Housing associations and the path to 2033

7/27/2019 Housing associations and the path to 2033

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October 2013

Housing associations andthe path to 2033

Alex Marsh

School for Policy StudiesUniversity of Bristol


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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

Ive been thinking about path dependencies and critical junctures. Ive 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 onedirection 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 currentneighbourhoods 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 isnt 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.

1 This is the text to accompany a brief presentation at the NHF Hothouse Event, Exeter, 02/10/132

If youre interested in path dependency and critical junctures in policy then they are concepts that form part ofthe 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.


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Again there is something to the idea that this is a self-reinforcing process. But I dont think

its 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 justhavent 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.

3 This, of course, sits alongside other important factors like the robust regulatory framework for housing

associations.


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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 well 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 doesnt

particularly have the ear of the party leadership. Ed Milibands pronouncements on housing

were rather short on detail. It wasnt 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 doesnt 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 dont 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.


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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 theregions 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 dont think that is going to be politically achievable.But I dont

doubt that hell 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


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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 themortgage 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 doesnt 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 wouldnt make it a

wise intervention. We can anticipate that it will allow the market to inflate further andfaster, 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

doesnt seem sufficient. The Financial Policy Committee has powers available to try to stop


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bubbles developing through macroprudential measures. These were intended as a backstop

for extreme situations. But I wouldnt be at all surprised if they have to be invoked relatively

soon. I wouldnt 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.


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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 dont

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 weeks 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 doesnt have the direct

levers to force these organisations to change their behaviour. It is clear that, through therules 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


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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 decades 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 muchsmaller 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 adifferent 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 executiveteams and board members. Some will seek to diversify on the assumption that they have the


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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 shouldnt 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 beorganisational growth and industrial concentration, as it has been in banking.

On the other hand, I dont 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 self-

reinforcing 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 asthey 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.


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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. Alexs 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 journals

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.

www.alex-marsh.net

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Housing associations and the path to 2033

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