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Government to reclassify housing associations as private sector organisations

Regulations that will reclassify housing associations in England as private sector organisations have been presented to parliament, the government has announced.20 Nov 2017

The reclassification will give housing associations increased flexibility to borrow to build more homes, while at the same time removing a reported £60 billion worth of debt from the public balance sheet.

Speaking in Bristol, communities secretary Sajid Javid said that housing associations would be "freed from the distractions of the public sector" and "able to concentrate on developing innovative ways of doing their business".

The number of new homes built in England increased by 15% in 2016/17 to 217,000, the highest figure since the financial crisis, Javid said. He also announced that the government was ready to use its powers of intervention against 15 local planning authorities (LPAs) that have failed to put a local plan setting out how they intend to meet local housing need in place.

Property law expert Helen Robinson of Pinsent Masons, the law firm behind, said that the reclassification had been "expected" by the sector. Housing association debt was reclassified as public debt by the Office for National Statistics in 2015, and the government said at the time that it would seek to amend the related regulatory regime to move this back to the private sector as quickly as possible.

"The announcement forms part of a process that has been ongoing for the last couple of years to strip away public sector facets of the registered provider/housing association role," she said.

"There has already been considerable upheaval in the RP sector, which has had to respond to a variety of issues including rent caps, the introduction of universal credit and changes to regulation. RPs have had to adapt to a new order, revise their business plans and consider alternative or additional areas of specialist housing and services. These changes have provided the impetus for significant mergers and takeovers in the sector, with a number of further deals due to complete by the end of this year," she said.

There are currently around 1,750 registered providers of social housing in England, although ownership of around 80% of all housing association assets is concentrated among the 200 largest providers. The recent round of merger activity has been focused at the larger end of the sector, within the top 100 associations, Robinson said.

"The question is what will happen to the remainder," she said. "Some of these organisations may be reticent to merge for a variety of reasons, and will need to consider their long-term future."

Robinson said that the impact of the announcement would be a "double-edged sword" for housing associations, but one that would contribute towards the ongoing modernisation of the social housing sector.

"Associations will lose the safety net of a long-standing perception that they would never be allowed to fail by the government, but equally, they will not be able to access a much wider range of private funding," she said. "Funds are seeing this as a positive and are anticipating an increase in applications for new money, and not just re-financing."

"Overall, the debt reclassification will not result in any seismic shift for housing associations, but it will continue the march towards a more streamlined and innovative sector and a blurring of the lines between registered providers and private developers such as Lovell and Keepmoat who operate at the more affordable end of the commercial market," she said.

The government published a white paper setting out its plans to fix the 'broken' housing market and encourage the building of more homes in February. In that paper, it signalled its intention to formally intervene where LPAs have failed to put a local plan in place.

More than 70 LPAs are yet to adopt a local plan, of which 15 are showing "particular cause for concern", according to the government. These 15 LPAs have now been served notice of the government's intention to begin the formal intervention process. They have been asked to provide the government with details of "any exceptional circumstances … [which] justify the failure of your council to produce a local plan", as well as any measures they intend to take to accelerate plan publication, by 31 January 2018.

The government has a number of specific powers of direction that it can use where LPAs do not put a local plan in place, up to and including taking over the local plan process for the area.