HOUSING ASSOCIATIONS IN THE UNITED KINGDOM: WHY THEY ARE NEEDED,

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1 HOUSING ASSOCIATIONS IN THE UNITED KINGDOM: WHY THEY ARE NEEDED, and HOW THEY COULD FUNCTION IN AUSTRALIA. * * * Brotherhood of St. Laurence 67 Brunswick Street, Fitzroy, 3065, Victoria. DAVID Telephone : March, SCOTT 1974.

2 1. INTRODUCTION There is an important distinction to be made between Housing Associations and Housing Societies in.the United Kingdom. Housing Associations provide cost-rent housing. They are non-profit landlords providing rental housing for whichever group or groups they have set out to assist. Housing Associations receive funds from local authorities, although under recent policy changes they may also receive loans from the Housing Corporation in the United Kingdom. Housing Societies are co-ownership bodies providing houses or flats to be occupied exclusively by their own members who collectively own the dwellings they occupy. Members are owner-occupiers and share in part of the equity they have helped to create. Housing Societies cannot seek financial assistance from local authorities and are not eligible for exchequer subsidy. They receive their funds from the Housing Corporation. This paper and its recommendations concentrate on the potential in Australia for Housing Associations to provide rental housing for minority groups; to preserve stocks of rental housing in areas where speculation and inflation are forcing out traditional low income populations; to preserve housingjor historical and cultural reasons, and to counter-balance the Housing Commissions' sales of publicly financed housing in the older Commission estates which also reduce the amount of rental housing in more popular areas. Co-ownership Housing Societies could also provide a new initiative in Australian housing policy. Their role should be considered but the most urgent need at the moment is for cost-rent housing.

3 PART 1. Housing Associations : Their purpose and methods of operation in the United Kingdom. 1. Housing Associations have a long history in the United Kingdom. The first were formed in the middle of the 19th century as a means of improving housing conditions for "the labouring classes." Since then, Housing Associations have adapted their functions to meet changing circumstances of housing need. 2. The main purpose of Housing Associations is to cater for those who cannot afford homes of their own and have little chance of obtaining public housing provided by the local government housing authorities. 3. A Housing Association is a legally constituted body, organized and administered by a voluntary committee for the express purpose of providing housing on an entirely non-profit-making basis. The Housing Act 1957 defines a Housing Association as "a society, body of trustees or company established for the purpose of, or amongst whose objects or powers are included those of, constructing, improving or managing or facilitating or encouraging the construction or improvement of houses, being a society, body of trustees or company who do not trade for profit or whose constitution or rules prohibit the issue of any capital with interest or dividend exceeding the rate for the time being prescribed by the Treasury, whether with or without differentiation as between share and loan capital." Constitution of a Housing Association Most housing associations as defined above obtain legal status by registering under the Industrial and Provident Societies Act; some associations are charitable trusts subject to the jurisdiction of the Charity Commissioners; and there are a small number registered as companies under the Companies Acts.

4 3. Associations can build,or purchase and convert property, flats, flatlets or hostels and if they wish, provide varying amenities and services. In size and scope Housing Associations vary considerably, some providing accommodation for many thousands of tenants, while others provide for only a small number. It is estimated that there are more than 3,500 housing associations in the United Kingdom at the present time. 4. Finance. Housing Associations are financed by loans from local authorities. Loans of up to 100% of the capital cost of a scheme may be made by the local authority. Loans for new building are based on an approved estimate of comprehensive costs. The rate of interest is normally the current rate charged by the Public Works Loan Board for loans to local authorities, who may add a surcharge of up to 4% to cover their own administrative costs but this is often waived or a reduced amount charged. Repayment of loans is usually oh the annuity system over a period of up to 60 years for new buildings. A fixed sum representing repayment of capital and interest is paid half yearly. For purchase of existing property, loans of up to 100% are available subject to the approval of the figure by the District Valuer. The period of such a loan may be 20 to 30 years depending on the estimated life of the building. Additional loans may also be made to cover costs of conversion and improvement work. The Housing Corporation, which was established in 1964 mainly to assist self-ownership schemes, has recently been given a substantial increase in funds and been directed to devote most of its resources to providing additional finance for housing associations.

