions most of that is not going to be completed until quite a long way along our journey to 2033. So its longer term impacts upon the shape of UK spatial development will not have been realised. Despite the accusation that Ed Miliband is guilty of spendthrift socialism, in fact he seems intent on committing Labour to staying close to the current fiscal envelope. So the future is one of continuing fiscal constraint. George Osborne at the Conservative Party conference this week promised that a Conservative government after 2015 would be aiming for a budget surplus. Frankly, I don’t think that is going to be politically achievable. But I don’t doubt that he’ll try, if given the chance. While economic growth is returning, the recovery is by no means balanced or secure. Some of it is being driven by recovery in export markets and that is a positive sight. Yet, since 2012 we have seen a significant reduction in UK household savings. I am not sure that we are seeing a return to a sustainable growth path rather than a temporary debt-fuelled bounce. The economy is unlikely to reach the sort of levels of broad-based growth required to deliver the budgetary performance the government is seeking. So tax revenues will remain weak for some time to come. Further austerity – of perceived or actual necessity – is almost guaranteed until at least 2020. Absent a major reprioritisation of policy areas, it is unlikely that substantially more public resources are going to be heading towards housing. Current policy rhetoric gives every indication that the current orientation towards welfare reform will continue. Indeed if the Conservatives govern alone after 2015 then policy may well become ever more punitive. We could argue that the increased emphasis upon mandatory work requirements in the social security system is another self-reinforcing process. Unemployed people are forced to 4
work for nothing. Which means that employers can suppress wages and cut back on employed staff. Which means that there are more unemployed. Which means there are more people forced to work for nothing. And so on. There is a danger that a vicious downward spiral has been created. It is a challenge to escape it, assuming we had a government that wanted to. On social security there is no real sign of a new policy narrative around dignity, vulnerability or social solidarity, although it appears from some of the recent British Social Attitudes data that public opinion may be softening a little. This means that the financial risks associated with housing benefit-dependent households are not going to lessen any time soon. Indeed, as less generous uprating formulae and the overall benefit cap begin to have their effect the risks are likely to increase. In terms of housing, the lack of significant structural reform on housing supply and in the mortgage market means that the market is going to be characterised by continuing undersupply and consequently by volatility. The government has sought to provide some predictability to policy by announcing the basis for rent setting in social housing out to 2025. But that is not binding, and during that period there is almost no chance that future governments will refrain from tampering with the other side of the financial equation - the generosity of the benefit system. History suggests that over the period of the next 20 years we can expect at least one house price crash. The question is how soon and how severe. The Government seems intent on not just pushing ahead with its Help to Buy 2 programme but accelerating it. That is despite criticism from almost every quarter. I know of no economist outside the Treasury who thinks it is a good idea. I know plenty who think it is a terrible idea. It is being pursued purely for political rather than economic purposes. It will undoubtedly get the market moving in the short term, in the same way that pouring paraffin on a barbeque will pep it up a bit. But that doesn’t mean it is a sensible strategy. If the policy were restricted to regions outside the South East that might make more sense. But it is still wouldn’t make it a wise intervention. We can anticipate that it will allow the market to inflate further and faster, so the house price crash when it comes will be all the more painful. The market might well keep moving until 2015, which is seemingly what the Conservatives primarily care about. But I anticipate that, absent some major structural change – such as a substantial shift in the underlying income distribution - it will run out of steam not long after that. My guess would be that the Bank of England will have to act sooner rather than later. The Bank now has the power to review the effect of Help to Buy, although an annual review doesn’t seem sufficient. The Financial Policy Committee has powers available to try to stop
