Institute of Urban Economics, Moscow 14 May 2009 Non-profit Housing Associations: outcomes and lessons from Europe Christine Whitehead London School of Economics Institute of Urban Economics, Moscow 14 May 2009

Social Housing in Europe The definition of social housing varies enormously across Europe Social ownership: municipalities; new towns; and housing associations (not-for-profit social landlords); co-operatives Social provision: below market rents; directed at particular groups; role in neighbourhood management and provision of additional services; Subsidised provision: including social rental; cost rental; and low cost home ownership

Table 1: Housing tenure/size of social sector in Europe Owner occupation Private rental Social Number of social units Netherlands 54 11 35 2,400,000 Austria 55 20 25 800,000 Denmark 52 17 21 530,000 Sweden 59* 780,000 England 70 18 3,983,000 France** 56 4,230,000 Ireland 80 8 124,000 Germany 46*** 49 6 1,800,000 Hungary 92 4 167,000 *Sweden: owner occupation includes cooperatives **France: Does not include 6.1% ‘other’ ***Germany: owner occupation includes shared ownership/equity ‘Genossenschaften’. Sources: France: from www.union-hlm.org/gp Hungary: from Housing Statistics in the European Union 2004 Germany: from Scanlon & Whitehead (2001), Intl trends in hsg tenure & mortgage finance Netherlands: www.cbs.nl; www.vrom.nl Not otherwise stated: from experts’ country reports

What are Housing Associations? Independent organisations that develop, own and/or manage housing for particular groups of households As such they are independent social landlords, although often with close ties to local and national government Set up under national legislation which determines purpose and therefore rights, responsibilities and fiscal position of housing associations Distinguish housing associations from co-operatives where owners also normally live in the dwellings provided

The Development of Housing Associations Nineteenth century initiatives: employers; charitable organisations; groups with particular interests Usually set up under general non-profit (charitable) legal framework – with Boards of Directors (unpaid) and articles of association defining their purpose Provided their own funds and charged rents to cover costs Some had strong links with municipalities and received land, funding, guarantees

Housing Associations and Social Housing Post 1945 most large scale social housing development by municipalities rather than HAs In some countries with a history of independent social landlords, HAs were part of the post war construction boom and received subsidy and sometimes guarantees in a similar fashion to municipalities Post 1980 in many countries there was a large shift away from municipal ownership and development to Has – often because of constraints on public borrowing

Figure 1: Ownership of social housing

Example 1: France Earliest social housing built by philanthropists and entrepreneurs in nineteenth century Post 1945 social landlords (HLMs) were owned by municipality; social housing companies or HAs – all treated similarly for subsidy purposes Complex relationship between government, local authorities, local partners, finance organisations and social landlords to provide housing services Social housing for middle class as well as low income employed – not mainly for poorest Political consensus that society has responsibility for housing supply

Example 2: The Netherlands Long history of social housing but major growth post 1945 Provided by HAs and municipalities (acting as separate management organisations) with municipal and central government financial guarantees and subsidy – often in the form of land Almost all social housing now owned by about 500 HAs Central government introduced “Brutering” in 1995 by which they gave a capital grant but no more subsidy thereafter so HAs became financially independent HAs must cross subsidise between regions where necessary HAs play a major role in regeneration and urban investment and management

Example 3: England HAs from 19th century (though almshouses from twelfth century – as in much of Europe) Pre 1974, worked sometimes with local government. Central government subsidy only available from 1974 HAs became major providers of new social housing from 1988 Financed by a mix of capital subsidy, own equity and private finance Also Large scale voluntary transfers (LSVT) of municipal stock to HAs; Arms Length Management Organisations (ALMOs)

The Role of HAs: Consistent Patterns across Europe? Starting point: independent local organisations which then often worked with local government to mobilise resources Central government subsidy and regulation increasingly important since 1945 as HAs became large providers of social housing Growing capital base, increased access to private finance to enable borrowing for new development and regeneration Increasing role in local area management and redevelopment Increasing concentration on helping poorer and more vulnerable households Supported by the availability of income related subsidies

Who do Housing Associations House? Traditional much for lower income employed households but now in many European countries fully integrated into the social housing system Different emphasis on whether accept nominations from local authorities or allocate directly Some evidence of ‘upmarketing’ where addressing general needs: but also concentration on vulnerable groups