5 4. 5. Housing Associations may be formed as self-help groups or by interested people wishing to assist minority groups in the community who are urgently in need of housing. There is now a trend in some associations towards including representatives of tenants as members of the association or as members of Management Committees. Although Housing Associations provide a very small proportion of the total housing stock in the United Kingdom, they have assumed considerable significance in recent years because of the increasing housing plight of disadvantaged groups. They are also a means of checking the spread of "gentrification" - a term used in the United Kingdom to describe the change of ownership and conversion of previously inexpensive homes into homes for the more affluent. Many Housing Associations concentrate on helping homeless families and assisting in area improvement and rehabilitation. Increasingly, local Housing Associations in stress areas are acquiring and modernising old properties for the benefit of existing residents and the less affluent. Special groups that can be helped through Housing Associations include elderly people, immigrant workers, handicapped people, single men and women, one-parent families, students, discharged prisoners, and families whose method of living makes them unacceptable to local housing authorities. 6. Subsidies. There has been a rapid inflation of property values in the inner areas of London and other large cities in the United Kingdom. This means that there is often a considerable gap between the economic rent based on principle and interest payments on an inflated price for property, and the capacity of the tenants to pay rent.

6 5 The various measures that are applied to bridge this gap are complicated. They include exchequer contributions which are subsidies towards the cost of acquisition, conversion, improvement and repair of existing houses for letting. Calculations are based on certain ceilings and the annual contribution, payable over 20 years, will equal up to half the annual loans charges within these ceilings. Improvement grants, standard grants, special grants, rate fund contributions and rent rebates are other measures available to ensure that adequate non-profit housing is within the rent paying capacity of tenants. (These measures are described in detail in "A Guide to Housing Associations.") 7. Accountability. A Housing Association is accountable to the local authority which lends money and/or to the Housing Corporation. The Association is also account able to the Registrar of Provident Societies, and if it is registered as a charity, to the Charity Commissioners. These organizations are in a position to ensure that the Association is operating on a non-profit basis according to the terms of its constitution, that it is utilizing its resources to the best advantage of the people it is aiming to house, and that its method of management is efficient. Although there is no legal provision for accountability to tenants, the ethos of most of the Housing Associations is such that they are sensitive to tenants' requirements and there is an increasing trend towards provision for tenant consultation or representation on management committees or as members of the incorporated body. 8. Costs. Although the local authority and/or the Housing Corporation provides loans equivalent to 100% of the approved purchase price on the building, there

7 6 are often additional charges that have to be met. Finance is required to locate suitable housing, in some cases to meet charges if an attempt to purchase a particular property proves to be unsuccessful. Money may be needed to provide bridging finance in the period between purchase and provision of loan monies by the lending authority. This means that in the initial stages, the Housing Association needs to obtain additional funds from individual subscribers, charitable organizations or groups interested in helping the Housing Association to become established. Once the Association is in business, some of these charges can be met from its general revenue. Some assistance is available from the Housing Societies' Charitable Trust, established by the National Federation of Housing Societies. Its main functions are to (a) allocate by way of grant or interest free loan, funds from other charitable bodies or trusts, who prefer to use the detailed knowledge of the Trust to advise on the distribution of funds available rather than to proceed with applications themselves from individual Housing Associations; and (b) to operate a revolving fund which the Housing Societies Charitable Trust has itself built up. Member-Associations of the Federation which make application for these financial facilities must all have "charitable" status. 9. Criticisms of Housing Associations A study of the organization of housing in the United Kingdom is soon to be published by the Centre for Environmental Studies which is headed by David Donnison. The study concluded that Housing Associations make a valuable contribution to meeting specific housing needs alongside the main providers of housing, which are the local authorities and private builders and private loan bodies. Whilst the total of housing controlled by Associations is not very great, in the Greater London area they now own and manage more than 42,000 units of accommodation.

8 7 Some of the criticisms that have emerged from the study relate to the difficulty that some Associations have in meeting the needs of lower income people because of the limitations on rent rebates and other concessions. Some Associations that have set out to provide housing fot problem families find that they are not able to accept many such families as tenants, because of arrears through non-payment of rental and the Association's need to break even on its total operations. Some smaller Associations suffer from the diseconomies of scale; they are unable to appoint competent housing managers and other administrative staff as their small programmes cannot bear these costs. In the Greater London Council area, some Boroughs are concerned that there are too many small Housing Associations, and the consequent confusion and fragmentation of limited loan monies and other resources. Some Associations are considered to have limited ability, limited experience and limited objectives. The existence of too many Associations also creates competition for properties and finance which are in short supply. However, these problems can be overcome with the provision of additional resources, better planning and co-ordination of housing programmes under different auspices in a particular area. 10. Notting Hill Housing Trust. I spent some time investigating the activities of the Notting Hill Housing Trust which was established 10 years ago in the depressed area of a Borough that has acute housing needs. Today the Trust owns and manages 2,000 units of accommodation. Most of the properties purchased have been four-storey buildings which needed considerable renovation and subdivision into two, three or four separate units.