bubbles developing through macroprudential measures. These were intended as a backstop for extreme situations. But I wouldn’t be at all surprised if they have to be invoked relatively soon. I wouldn’t be at all surprised if forward guidance is overridden and interest rates tick up soon after the election. Given the fragility of many households’ finances, that could bring in its wake considerable housing market turmoil. Given the ongoing policy commitment to fiscal restraint and the reluctance of government to borrow to invest, it is likely that registered providers that want to continue to develop are going to be looking even more regularly to private sources. The market for private funding for new development has deepened over the last two years as long-term debt becomes relatively scarce and the range of funding mechanisms housing associations are using has diversified. This trend will almost inevitably continue. Housing associations in 2033 There seems little doubt that housing associations in 2033 are going to be more commercialized. They are likely to have built many more smaller units in concentrated developments to cater for more smaller households and capture efficiencies in management. In response to the reduction in grant funding many housing associations are already moving in the direction of greater commercialisation. Greater reliance upon private finance – greater entanglement with the mores and modes of operation of the finance sector – brings with it a requirement to change ways of working. It requires that organisations take account of new imperatives and professionalise. Professionalisation and commercialisation are, of course, not only driven by the withdrawal of the state and the rise of private finance. They are not in themselves necessarily bad. Market activities can generate the revenue necessary to continue to provide subsidized housing. But they can undoubtedly come into tension with housing associations’ established understandings of what they are trying to achieve. Whether it is possible to reconciling that tension in favour of preserving mission and values is currently preoccupying many. At the same time as housing associations are changing, private landlords are becoming more interested and involved in social – or at least “affordable” – renting. There is, therefore, a process of convergence occurring. It is a process that sociologists might label “institutional isomorphism”. The character of key parts of the sector is already changing. The recent announcement that housing organisations participating in the second round of the “affordable” housing programme are going to have to be more “rigorous” with rent policies on relets – that is, let more of them at “affordable” rents rather than social rents - is going to accelerate the process.
There is a prevailing narrative in the sector that the future is one dominated by large organisations. The need to deal with complexity, manage diversity and mitigate risk effectively will drive organisations to scale. The challenge will be keeping in touch with, and remaining sensitive to, customers’ requirements. There is a little more debate about whether these large organisations will be the beginning and the end of the sector or whether there will also be plenty of smaller associations that have decided to stick to what they are doing and not grow. Certainly at the moment, in relation to the “affordable” rent programme, providers may take the view that they don’t like the terms of trade and opt out: small amounts of subsidy bringing with it requirements to set rents beyond the reach of low income households looks like a bad deal. One prominent voice in the sector recently expressed the view that within a couple of decades the sector will comprise only ten organisations. Others have suggested that the sector will end up more polarized between the very large and the very small. The question is whether staying small will remain a viable option. I was struck by the fact that at this week’s Conservative party conference Nick Boles stated: “If the sector could find a way of getting the sleepier institutions into more dynamic hands then I think you would find ministers would be very supportive.” This seems to me to be interesting in several ways. It is premised on the idea that “the sector” is an actor able to effect the reallocation of assets. It suggests that simply “sticking to the knitting” is not deemed an acceptable strategy by government. We might consider this no more than wishful thinking. But we might consider it as early warning of further policy and a genuine threat. For me it raises some interesting questions about the independence of housing organisations. It is clear that governments committed not to spend public money on housing are going to look covetously at asset-rich organisations choosing not to mortgage themselves up to the hilt to build property. The problem is that the government doesn’t have the direct levers to force these organisations to change their behaviour. It is clear that, through the rules on the “affordable” rent programme and the like, they are trying to find indirect levers to achieve the objective. In the background, of course, is the fear that too much direct control by government means registered providers will be deemed public bodies and their borrowing then comes back on to the public accounts. But I think government will keep trying to find ways to more clearly turn registered providers into the delivery arm of government. And as a consequence I would expect that over the next twenty years there is going to be a showdown over independence. The terms 7
