Are ‘parallel associations’ outside the remit of government control the future? Jess McCabe asks Paradigm chief executive Matthew Bailes about his plan
What is a ‘parallel housing association’ and why would you set one up?
We’ve got two basic problems – the need for sub-market rented housing is significant and probably growing. The number of people who live in poverty, or rely on housing benefit – there’s a lot of people who would benefit from sub-market rented housing.
On the other hand, the government has just reduced the rent and is offering no subsidies [to build affordable rent housing]. In four years’ time we might get another rent reduction. The tenancy agreement is determined to a large extent by government.
It makes it hard for people like me to say to our board we should then build lots of homes.
We can either take the risks of using our reserves despite the government creating more risk for us, or we could try to find another way of offering a sub-market rented product which is outwith regulation.[As well as building new homes,] you might choose to hold some of your existing assets that way as well.
We’re looking at it at Paradigm, we haven’t made any decisions. But it’s almost a no-brainer.
That does sound like a no-brainer. Are there any negatives?
There are real questions – partly there is a political risk in doing it this way. And regulation comes with investor confidence – what sort of interest rates would you have to pay? There are restrictions on having to recycle grant.
There are lots of issues to work through, but if you take the basic facts, it maybe costs £200,000 around here to build a two-bedroom flat – there’s no grant, so we have to subsidise from our balance sheet. The rent will continue to go down for at least four years, possibly longer. It’s not a fantastic deal. I know a lot of organisations are thinking about it. There are risks if you keep doing it the old way.
Why set up a new organisation though – why not deregister from the Homes and Communities Agency? Does that not achieve the same thing?
I don’t think many will deregister – because of the likely bill from the lenders and the process of refinancing the grant.[But associations setting up parallel associations will face] lots of choices – to use existing stock or not? Some will do market rent, or soft market rent, a different offer with a longer tenancy, others might target a poorer client group.
That’s the thing with it not being determined by government – the balance between helping a lot of people with a little bit of subsidy, or a few with a lot of subsidy, is for the association to decide, not the government.
But you say Paradigm hasn’t committed to setting up a parallel organisation. What’s the biggest challenge to overcome?
Financing it – whatever restrictions are in existing loan covenants. There are lots of questions.
Ideally you’d do this in partnership with local authorities – we could act like any other developer and rent the homes out. [But ideally local authorities] might assist us in finding an appropriate set of tenants. Maybe not in the same way they do now.
How is this all affected by our current predicament with the economy and the Brexit vote?
I don’t think it’s made any less relevant by Brexit. Housing strategy relies on everyone building for sale, and is deeply challenged by the uncertainty now. It may be that the policy environment changes again.
The million homes target is very challenging – if house prices go down, developers will stop developing.
All of it is made a bit more uncertain by what’s happening in the way of the world.
But affordable rent is hard to invest in – that remains true. Should we be abandoning the people who need sub-market rent or do we do it a different way?