9 8. Many of the properties now being purchased are already occupied but usually by the kind of people the Housing Association was formed to assist. If the properties are badly in need of renovation, the Association tries to provide bridging accommodation while repairs are carried out. The Housing Trust and the local authority have the power to obtain possession of an occupied property which the Trust has purchased if it can be proved that it is required for people with greater need than the existing tenants. 11. Selection of Tenants. Local housing authorities in the United Kingdom use a points system to assess housing need. A formula is used to attempt to assess and give weight to the many variables which make up total housing need. The points system is always subject to continual debate and criticism but most authorities believe it is impossible to provide a more equitable method. The Notting Hill Trust also takes into consideration the tenants' capacity to look after themselves as there is a limit to the extent to which it can work with difficult tenants, or meet the cost of rental arrears. Many local authorities which lend to Housing Associations insist that a proportion of the lettings, up to 50%, are allocated to people already on the authority's waiting list. These are usually the kind of people the Housing Association was formed to assist and are eligible for all the subsidies and allowances that can be applied by the local authority. 12. Management. It was stressed that the management of a Housing Association is a highly technical job; very large amounts of money are handled by the Notting Hill Association and tenants' problems can be very considerable. The Housing Association must regard itself and be seen as a sympathetic provider of housing and not a welfare organization. It is not in a position to meet other than housing need.

10 10 Sources of Information: Interviews with the Assistant Secretary of the National Federation of Housing Societies. "The Organization of Housing in the United Kingdom." A study to be published shortly by the Centre for Environmental Studies. Interviews with members of the Notting Hill Housing Trust. Interviews with the Housing Centre and study of documents and reports on Housing Associations. The following material is on file at the Brotherhood of St. Laurence:- A Guide to Housing Associations. of Housing Societies, July National Federation Model Rules for the Formation of a Housing Association. Published by the National Federation of Housing Societies. Housing Older People Through Housing Associations. Published by the National Federation of Housing Societies. Housing Associations of London, 1972/73. A Report by the Secretariat of the London Housing Associations Committee. Annual Report, Societies. Co-Ownership Housing. Societies. National Federation of Housing National Federation of Housing Voluntary Housing. Quarterly publication of the National Federation of Housing Societies.

11 PART II The Need for Housing Associations in Australia There are two aspects of housing need in Australia that could be met by Housing Associations. (a) The need to preserve a stock of accommodation in older areas of cities for lower income tenants now in occupation, and for similar groups in the future. The trend which has resulted in the continuing transformation of older areas of larger cities from predominantly working class areas to areas occupied largely by middle-class and professional people is obvious and does not require documentation. The trend is likely to continue as there is a limited supply of older property that is now keenly sought after by speculators and people wishing to move into areas that are close to the city centres and provide a varied cultural life and the prospect of greater-than-average capital appreciation. In some of these areas inflated values are now so high that low income tenants could not be accommodated if the property was acquired unless there was a measure of subsidy applied, either to writing down the cost of acquisition, or to bridging the gap between economic rent and the rent-paying capacity of tenants by rental rebates and other measures similar to those now provided for Housing Commission tenants. There are other areas in which values have not been so heavily, inflated and where it is still possible to acquire and preserve properties with little or no subsidy. It is important to realize that transfer of properties into non-profit ownership will preserve in perpetuity a stock of housing for low-income or other disadvantaged, excluded or minority groups. The values of some properties may seem high today,

12 12 but in a few years' time today's purchases will be regarded as having been inexpensive, far-sighted and socially valuable investments. The outgoings for interest and principal repayments will in future years be comparatively small in terms of deflated real money values. The non-profit Housing Associations and their tenants will obtain the benefits of inflation which now accrue to investors, speculators and property owners. (b) The need to provide rental housing for people not eligible for Housing Commission homes or flats, and people with a low priority on Commission waiting lists. These groups include - i. Single people. Apart from relatively expensive bachelor flats, there has been virtually no new accommodation constructed for single people. If experience in Melbourne is a guide to other States, there has been a substantial decline in the amount of boarding and rooming house accommodation available to single people and others requiring this kind of housing. Single immigrants as well as students and pensioners find it increasingly difficult to obtain adequate accommodation. Housing Associations could provide this kind of accommodation, scattered where it is needed throughout the community. They could acquire existing property that is suitable or, if necessary, built new hostels or other forms of accommo-, dation. ii. Single mothers and other one-parent families. These groups are still often exposed to social ostracism and one of their greatest problems is to obtain adequate, low cost accommodation. Single, or preferably mixed purpose, Associations could meet their housing needs.

