Cameron Watt is earnest, passionate and knowledgeable as he argues the case for social housing. The chief executive of the Northern Ireland Federation of Housing Associations has cast aside his past as a once rising star in Britain’s Conservative Party. Today Watt’s role is to advance the interests of our housing associations – and if that means criticising the Prime Minister, leader of his former party, then so be it. But more of that later.
A pressing consideration for many housing associations in Northern Ireland at present is whether to merge and how large to become. The creation of the Choice housing association, Northern Ireland’s largest, from the merger of the OakleeTrinity and Ulidia associations is merely the most dramatic example. In recent times, the number of housing associations here has fallen from nearly 50 to 23, while the sector’s annual turnover rose to £214m in the last financial year.
“Mergers have been primarily driven by housing association boards keen to improve their capacity to borrow commercially,” explains Cameron Watt. “Lenders expect more from us. Over the last three or four years, since I arrived, housing association boards have been driving the reform of our sector. Boards have to take a long view about what structures will be required for delivery in years to come.
“One of the big changes has been around sector funding: since the crash, UK housing associations have switched very largely from bank debt to bond finance, using low cost private finance over the long term. Bond finance is cheaper and you get it over the longer term.
“Capital markets will lend for 25 or 30 year terms, whereas most banks won’t lend for longer than ten years. Although the banks are very keen to do business with us – and we have very good relationships with banks such as Danske and Barclays – associations here also want to take advantage of the lower interest rates and longer terms they can get from accessing the bond markets. The capital markets want scale. They don’t want to lend £10m, they want to lend £150m or £200m.
“The changing nature of development is also a driver. We are being asked to deliver 2,000 new homes a year. In relative terms that is the most ambitious development programme of all four of the UK regions. We need to do things differently to sustain that: for example, by accessing land on a different scale and being able to do joint ventures with private developers, being involved in more holistic regeneration schemes. If you are going to get involved in those sorts of projects you have to have a certain scale.
“I think also the welfare reform and the potential threat to housing association businesses [are factors]. If housing associations are bigger they may be more resilient to the revenue threats posed by welfare reform. With bigger scale they can invest more in systems to manage their businesses properly and also provide support to tenants, for example through money advisors and financial inclusion projects. I don’t think consolidation is a magic bullet, but I think scale probably will be important for much of the sector to deliver what is needed.”
Cameron Watt plays down the idea that the prospect of a large scale transfer of Housing Executive housing stock to individual housing associations is a primary factor behind recent mergers. This is despite the Housing Executive specifying that associations would need to become larger to absorb large scale transfers.
While some housing associations have expressed interest in Housing Executive stock, “I think that is more of a hope than an expectation” says Watt. He explains: “There seems to be an increasing appetite among politicians that the Housing Executive housing stock be retained as a single entity, which might be some sort of spun-off public sector quango, like the arms length management organisation in England where councils have outsourced management of housing stock to a still-public body, or perhaps the creation of a new mega housing association to take over the stock. That may preclude opportunities for our members to grow through inheriting that stock.
“I think Housing Executive rents will have to increase significantly whether the stock is retained in the public sector or spun-out to a new or existing housing association. Clearly the rents have been set at a sub-economic level for too long for reasons of political expediency. The stock has deteriorated, making up a multi-billion pound shortfall.”
But it is also inevitable, says Watt, that housing association rents will remain higher than the Housing Executive’s. “We have not enjoyed any deficit grant funding from government on rents, so we have had to charge economic rents. The other aspect is that we have borrowed about £700m to date in bonds and that private borrowing does need to be recouped through rental income over 25 to 30 years. So we are expecting the rents of a relatively small proportion of the social housing stock to support all the new social housing supply.”
Welfare reform is a major concern for housing associations. Housing associations and their tenants in Northern Ireland are “fairly well protected over next two to three years” before the squeeze hits. In particular, the cap on social rents to restrict them to local housing allowance levels “could have a catastrophic impact on supported housing: sheltered accommodation for older people, hostels and foyers for young people, supported living for people with learning difficulties – where rents are higher because the costs are higher.”
NIFHA is lobbying for exemptions to the new rules to enable associations to continue to provide social care services and support the Northern Ireland Executive’s social care strategy, ‘Transforming Your Care’.
Several associations here also provide welfare support services, some providing money advice and benefits maximisation services, working with Citizens Advice and Advice NI. Apex Housing Association works with Derry Credit Union to provide loan guarantees so tenants can avoid using loan sharks. Clanmil provides skills training for women in construction. And Bryson charity is working with several associations to assist with skills training and tenants’ bulk buying of oil.
In England, associations have a new challenge, with their borrowings recently placed onto the public sector balance sheet after the Office for National Statistics reclassified associations as public bodies. This is the result of greater interference from the last three governments in the running of English associations. While the ruling so far only applies to England, it seems inevitable that a similar conclusion would be reached if the sector in Northern Ireland is also reviewed.
“There is the potential for ONS, should they so wish, to conduct a similar re-examination of Scottish, Welsh and Northern Irish housing associations,” concedes Watt. “I imagine they would have to do each separately, because separate regimes apply…. That could mean that every loan taken out by a housing association had to be approved by DFP [the Department of Finance and Personnel). It could conceivably really impact on the amount of private borrowing the sector could access and ultimately the number of new homes.”
The most recent example of government intervention in the operations of housing associations in England has been with the extension of tenants’ ‘right to buy’ social housing, providing large discounts on their market value. That policy already applies to Northern Ireland, but provides less generous discounts than in England. Watt hopes that the existing policy in Northern Ireland will be curtailed.
“I think the loss of stock through this is relatively manageable, but having said that I would like to see Northern Ireland follow the Scottish example to suspend the house sale scheme. With 22,000 households in housing stress and with it costing £110,000 to build a social home – half of which is coming from government – I think social housing in Northern Ireland is too scarce a resource to be selling it off at a discount. So we will be encouraging our politicians to consider suspending the house sale scheme. I think that is something DSD is seriously going to consider now.”
This puts Watt directly at odds with the Prime Minister, who recently irritated housing associations when he told Parliament that housing associations are “part of the public sector that haven’t been through efficiencies, haven’t improved their performance and I think it’s about time that they did.” Like most of the sector, Watt rejects the characterisation and he stresses that he no longer has any links to the Conservative Party, where he was once a researcher and was also a Conservative Home blogger. “I think David Cameron was very much mistaken,” says Watt.
Watt adds that he also strongly opposes those in his old party who advocated the privatisation of housing associations. “We are independent social businesses, we are independent charities, providing a major public service. We want to remain charitable, non-profit, organisations…. I think politicians across the UK have tended to think of housing associations as merely as delivery agents and not as independent bodies. We have to fight hard for our complete independence if we are to deliver what is required.”