Why social housing costs more in Northern Ireland than in Britain

Posted on June 4, 2013 · Posted in Business Month

Comparisons between Northern Ireland’s public spending and that of the other parts of the UK are revealing.  That Northern Ireland spends most on policing and security is to be expected.  Similarly, it is no surprise that our segregated education system and many vacant school places come at a high price.  But it is less obvious why social housing also costs the public purse much more in Northern Ireland than in the other UK nations.

 

According to a review conducted for the Department for Social Development (DSD), spending per capita on social housing in Northern Ireland is more than twice the level of England’s and is also significantly above that in both Wales and Scotland.   The cost per unit of social housing in Northern Ireland is also more than twice that of England.

 

There are several factors behind the difference in cost.  Most social housing in England is owned and managed by housing associations, which are independent bodies that cover their costs through their rent levels.  By comparison, the main social housing landlord here – managing 90,000 homes – is the Northern Ireland Housing Executive, which receives a large annual public subsidy to support both its landlord and strategic policy roles.

 

Another factor is that some of Northern Ireland’s housing associations are very small and do not benefit from economies of scale.  DSD has for several years actively encouraged associations to merge.

 

In addition, social housing landlords in England have obtained much higher levels of capital receipts from right-to-buy transactions than has been the case in Northern Ireland.  Those receipts can be used to pay for new properties, though they can also lead to a long-term reduction in rental income.  Local authorities in England – which, unlike those in Northern Ireland, retain a housing market responsibility – have also obtained capital receipts, through large scale voluntary transfers of council housing stock to housing associations.

 

Reviews conducted for DSD have strongly favoured the transfer of Northern Ireland’s social housing away from the Housing Executive into the ownership of housing associations and this was proposed by DSD minister Nelson McCausland at the beginning of the year.  A key additional factor is that housing associations can borrow substantial sums on the private market to increase the supply of social housing.  The Housing Executive is unable to do this as a public body that is heavily constrained from borrowing.

 

It is hoped that a housing association programme of new building of social housing could generate hundreds of millions of pounds of spending, providing a big stimulus to the construction industry.  Associations’ ability to invest in new house building would be damaged, though, if DSD decides to obtain a large capital receipt by selling the properties to housing associations, in the manner adopted by English councils.  This would need to be financed by borrowings, limiting associations’ capacity to borrow additionally for investment.  DSD says no decision has yet been taken on whether the Housing Executive homes would be transferred to associations at nil cost, or sold to them.

 

A housing association investment programme could also increase the provision of smaller homes, helping to make the social housing market more flexible.  One of the objections to the adoption in Northern Ireland of the so-called ‘bedroom tax’ – the reduction of housing benefit for households regarded as having surplus bedrooms – is the shortage of smaller properties for tenants to move into.

 

The Northern Ireland Federation of Housing Associations points to about £60bn of private investment having been raised for social housing by associations across the UK in recent years, which implies, it believes, that an additional £500m could have gone into Northern Ireland social housing investment through private finance had associations played a larger role in the housing market here.

 

Nelson McCausland is clear that the status quo is not an option for social housing.  In March he said: “A change to housing structures is essential if we are to continue to deliver well maintained housing stock, improve the focus on strategy and ensure value for money for taxpayers in the future. This is an opportunity for us to become more effective and innovative in delivering and maintaining social housing to tax payers and tenants alike.”

 

The minister added that a 2009 survey of Housing Executive stock indicated that more than £5bn of investment is required over the next 30 years to maintain and improve the quality of the homes.  “This is a bill Northern Ireland simply cannot meet from public funds alone,” he said.

 

His proposals are still in outline form and out for consultation, so details on how the transfers to housing associations would be conducted have not yet been agreed.  New housing associations could be created to own and manage the housing stock, or the Housing Executive’s landlord function might be privatised as a single new association.  Alternatively existing housing associations in Great Britain could begin operating in Northern Ireland – but several leading associations in England and Scotland contacted all said they were not interested in doing so, given the different regulatory and market conditions here.

 

Another option is that properties could be taken on by existing Northern Ireland housing associations, but most of these are too small to have the capacity to take on large transfers of additional housing stock.  Even the largest Northern Ireland association, Helm, has had to reform its governance structures following Assembly criticisms.

 

Paddy Gray, Professor of Housing at the University of Ulster, is a strong advocate for reform of our social housing market structures.   “This is something I called for way back in 1999,” he says.  “They should separate the strategic and landlord functions [of the Housing Executive].  They have been doing that in England and Scotland so that [social housing investment costs] don’t come under the Public Sector Borrowing Requirement.”

 

Professor Gray favours the option of changing the status of the Housing Executive so that it is no longer classified as a public body and instead operates as a not-for-profit private housing association, unconstrained by public borrowing rules.  This would enable the Housing Executive to obtain private finance, but would respect what Professor Gray refers to as the “special circumstances” of Northern Ireland.  The Housing Executive was established as a cross-community organisation that did not discriminate against either community, putting an end to the problems that existed when district councils had housing powers.

 

“The Housing Executive has been an acceptable organisation for both sides of the community,” suggests Professor Gray.  He fears that if it is split along regional lines, the new organisations would then be perceived as associated with the majority religion in each region.  Professor Gray also expresses doubt that the reform can be completed by its target date of April 2015.

 

While the reforms could produce a very welcome boost to the construction industry, they may not be popular with tenants.  “It is inevitable that rents will go up,” says Professor Gray.  There is no suggestion that rents here will match those in England, but there is a stark contrast between the average Housing Executive rents of £61 a week and those of housing associations in England, which are £81 a week.  Nelson McCausland argues, though, that associations’ investment in new and existing properties would cut heating costs, potentially balancing out the higher rents.

 

The impact of the proposed reforms should be positive for businesses and government finances, but low income families who are not receiving housing benefit could face increases in rents that will be difficult to afford.  It will now be for politicians to balance out the conflicting priorities.