13 13 iii. People requiring temporary accommodation. The largest groups in this situation are newly arrived migrants who find it extremely difficult to obtain adequate low rental accommodation in the early years after arrival when they try to save money to purchase their own homes. The Melbourne Poverty Study showed that newly arrived migrants were the group with the highest incidence of poverty. Housing Associations could provide a stock of scattered housing in areas where migrants wish to spend their first years in Australia, usually close to other members of their ethnic group. iv. Itinerant people. This group includes single people and others with families who do not want to make a firm commitment to home purchase and are finding it increasingly difficult to obtain low cost rental accommodation. This group also includes homeless men and women suffering from alcoholism and other problems who have little choice of accommodation other than the beds provided by charitable organizations in large hostels. v. Single people and families who want to remain in inner areas where they have strong cultural and community associations but are being forced out by the inflated values of property. vi. Families who have at one time been tenants of the Housing Commission but who have been evicted or have left under threat of eviction, or voluntarily, and have outstanding rent debts with Housing Commissions. These families have little opportunity of being rehoused by the Housing Commission which at present is the only source of low rental accommodation.

14 14. 2 * Formation of Housing Associations Housing Associations to meet the needs of some or all of these groups could be initiated by self-help groups, welfare agencies, ethnic organizations, municipal governments that realize the importance of preserving in their municipalities a stock of housing for low-income groups, trade unions, and community organizations of various kinds. Different combinations of these groups could also form Housing Associations. Further consideration would need to be given to determine the policy of the Association on segregation- of housing for particular groups or the need to achieve a social mix. The constitution and model rules of the United Kingdom Housing Associations provide a guide for similar requirements in Australia. 3. Methods of financing in Australia The Australian Government already has a substantial commitment to financing non-profit public housing by providing loan monies for State Housing Commissions, and additional loan funds for Building Societies. In , $218 million was provided of which $71 million was made available to terminating building societies. If Housing Associations become an accepted part of housing organization in Australia, it would be desirable to create an Australian Housing Finance Corporation to provide loans for the Associations. In the short term the Australian Government could finance Associations with direct loans or, if there are constitutional difficulties, reach agreement with State Governments that some loan monies be used to finance Housing Associations within the State. a?*

15 1 5. Funds to finance Housing Associations in the initial stages would have to come from an increased total contribution to low-income housing or by a diversion of some existing funds, preferably from the monies now channelled to terminating Building Societies. 4. Subsidies and Rebates The gap between economic rent based on the market price and cost of renovations and improvements, and the rent-paying capacity of low-income tenants can be bridged in several ways. The simplest and most equitable would be to write off some of the original cost of the property. Alternatively, or as well as subsidising the original purchase, rental rebate provisions now applicable to Housing Commission tenants could be extended to tenants in non-profit housing owned and managed by Housing Associations. (a) Subsidy on Initial Purchase A direct subsidy to a Housing Association to write off some of the original purchase price of a property would ensure that the property remained in perpetuity in non-profit ownership for groups requiring rental accommodation. (In passing, it should be noted that this does not occur with public subsidies to Housing Commissions. When Commissions sell houses, the beneficiaries of public subsidy are the first or subsequent purchasers who may not need and gain profit from the original public subsidy.) A write-off of part of the original purchase price would operate in this way. Example. Assume the purchase price of a house to be $20,000 and loan funds for its acquisition have been provided at 4%, the current rate of interest for loans by the Australian Government to State Housing Commissions. Add 1% to cover management charges. (contd.)

