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Finance
Destiny in
our hands
Housing associations can borrow from the Dutch if
they are looking for a way to ease the regulatory burden,
says Mervyn Jones
The economic and financial models task group of
the National Housing Federation’s iN business for
neighbourhoods project considered a number of
If it ain’t broke,
approaches to funding affordable housing from around the
world. One that grabbed our imagination was a trust fund
why fix it?
for social housing on the Dutch model. The Dutch appear Reasons for a new deal on grant
to have achieved less regulation and lower interest rates.
At the same time they have completely sidestepped the UK ● the Housing it finances having a
debate about the risk of a reduction in the population of Corporation’s duty to finite life, and certainly
lenders. protect the public subsidy needing considerable
There have been three main ingredients in the Dutch heavily influences its new spending to
story since the late 1980s: regulation. Assets funded maintain them as
● a radical step was ‘brutering’, the cancellation of state partly with grant cannot effective. Moreover the
loans which still had to be repaid, against the entitlement be used to support non- original grant invested
to subsidies which associations still had to receive for social housing activities, may now be a tiny
developments already undertaken, as well as most subsidy even if those activities proportion of the value
for new development; then in turn support the of the property; and
● a guarantee fund which consists of state contributions association to undertake ● while grant is
and premiums on loans and which, with triple A rating, more social housing; subordinate to any claims
backs almost all the loans taken out by Dutch housing ● bureaucratic rules by lenders over assets
associations; and over grant recycling on which they have a
● a central housing fund or trust fund (the CFV) established in the event of grant- charge, its presence in
through association contributions which provides financial funded assets being sold, the balance sheet and
support where necessary to associations to help maintain despite the fact that this with the encumbrances
the sector’s good name and provide a high social return in represents good asset above means that some
protection of tenants. management and creates associations have found
Brutering is not directly transferable to England because resources to plough back its present status a
of the different position our associations are in, with up front into social housing; difficulty as they extend
grant still needed to ensure future housing development ● grant is never ‘written their borrowing and
at affordable rents. A guarantee fund has previously been off’ despite the assets gearing.
researched as a means of buttressing private funding, but its
backing by the state (with its negative effect on public sector
borrowing) and the extent of funding needed to achieve has been done on the cost of regulation; most would
a triple A rating from scratch – the Dutch started in 1983 speculate that it is significant. The regulatory burden is
– mean it is a near certain non-starter. increasing with further proposals for external validation of
The central housing fund is, however, a different beast. performance indicators. It means chief executives spend
It started from a different place and so inherits a different a high proportion of their time dealing with an avalanche
culture than the Housing Corporation’s. This involves of regulatory requirements rather than managing their
associations contributing to the sector’s need to solve businesses.
problems for itself. Despite valiant efforts, the corporation is trapped in an
Since 1974 housing associations in the UK have been environment where stakeholders are bound to criticise if it
regulated by the Housing Corporation. This has brought relaxes its grip. The only way out is for housing associations
many benefits, not least the ready availability of private to take their destiny into their own hands. There are some
finance on exceptionally good terms. No research ➔ Continued overleaf
38 Inside Housing 21 November 2003 21 November 2003 Inside Housing 39
Finance
encouraging signs that the corporation might in fact
welcome this approach. For example, it is asking housing
associations participating in the Challenge Fund to make
Key insights
their own arrangements for compliance audit.
The dilemma becomes even sharper when one
The Dutch social housing model
considers the idea of writing off social housing grant in
housing associations’ balance sheets. On the one hand, ● independence to the UK because of
the Treasury does not expect to receive its investment back – the Dutch severed the ‘upfront’ nature of
and in several parallel cases (regeneration, for example) the financial subsidy social housing grant
grant aid is simply written off. On the other hand, once the pipeline and associations in England. Moreover
situation has been reached where a massive investment of seemingly gained more there are no longer
public funds sits on the published accounts of associations independence as a result; public loans to cancel.
