The financialization of social housing?

The current housing crisis means the need for social housing is greater than ever. And yet, cuts to the funding of social housing over the last few years have reduced output to levels so small it is genuinely hard to believe. New social housing provision by local authorities fell as low as 285 units in 2012, representing a decline of over 95% between 2007 and 2014. This is a result of cut backs in capital spending by the Department of the Environment, which has traditionally been responsible for the vast majority of funding for social housing. This type of funding declined from €1.5 billion in 2008 to around €300 million in 2014, or 80%. Social housing provision in Ireland is almost completely funded by capital spending from central government, a form of funding that is very vulnerable to cutbacks.

There has been a fair amount of discussion around the virtual disappearance of funding for social housing. However, during this period there has also been some very important transformations in how social housing is financed which has not been given nearly as much attention. Indeed many people may be surprised to discover that there is significant amounts of money available for social housing which has not been put to use. What has happened and why isn’t it working? Answering this question tells us a lot about the future of social housing but also about how the very nature of the state and ‘the public’ is changing in the wake of the crisis.

The main thrust of the changes has involved a new way of financing housing associations to provide social housing. Housing associations, often referred to as Approved Housing Bodies, are not-for-profit bodies that provide housing to social tenants, i.e. people selected from the social housing waiting list. They also provide a lot of special needs housing, for example for victims of gender violence or elderly people. There are about 300 such bodies in the country and they provide about 20% of all social housing. The importance of housing associations has been growing steadily since the 1990s, largely because government policy has increasingly sought to shift responsibility for providing social housing away from local authorities, as has happened in the England. A small number of housing associations have become relatively large providers of social housing, in particular Clúid, Tuath and Respond. These larger associations can have up to 5,000 housing units.

Up until 2011 housing associations were funded almost entirely through grants from central government, i.e. the capital spending mentioned above. However, in 2011 a new system was introduced referred to as the Capital Advanced Leasing Facility (CALF). The basic logic of this is to allow housing associations to borrow from the Housing Finance Agency (HFA) and from private lenders. The HFA is a 100% state owned body that can provide finance for social housing. At the moment it mainly borrows through the NTMA (the National Treasury Management Agency, responsible for government borrowing) and European funding agencies. Under CALF, the Department of the Environment can provide a certain amount of up front capital to housing associations, who can then use that funding to leverage more financing by borrowing from the HFA or private lenders. The HFA has ready access to money and can lend to housing associations at very competitive rates (around 3%). Housing associations then use the money to build or buy new housing units, which they rent to social tenants. The tenants pay a small rent (around 15% of income), just like local authority tenants. The Department of the Environment then subsidizes rents to allow the housing association in question to repay the loan.

Take up of the CALF system has been very low thus far. This might be attributable to ‘teething problems’ as it’s a new scheme, so it would be wrong to jump to too many conclusions. However, most commentators agree that the key problem is that housing associations are small organisations who are used to getting 100% grant funding from central government. They have never had a huge capacity for new housing development, and they certainty have limited financial capacity and expertise. Under the CALF scheme housing associations have to apply for accreditation before they can borrow. The HFA looks at their accounts, income sources and so on to make sure they are ‘credit worthy’. Thus far only a relatively small number of housing associations have even applied for accreditation and even fewer have been successful. Drawing down and managing loans is no easy task, and requires expertise and understanding of the risks involved.

The limited capacity of housing associations raises an important question. Why have Local Authorities been excluded from the CALF scheme and from borrowing from the HFA? Local Authorities are by far the largest providers of social housing, they have much greater financial capacity than housing associations, and they have important experience in undertaking new developments. Moreover, given the extent of new social housing needed, Local Authorities have the kind of scale required to get a lot of housing built in the short term. It would appear that Local Authorities have been excluded primarily due to the over-arching political desire to limit the role of Local Authorities in social housing provision. This is possibly linked to a longer term plan, referred to in the current government social housing strategy, to shift the financing of social housing ‘off balance sheet’. Because housing associations are independent of government, it is thought that if they could borrow privately than investment in social housing could take place without adding to general government debt or the deficit. In other words, the logic is similar here to what is happening with Irish Water, the government similarly seeks to get investment of water of the books by allowing private finance to get involved.

In the long term we can debate the rights and wrongs of this kind of strategy. Some people see it as the only viable way to finance public services given the challenges of globalisation and EU rules on government spending. For others it is yet another way of rolling back public services and empowering the financial system. Either way, in the short term it simply won’t work. The reality is that housing associations simply do not have the scale to deliver large quantities of social housing, even if the money is there to finance it.

But wider questions arise here too. As argued, social housing provision is likely to move towards ever greater reliance on private finance and an ever greater involvement of non-state actors. This will mean that government control will happen through regulation, rather than direct provision, and through contractual arrangements with housing providers (i.e. housing associations). This is producing a new terrain of governance, a kind of hybrid space in which public and private become entangled. This is something researchers around the financialization of infrastructures have been discussing for some years. It suggests questions, as in the case of Irish water, about the very meaning of ‘the public’ as financialization’s influence over the state continues to grow.

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