of trade will get to be so unappealing – a lot of rules and requirements in exchange for very little money – that housing organisations will break out of the regulatory framework and go it alone. At the moment there are concerns about preserving values and managing the risks of diversification and greater market exposure. There are regulatory concerns about the tensions between core business and non-core business and the compatibility of commercialisation with charitable objectives. These are concerns about managing tensions between established activities and new imperatives. My own view is that if we carry on in the direction we are heading then these debates are likely to have been largely left behind by 2033. We will mostly be talking about large housing organisations without distinguishing – or necessarily being able to distinguish – those that started out as social landlords. There will be a range of large organisations each with diverse portfolios of activities, some of which will be sub-market renting. I suspect the idea of a social housing sector may feel something of a historical curiosity by then. My expectation is that carrying on in current directions means that in a decade’s time many registered providers will have been pushed up market. The challenges created by welfare reform, coupled with the need to meet the commitments created by commercialisation, will mean that organisations will increasingly house those on middle income who are in relatively stable work but are unable to access owner occupation on a sustainable basis. Housing low income and benefit dependent households on subsidized rents will be a much smaller part of the overall portfolio. And there is a good chance that it will be viewed philanthropically rather than as the core mission. Many of these businesses would not be charities first and foremost. Low income, benefit-dependent households are more likely to be housed in relatively poor specification accommodation in the market sector. It might be that such housing can be provided by registered providers – in the sense that they could be well placed to work with institutional investors to provide the management of the sort of concentrated blocks of rented apartment investors are seeking to make commercial returns – but it would be a different type of business to social housing as we currently understand it. Getting there It is clear that some organisations are growing organically to reach a scale that is sustainable in this new world. And organisations continue to combine in search of greater scale, efficiency and financial strength. I would expect that we are going to witness a number of organisations blowing up over the next few years. Our increasingly commercialised world demands new skills of executive teams and board members. Some will seek to diversify on the assumption that they have the 8
skills to cope and have fully understood the risks, only to find they are out of their depth. It is clear that the HCA has this possibility very much on its mind. We shouldn’t underestimate the challenges here. After all, in the run up to the Global Financial Crisis the banks thought they had the whole risk management thing nailed down. Only subsequently do we discover that no one had really understood the risks of such extensive interconnection between organisations and no one was keeping an eye on systemic risk. So, as with the banks, some organisations that appear healthy will founder. I would anticipate that some organisations will appreciate that scale is going to be necessary for survival but in reaching up to get on the next rung of the ladder they will overreach themselves and get into trouble. Bailouts will be required. Orderly takeovers will no doubt be effected. The net result will be organisational growth and industrial concentration, as it has been in banking. On the other hand, I don’t think that governments will be entirely successful in imposing their will on the sector. So there will still be space for the small scale, local provider. It may be that by that stage this is no longer part of a registered sector, because grant has been paid off and grant funded development has not been attempted for years. This is a reading of the future which takes the path we are currently on and extrapolates. It uses the idea of path dependency and the idea that directions of travel can become selfreinforcing and transformative. Institutions and agency Of course, it could be argued that futures are not given but made. One of the issues in the literature on path dependency is how critical junctures arise. Do they just occur randomly or are they somehow generated outside the process? Or can they be manufactured by actors within the process? The literature on policy change is now starting to get much more interested in this latter possibility. That is, the possibilities for generating change endogenously. From this perspective it might be argued that paths are not as constraining as they first appear. Critical junctures can be manufactured. And then we can set off on a different path. So if we find my version of the housing future credible, but for whatever reason it is not to our taste, then we need to articulate a different one, and find a coalition of actors in the policy process that can bring it about.
About the author Alex Marsh is Professor of Public Policy at the University of Bristol. He has been Head of the School for Policy Studies since 2007. Alex’s research and writing has encompassed a wide range of topics in the fields of housing studies, public policy and regulation. Between 2005 and 2009 Alex has been managing editor of Housing Studies, the leading international academic journal in the field. He continues as a member of the journal’s Management Board. Alex worked part-time as a Visiting Academic Consultant to the Public Law team at the Law Commission between 2006 and 2010. His work with the Commission addressed compliance issues in the private rented sector and systems of redress against public bodies. Between 2004 and 2012 Alex was a trustee of Brunelcare, a Bristol-based charity providing housing, care and support for older people. For six years he chaired Brunelcare's Audit and Scrutiny Committee. In October 2013 he joined the board of Curo Group as a Non-Executive Director.
The material in this note is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue listening from where you left off, or restart the preview.