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Reclassifying Housing Associations in Northern Ireland – Abolishing the statutory House Sales Scheme

Joe Frey reflects on the recent Department for Communities in Northern Ireland (DfC) consultation event on the future of the statutory House Sales Scheme in Northern Ireland.

The Department for Communities in Northern Ireland (DfC) has been holding a series of consultation events on the future of the statutory House Sales Scheme in Northern Ireland. Having issued a Consultation Document in June 2018 the DfC is seeking some early feedback from a wider audience on its proposal to end the statutory House Sales Scheme. This very significant proposal in housing policy terms has been precipitated by the decision of the Office for National Statistics (ONS) to reclassify housing associations in Northern Ireland (in parallel with the rest of the UK) as public sector bodies (Public Non-Financial Corporations) on the basis that Government exercises “significant control over the general corporate policy of the organisation”.  A statutory House Sales Scheme is one of a number of diagnostic characteristics that ONS identified as the basis for its decision to reclassify registered housing associations for Government accounting purposes.

I went along to the consultation event held in North Belfast on 25th July. Although overall attendance was low – maybe not surprisingly given the warm sunny weather outside – there were representatives from a range of key players in the housing market, including housing associations and private sector organisations such as RICS. Shane Clements (DfC) gave a first rate presentation on the background to the consultation and the three policy options being considered. He outlined the very significant impact that the ONS decision could have on Northern Ireland’s Social Housing Development Programme (SHDP) in the coming years if this decision is not reversed. In 2017/18, the Department provided approximation £120 million to part fund the SHDP at an average HAG rate of approximately 50 per cent for general needs schemes. If housing associations continue to be classified as private sector bodies their borrowing would count against the Northern Ireland Executive budget – effectively doubling the cost of the SHDP to the public purse and halving the number of new social dwellings built each year by 50%.

Extrapolating this forward over a twenty year period there could be as many as 30,000 fewer new social homes built at a time when the number of applicants for social housing on the Common Waiting List who are classified as being in housing stress (urgent housing need) is rising (currently more than 23,000). This would in effect make it impossible to adequately address the newly arising need for social housing, never mind reducing the backlog.  In addition, if housing associations continue to be considered private sector bodies they will not be able to access Financial Transactions Capital (additional Government funding for infrastructure projects) that has provided an additional cheap source of borrowing in recent years – to the NI Co-ownership Housing Association in particular.

A statutory House Sales Scheme is of course not the only criterion being used by ONS to determine the status of housing associations. Other criteria demonstrating level of Government control (such as the power to appoint Board members) need to be addressed as well. However, the Department is satisfied that these can be addressed through relatively straightforward amendments to existing legislation. However, abolishing the statutory House Sale Scheme must be seen as a major policy change. Essentially the DfC envisage three options, each of which has downsides:

  • 1. Do nothing: fail to reverse the ONS classification leading to a significant reduction in the SHDP;
  • 2. Abolish the statutory scheme for the housing associations but not the NIHE; raising significant equality issues; or
  • 3. Abolish the statutory scheme for both NIHE and housing associations: face significant tenant dissatisfaction.

The post-presentation question and answer session highlighted and clarified a number of issues that were raised, including:

  • Research both commissioned and undertaken by the Housing Executive over a period of years highlighted the popularity of the current statutory House Sales Scheme with tenants and most of their elected representatives. The abolition of the scheme would risk disappointing significant numbers of current tenants who had hoped to become future owner-occupiers – some indeed who had eschewed the private rented sector for the very reason that the House Sales Scheme was their only realistic road to owner occupation.
  • Northern Ireland’s housing market has still not fully recovered from the post-GFC slump, with average house prices still typically 30-40% lower than in 2007. Access to a deposit can become just as much a barrier to first-time buyers trying to access owner-occupation as house price to income ratios. One of the big advantages of the House Sales Scheme is that no deposit is required, as well obviously the discounted price.
  • Rather than abandoning the statutory scheme entirely, greater weight could be placed on examining other ways to boost the SHDP, for example, by allowing the Housing Executive to build on its own land – land that would therefore come at no cost to the public purse.
  • The DfC’s preferred option of ending the statutory scheme indicates the potential for a voluntary scheme (something currently being piloted for housing associations in England), but what proposals are there for determining the criteria for sale under a voluntary scheme.

In its responses the DfC acknowledged the popularity of the scheme and accepted that it would restrict this path into low cost homeownership – although there would continue to be others, such as Co-ownership, Rent-to-Own and the potential for introducing portable discounts. At present the consultation is focused on a single issue and is not considering other means to boost funding for the SHDP such as enabling the Housing Executive to build on its own estates. There are also no plans for the DfC to legislate for a voluntary scheme – this is seen as unnecessary and in Scotland and Wales (both of which have now abolished the Right to Buy) there is no voluntary scheme at all. Given the pressures on other budgets such as Health and Education, finding significant substitute funding from other Government departments is also unlikely. Finally (and perhaps most importantly), the Department emphasised on a number of occasions that regardless of the view gained through the consultation process, or indeed the view of Departmental officials, any decision to abolish the statutory House Sales Scheme would be down to Northern Ireland’s next Minister for Communities.

There is also a time pressure as the ONS has only granted a stay of execution until March 2019. As with Brexit the clock is ticking and there is no sign of an early return of the power-sharing Executive in Northern Ireland. There is little doubt therefore that the DfC is in a difficult position and may have to indulge in some creative thinking and accounting in the early part of 2019.

Joe Frey is Knowledge Exchange Broker for the UK Collaborative Centre for Housing Evidence and is based at the University of Ulster.

 
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Date: August 3, 2018 2:45 pm

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