16 16. Principle and Interest payment on $20,000 repayable over 50 years, at 5%, principle adjusted quarterly. $20.98 per week. Rent-paying capacity of tenant on $70 a week, assuming no more than 20% of income should be paid for rent $14.00 per week Subsidy requirement.... = $6.98 per week If $5,000 of the original cost price is written off by direct grant, the economic rent would be calculated on a borrowed sum of $15,000. The situation would then be - Principle and interest payment on $15,000 repayable over 50 years, at 5% $16.00 per week One fifth of income of $70 per week for rent $14.00 Deficit = $2.00 This deficit could be eliminated by increasing the original write-off amount, by applying a rental rebate or by including child endowment in assessable income. Writing off by subsidy some of the original costs of acquiring property has been practised for many years by the Victorian Government, which makes an allocation of around $1.5 million available to assist the Housing Commission to write off some of the costs of acquisition, compensation and demolition in its slum clearance and redevelopment programmes. Assuming a cost price of $20,000, a grant of $7.5 million by the Australian government would reduce loans required on 1,500 homes by $5,000 per unit to an amount that would be met, or almost met, by the rent-paying capacity of low-income tenants. The 1,500 dwellings would remain forever in the non-profit low rent sector.

17 17. The loan funds required to purchase 1,500 homes at an average of $15,000 per unit would be $22.5 million. (b) Application of Rental Rebates Rent rebates applied by State Housing Commissions ensure that rent does not exceed approximately one-fifth of low incomes or pensions. Rebates are financed partly by levies on other tenants, and partly by Australian Government subsidy. It would be difficult for Governments to extend the rebate provisions to low-income tenants in private profit accommodation, although in the interest of social justice' a strong argument can be made for rebates to assist tenants in the private sector. The difficulty confronting the Government is to ensure that the subsidy to the tenant is not absorbed by the landlord. -A similar problem has faced the Australian Government in subsidising nursing home patients in private nursing homes run for profit. Without complicated bureaucratic controls there can be no guarantee that the subsidy to people in need does not become a subsidy to private profit. There would, however, be no difficulty for the Australian Government if it met the cost of providing rental rebates for tenants in non-profit accommodation owned and controlled by Housing Associations. The amount required to finance rent rebates on a particular property would eventually decline because outgoings would not need to be increased while wages and pensions would increase. Either of these methods, a combination of both, or other means that have been used in the United Kingdom and elsewhere would bring Housing Association properties within the means of low-income tenants.

18 18. Subsidy may not be necessary. A more detailed examination of economic rents and the rent paying capacity of low income people, and a consideration of inflationary trends might show that it would not be necessary in many cases to either write off a portion of.the original purchase price or to apply rental rebates. If the value is frozen at the purchase price, in five * or ten years' time the economic rent might be within the capacity of tenants whose income would increase substantially Extending the period of loans and/or scheduling rent payments to take into account the rise and decline in family commitments and increases in earnings, might also obviate the need for subsidies. However, if required, the Australian Government should have no hesitation in providing subsidies for the preservation in perpetuity of an adequate stock of rental housing in areas where it will always be needed. 5. Philosophy Considerable emphasis has been given by the Australian Government to the need to develop methods of detecting and meeting social needs that are localized and that provide opportunities for maximum feasible citizen participation. In this context, it is interesting to note that in the United Kingdom the Labour Party, which previously had not placed much importance on Housing Associations and preferred that all housing should be under the control of local authority, is now supporting the expansion of Housing Associations because they can meet housing needs of neglected groups and create opportunities for maximising local and decentralised participation and management. Housing Associations would conform to the declared philosophy of the present Australian Government. They could also act as a counter-balance in public housing to the large bureaucratic structures that have been developed by the State Housing Commission and which will continue to grow in size.

19 Housing Associations would also help to achieve the Australian Government's declared objective of increasing the stock of rental housing. The Australian Government has been insisting that State Housing Commissions retain more units for rental. 19. As current building is mostly in outer suburban and country areas, this policy will not increase the low rental housing stock in the inner areas and provide alternative rental housing for low-income people who are being forced out by market trends. Housing Associations can also respond flexibly and sensitively to the changes which will continue to occur in housing need and housing supply, and provide pilot projects from which new policies for other arms of the housing industry, public and private, can benefit. 6. Conclusion Housing Associations would provide effective means of meeting the neglected housing needs of minority groups, and provide opportunities for localized and more participatory housing programmes. The provision of large scale housing would still continue to be the responsibility of the State Housing authorities, housing co-operatives and the private sector. (continued)

20 7. Recommendations (a) That the Australian Government immediately investigate the extent to which Housing Associations could assist in promoting better housing for minority groups and preserving stocks of accommodation in areas from which low-income and disadvantaged groups are being expelled by market forces.. (b) If, as a result of investigation, it is decided that Housing Associations could be a new and useful housing initiative, the Australian Government should encourage and assist in the financing of a limited number of pilot-project Housing Associations. * * *