it will take courage simply to write it off at a stroke ● active asset If English associations
– perhaps depreciation provides a model. management – the Dutch were to surrender
The creation of a trust fund is intended to result in a new housing association entitlement to grant on
settlement between associations and the state. In return sector is now highly future developments,
for financial freedom, associations would be expected to dependent on sales they would be seeking
self-regulate. This means an acceptance of intervention, revenues and land different benefits,
but from peers rather than external organisations. price concessions for its probably relating to
In the Netherlands one impact of this has been continuing development; much reduced regulation
the steady rationalisation of the housing association ● guarantee fund as well as financial
movement, not by central dictat but by negotiated – a National Housing concessions;
settlement among themselves. Weaker associations Federation and Housing ● central housing fund
have been assisted by the central housing fund and Corporation investigation – the CFV performs some
merged into the stronger associations to create improved into the potential of of the same functions
organisations. It is a feature of the policy landscape that such a fund in the early as the corporation but
the corporation does wish to see rationalisation and 1990s to buttress private has a different culture
restructuring. They are unlikely to provide funding to finance was deemed in which associations
achieve this, expecting the sector to sort it out for itself. unworkable. A further contribute to the sector’s
investigation of the need to solve its own
Underpinning from guarantee fund use of such a fund for problems. In the English
The trust fund provides one of the gateways to financing. more diverse borrowing situation, where there
There is no debate in the Netherlands about whether needs again failed to is no back-up guarantee
there are too few lenders. Essentially the movement make a case. There from the state, there are
either uses two main banks or goes direct to the capital is no likelihood of a certain attractions in a
markets through a non-profit intermediary specialising government safety net combination of a fund
in the sector. This is a highly efficient mechanism for similar to the Netherlands with an active ‘sorting
raising finance. However the guarantee fund, backed by due to its implications for out’ role to protect the
the government in extremis, underpins this method of public sector borrowing; reputation of the sector
borrowing. The central housing fund’s role in monitoring ● interest rate structure both in political terms
performance which may threaten financial viability is – interest rates achieved and in dealing with first
an important part of the Dutch financing web. The scale by associations in the level financial problems;
and scope of a trust fund for England, where there is no competitive lending and
guaranteed funding, will need to be tuned to achieve such market in the UK are • rationalisation and
confidence among funders and at least as good an interest probably significantly restructuring – a shake-
rate as we enjoy now. below those the Dutch out in the Dutch housing
The fund has the potential to improve the poor public believe would be association sector up
image of associations because affiliation to a self- payable in the absence to the present time
regulatory body is a very powerful marketing tool. A model of a guarantee. But are has been dramatic,
is to be found in the travel industry where ABTA and ATOL higher than the Dutch and comparable to the
cover a very wide range of large and small operators rates achieved with that reduction in British
through a common insurance fund. This increases the guarantee; building societies
public’s confidence in the sector overall and hence ● ‘brutering’ – the over the same period.
improves profitability. Dutch exchange of loan It appears to have
As well as helping to restore the sector’s battered image liabilities for subsidy been precipitated by
the fund can support iN business for neighbourhoods. receipts still due on brutering which left some
Released from the inevitable tendency of the regulator past developments in associations financially
to standardise, greater innovation and diversity are to the mid 1990s is not exposed.
be expected. These will be critically necessary to manage directly transferable
the wide variety of neighbourhoods in which associations
operate. The corollary of greater diversification is of course
higher risk, which will inevitably make the corporation In the present relatively benign private finance climate
nervous. If this were coupled with a commitment to a trust it may be hard to see the motivation to subscribe to a
fund it would again have a greater chance of success. trust fund. It took the Dutch some years to build up their
If the benefits to be gained from adaptation of the Dutch fund to the scale at which it could fulfil its purpose. But for
model are so great, how can we make a start over here? the last two years Dutch associations have not needed to
In my view, the best things that housing associations have contribute further as the fund is considered large enough
ever done are in partnership with one another. During my for its purpose. It would be a wise and mature housing
career I have worked with three major consortia: to acquire association movement if it laid the foundations now
National Coal Board homes in the east midlands, to acquire against the risk that there might be a shock to the system
1,400 homes from Hackney Council and now through the in the future.
Sappling consortium in the south-east. The potential gains ● Mervyn Jones is chief executive of Pavilion Housing
are enormous but everyone does have to jump together. Association
