Select Committee on Transport, Local Government and the Regions Minutes of Evidence

Examination of Witnesses (Questions 520-539)



  520. Do you have any plans to set up any further housing regeneration companies?
  (Mr Hadden) Yes indeed, there are others outside the pilot. The purpose of the pilot is specifically to carry out the evaluation of them. We have not stopped others being formed where that was felt appropriate, where other players in the area felt that was the appropriate thing to do.

  521. On the current allocations that the Housing Corporation has, do you feel you can turn round problems caused by the declining demand by 2010?
  (Dr Perry) No is the short answer. We may be developing the tools by which we can do it but essentially at the moment we have relatively slender funding behind those tools. I think it would be rash to say that with current funding we can do anything more than demonstrate that solutions are possible, but we could not develop them and deliver those solutions.

  522. What changes in funding would you like to see to enable you to do this?
  (Dr Perry) It is a difficult one to answer because in one sense the amount of money that you could use is infinite. On the other hand, as experience from past regeneration programmes has shown, if you throw too much money at the problem too early you do not actually solve things. We are talking about still being at the stage, not just within the Corporation but if you like in the policy community generally, of defining the problem, trying to get some kind of scalability of the size of the problem, looking at the tools that work and then implementing those in areas that seem the most promising. That is not dodging the answer because it could be billions, and certainly others outside have said billions, but in the real world a few hundred million to start with over a three year period would not be a bad beginning.

  523. Have you made any submissions of what kind of funding you want or the way in which the funding should be calculated?
  (Dr Perry) We have not put a precise figure on the amount that we could use because, being realistic, the Government as a whole has to take a view on the resources. What we are focussing on at the moment is the promise of the new tools, the ones that Mr Hadden spoke about: the housing regeneration companies and the various schemes we have for purchasing, repair and then resale and rent. We think those are promising tools, and if we had more resource we could do more of it in the areas where we are piloting and more of it in other areas as well. We are actually relatively comfortable that we are starting to know the sorts of things that we could do and the resource that can be put into it but it is in a sense entirely a political decision.

  524. Is there a problem with the current formula for determining how much funding you get?
  (Dr Perry) I do not think our funding is on a formula in that the Government tells us how much we will get. There certainly is an issue at the moment that the way our targets are set by the Department and the Treasury focuses almost exclusively on new build and we are in discussions at official level about trying to find ways in which our activity can be scored in ways that relate more closely to the stabilisation of neighbourhoods rather than just new build.

  525. At one stage the Corporation did make representations about funding based on homelessness criteria rather than on the importance of regeneration. Does that still apply?
  (Dr Perry) Not specifically. Perhaps I can ask Mr Hadden if he can help on that.
  (Mr Hadden) The Housing Corporation is one party involved in reviewing the housing needs index which is the formula which is used to divide up the money that we do get from government between regions. Within that there is a balance to be struck between the need for new dwellings, the need for regeneration and the need for special needs accommodation. We are involved in looking at how those indices are made up and are talking to the other parties involved in those discussions. At the end of the day they are political decisions in terms of the weightings that are applied to the different types of activity.


  526. You have told us that you do not have the solution to low demand and you do not think the problems can be solved by 2010. How far are you allowing some of the housing associations the flexibility so that they can start to come up with solutions? How far are your performance indicators and your monitoring proving a straitjacket which stops them coming up with the sort of innovation which means that they could be finding solutions if you cannot?
  (Dr Perry) I think, Chairman, with respect, what I said in reply to Mrs Ellman's question was that with current resources we could not solve the problem.

  527. So you know what to do?
  (Dr Perry) Yes. We are starting to get a feel for some of the kinds of things that work but at the moment we are not resourced nor, given the early stage of the of the policy process would we expect at this moment to be resourced, to—

  528. So you think you could do it yourselves but if you do not get the money could some of the housing associations do it if you were not too prescriptive about the way that they behaved?
  (Dr Perry) First may I say that we certainly could not do it ourselves. This has got to be done in partnership between regional, sub-regional and local agencies, local government, housing corporation, RDAs and others. There is no way that any one agency could do this by itself. At the moment we do not think that associations are precluded from being innovative in this. In fact we are encouraging them to be innovative. As a regulator we have to watch the extent to which they spread their activities and the extent to which they are entering into areas of risk which they have not necessarily accounted for and done a risk management plan for, but if they have gone into the area of work in regeneration or low demand which they can fund from resources other than ours and which is consistent with prudent fiscal management, we would be standing there cheering.

Mr Betts

  529. Stock transfer is very much the flavour of the month at present. Very often they are being proposed in areas where a property needs quite a lot spending on it but also where demand is probably low or falling. What measures are you taking, what techniques are you using, to ensure that the organisations that are created as a result of stock transfers are actually viable and stable in the long term?
  (Dr Perry) Before a stock transfer association can be registered as a housing association its business plan gets quite a going over from our stock transfer unit and indeed before that they will have spoken to the community housing task force in the department and indeed their lenders. What we are seeing now is that a number of the proposals coming forward for registration involve quite a lot of demolition and certainly we would look askance at a proposed new association in an area with low demand which was coming across and saying, "although we have got a lot of voids we are confident that we can fill them all up by next week". There has to be an element of demolition, of re-modelling, and certainly, for example, in the Sunderland stock transfer, which is the biggest one to date, there is a fair amount of that involved in the business plan. Therefore it is being funded by the debt that they are raising.