Table 2: Demographics of social housing Age/household type Income Austria Young families (on new estates) older people/singles (on older estates Municipalities: working class/ disadvantaged. HA: middle class Denmark Children and young people, households with one adult Low-income and households receiving transfers England Young and old; single parents, single persons Low incomes - <half owner-occupier income France Single-parent families and couples with children Average household income 74% of national average Germany Older people Lower income Hungary Low income and social status Ireland Single parent families and couples with children 62% have incomes <60% of median (vs 22% overall) Netherlands Older/smaller than average Lower than average and falling Sweden Single parents, elderly single Lower than average

Table 3: Broader roles of social housing Special needs housing Neighbourhood management services (e.g. heating) Regeneration Affecting market rents Social cohesion Austria H C H Denmark C England France Only since 2000 in some areas (ZUS) Germany Hungary Ireland Nether-lands H C, but limited No heating Sweden H = historically C = current

HAs and Social Housing in England England has used almost every type of approach to providing social housing Financing and subsidy processes in the social sector have tended to be very different from those used in other tenures At the maximum - in 1979 - social rented housing provided for one in three households – now under 20% of all households and heavily concentrated on poorer and disadvantaged households. Has own about half of the total

The Housing Act 1988 Cash limited capital grants covering 75% of projected costs (expected to decline to 50%) Development risks to lie with HAs Private finance for residual Lenders to have first charge Rents to be set by HA at below market rents but in order to at least break even Lifetime security of tenure Housing benefit to continue to be available on rents up to market levels Government regulation and allocation of subsidy through the Housing Corporation

How HAs in England Operate May not distribute profit – but may build reserves to enable borrowing May cross subsidise within the stock – but must set rents with reference to the dwelling not the occupier Must let to identified groups of households – often nominated by municipality May provide other services within their legal remit If receive subsidy must be registered with the regulator – now the Tenants Services Authority - and be regularly inspected May have profit oriented subsidiaries eg for low cost home ownership

The Structure of the HA sector Now some two million dwellings (partly ex- municipality units) – increasing by some 25,000 a year (excluding transfers from LAs) Some large HAs own over 20,000 units and work across the country but also many small local/specialist organisations Many HAs have large scale housing and land assets; other simply manage stock for others Around two thirds of tenants are dependent on housing benefit – so financed from up front grants but also from income related benefits

Rent Determination Rents are now set by a formula based on capital values and local incomes Result is rents which are affordable to lower income employed households Rent rises are constrained to RPI+1/2% pa Rents in London are around 50% of market rents; in some other parts of the country rents may be 70% or 80% of market rents Must break even year by year given this rental income

Sources of Funds for Development To receive supply subsidies they must bid for capital grant based on costs of development, rents and their own contribution from rental income May receive cross subsidy from landowners through Section 106 – so cheap or free land May also act in partnership with municipalities building on public land when property transferred to their ownership on completion May act as partners with public and private sectors in regeneration projects

Private Finance for HAs Private finance from major lenders at interest rates 30 – 50 pts above LIBOR (similar to Netherlands); Growing capital base although borrowing limited by constraints on rental income Continued dependence on subsidy for new investment (around 50%) and investment in Decent Homes in the existing stock Development of intermediate rental and shared ownership market for those who need less subsidy Funding depends on quality of regulation and risk management

HAs: the Credit Crunch, Recession and Revival? Closure of wholesale and mortgage markets; Private finance institutions see themselves as overcommitted so wish to renegotiate interest rates and other terms and conditions for Has; Total development levels less than 50% of 2007 and social housing (including shared ownership) now the majority of output; Grant levels increased; S106 contributions reduced; shift back to social renting First signs of revival now appearing – led by heavily subsidised Housing Associations

Conclusions HAs are one point on a spectrum from public to private provision; They do not require special legislation to operate – that simply defines legal status; purpose; and tax position Once they are social housing providers and receive subsidy they generally become subject to a strong regulatory framework affecting development, rents, standards; and allocations

Conclusions (cont) In countries where there is a long history of HAs they often have the capacity to cross subsidise new development from rents on existing stock ; More generally they are dependent on subsidies; grants; cheap land and possibly cheap borrowing to provide affordable housing; In many European countries these subsidies are available to a great or lesser extent; They are also dependent on rent allowances to enable them to accommodate lower income households; They benefit from independence in managing he stock and the asset – but cannot expand without subsidy.