DCLG mulls increase in borrowing capacity of stock transfer housing associations

In a consultation paper, the DCLG noted that, since 1988, there had been just over 300 large-scale transfers of housing stock by more than 200 local authorities. Collectively this had led to the transfer of over a million properties from the public to the private housing association sector.

“Transfer brings in higher levels of investment, allowing stock transfer housing associations to borrow from the open market,” the Department argued.

“This means that backlogs of stock improvements can be carried out more quickly than could be done under local authority ownership and enables additional private sector investment in new affordable housing.”

The paper said the Government wanted housing associations “to be well placed to build more, much needed homes”.

It added that homes previously transferred from local authorities to a housing association were generally valued on the assumption that they would continue to be let as social housing into the future.

Typically, this means they are valued at 30-40% of market value. [By contrast, properties owned by a traditional housing association where stock has not come from a local authority are typically valued at 60% of market value]

The DCLG said: “The value placed on these properties affects how much a bank will lend and how many new homes the housing association can build.

“If the approach to the valuation of these homes is needlessly hindering borrowing, then we want to find ways to address that. However, in doing so we need to understand any effect on social tenants and ensure that we do not compromise their protections. Therefore through this consultation we are seeking views on the current approach, suggestions, and the implications.”

Overall there are around 1,500 housing associations in England and they own or manage around 2.7m homes. Nearly half (44%) of these homes are owned by stock transfer providers.

As a group, stock transfer providers are much more heavily indebted than traditional housing associations.

The Department said some of those providers had told the Government that they could build more homes if their stock was valued differently.

The DCLG said it wanted to “understand what drives the valuation methodology, why stock transfer valuations are lower than traditional housing associations and whether there are underlying and ongoing reasons for the difference.

“We would welcome suggestions on what could be done differently. 25. In considering any proposals for change, we must ensure that housing associations continue to be financially viable and do not take on undue risk.”

The consultation runs until 31 May 2015. The consultation paper can be viewed here.