  530. So you have to have a good business plan for the future but the reality is that life is not predictable. We have been round areas where decisions were made on the best information five years ago to put a lot of investment in, and five years down the line it has been wasted because the situation has changed and demand has fallen further than was predicted. If that happens how good are your regulatory systems to come in and recognise that situation and respond to it? In the past there have been examples of very small housing associations that have got into difficulties and they have been taken over as a way of solving that particular problem, but if you have an organisation with 30,000 houses in that situation how are you going to cope with that?
  (Dr Perry) In the last year we have instituted a system called lead regulation where every association with more than 250 homes now has what you might call a specific account officer or account manager in the Corporation and that lead regulator is in relatively frequent touch with them, and in fact with the biggest associations in very frequent touch, sees all their board papers, understands the thinking that is going on in their corporate planning system and, most importantly, we do have quite stringent requirements on risk management, on the identification of risks and for a stock transfer association in an area of low demand a sudden falling off in demand and potential abandonment must be one of the risks which figure highly in their thinking and for which they must have a contingency plan.

  531. What sort of contingency plan would that be expected to be? Do you have a contingency plan yourself if in the end an organisation says to you, "We cannot sort this out any more. We are in financial difficulties"?
  (Dr Perry) We have to be quite careful because we are the regulator and not shadow directors of the company, so it is not for us to propose or even have up our sleeves specific solutions to the problems faced by specific associations. Essentially, as independent bodies they are supposed to work through their problems within our regulatory framework. It would be again not conceivable that we would be doing this in a bilateral relationship with the association but we would want the local authority, the previous owner of the housing, other agencies sitting down with us and working through a recovery strategy if that was what was needed.

  532. In practice in the past where small associations got into difficulty the Housing Corporation behind the scenes has often engineered solutions. You would have to find some way out, would you not?
  (Dr Perry) Oh, clearly we would. What I am saying honestly is that we do not have a plan B up our sleeve for what happens at the moment if a big stock transfer association suddenly faces a collapse in demand because some of these associations have come into our sector so recently that they are still in a stage of attracting new tenants because of the huge improvement programmes that are going on in their areas. What you are seeing in parts of the country is genuine choice being exercised by social housing tenants who are switching landlords as they perceive the attractions of one landlord over another, so some of the new stock transfer associations are in quite a good position.


  533. But you have a very strong interest in making sure that none of the housing associations goes broke, have you not, because it would damage the borrowing powers of the rest?
  (Dr Perry) That is absolutely true and, touch wood, no housing association has ever gone broke yet.

  534. But you must be increasingly worried about the risk that some of them are taking in some of these areas for low demand?
  (Dr Perry) I would not say we are increasingly worried. Clearly we constantly monitor the situation. We are aware that a number of associations who have large holdings in low demand areas need to develop strategies for coping with that. Most of them are talking to us on a regular basis. We have an extensive network of regional offices so we have got staff pretty close to the ground. It would be a foolish association that kept its problems to itself and did not come and talk to us.

  535. They can come and talk to you but can you come up with solutions for them?
  (Dr Perry) In the past we have. Clearly it depends on the scale of the problem but most of the big associations working in Northern England have good governance arrangements. They have set up risk management arrangements as required by us and so they will be developing a coping strategy. For example, in Liverpool there are associations with a number of empty properties but they are working together with the City Council and ourselves and other agencies to bring forward a strategy for the central area of Liverpool, so they are being proactive rather than just sitting back and waiting for it.

  536. So in fact their other tenants are having to carry the debt burden of the empty properties; is that right?
  (Dr Perry) Unless Mr Hadden corrects me and says we have got some other ways of arranging the debt, clearly the association's main income is its rental income and if there are empty properties in one area then the finances of the whole organisation have to carry that.

  537. Is that not a bit unfair on those people who are already in a street with a fair number of empty properties in it, that in effect in their rents they are paying for those empty properties?
  (Dr Perry) For any individual association you might or might not be able to make that statement because depending on the level of reserves that an association has got, depending on whether it can access regeneration funding through the European funds or SRB or whatever, they have got other sources of income. In general it has to be the case that the whole body of the tenants is something that an association has to look out for.

Mrs Ellman

  538. How much effective liaison is there between regional development agencies, government offices and the Housing Corporation?
  (Dr Perry) There is very good liaison between the Housing Corporation's offices and government offices. We are very close to them. With the RDAs it varies across the country depending on the salience with which a particular RDA would view housing. For example, we have very close relations in your own region in the north west with the North West Development Agency's Chairman and its Chief Executive. In London we have good links with the London Development Agency and I suppose it is fair to say that the relationship is developing in other parts of the country.


  539. Where is it really bad?
  (Dr Perry) It is not really bad anywhere. I would define bad as where they did not want to talk to us and we were being rude to each other. What we have is differing levels of interest. I would say that in terms of what RDAs should do about housing it is a personal view of mine that they need to understand the importance of housing and labour markets for their economic strategy but I am not sure I would want to see them getting sucked into the details of local neighbourhood strategies for housing because I think their value, their contribution to their regions is the economic strategies that they draw up.

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