Analysis: The great raid on charity assets

Last week the government said it was trying to reach a compromise with charitable housing providers over its extension of the right-to-buy scheme. Andy Hillier spoke to providers before the announcement about what exemptions they wanted to see

Peabody Trust: 'We're not enthusiastic about the policy'
Peabody Trust: 'We're not enthusiastic about the policy'

In the corner of Neil Hodgkin's office, the plans for 18 new social houses sit on a desk gathering dust. Hodgkin is the senior development manager of Saffron Lane Neighbourhood Council, a Leicester-based community group that has moved into social housing. After working with registered social-housing providers on its first development, Saffron Lane was hoping to strike out alone and build the 18 homes itself. But the government's plan to extend the right-to-buy scheme to tenants of housing association properties has stymied its plans for now.

"My board is asking me why we haven't progressed with our plans, but we just can't do it," Hodgkin says. "I can't justify building these additional houses, then selling them off and having a debt in the bank."

Under the government's proposals, housing associations would be required to sell properties to tenants, who would receive discounts of up to £77,900 outside London and £103,900 in the capital. Local authorities would be required to sell off their most expensive properties as they fell vacant to pay for the programme, and to fund the replacement of housing association properties sold. However, the government and the National Housing Federation, a membership body that represents housing associations, said last week  that they were negotiating a deal that would allow housing associations to receive the full market value for any home sold under the scheme. Associations would also sign up voluntarily to take part in the scheme rather than having it imposed on them.

The initial proposal caused widespread alarm among housing associations about whether they would, in fact, recoup the difference between the discounted sale price and the market value of the homes they would lose. It was also the cause of consternation in the broader charity sector about how the government was, in effect, forcing charities to sell charitable assets, potentially without receiving market value for them.

One insider, who does not want to be named, says: "Lots of senior civil servants in the Treasury and the Department for Communities and Local Government hold the view that this has been a bit of a dog's breakfast. There's an awful lot of scratching of heads at the moment, and that's why there's a willingness to do a deal - they realise that the proposals could go badly wrong."

Jamie Huard, a senior associate for real estate at the legal practice Bates Wells Braithwaite, which represents about 10 housing associations, says that  exemptions discussed before the announcement of last week included excluding the sale of buildings over a certain age or requiring housing associations to sell only those properties built using certain government grants."Lots of charities will feel very uncomfortable about being told to sell off property that had been left with a specific purpose in mind."

Some housing associations also considered deregistering from the Homes and Communities Agency, the regulator for social housing providers, to escape the legislation. Huard says this was increasingly being debated because of the ongoing uncertainty about the implications of the legislation.

Community-led housing providers are another group that sought an exemption. These are predominately smaller housing associations that invest any surplus they generate in a particular community. David Ireland, director of the Building and Social Housing Foundation, a research organisation that supports community-led housing providers, says: "Overall, the right-to-buy policy seems to conflict with the whole essence of community housing and the government's wider policy on localism.

"The smaller providers are a very different entity from the big housing providers and the government policy ought to acknowledge that. We're seeing a stirring of interest among community-led housing providers, but this policy could kill it."

The BSHF has helped to form an alliance of community-led housing providers, which has received funding from the Nationwide Foundation to work with a solicitor to establish a statutory definition of community-led housing. It is hoped the definition will help these organisations to win an exemption. But Ireland says there are no guarantees that this will be successful: "It appears likely that there will be a number of exemptions, but I don't think that every suggestion will make it into the legislation."

Tony Stacey, chief executive of South Yorkshire Housing Association, says that he believed the government's initial right-to-buy proposal posed dangers for both charitable housing providers and the government. "The government is saying to independent charitable organisations 'you must dispose of your assets, and do it on our terms'," he said. "If the government is not careful it will find that charitable housing organisations become regarded as public organisations and that our debts - which amount to about £60bn - will end up on the public-sector balance sheet. In effect, they will have nationalised housing associations." He believes this could be stopped by respecting the independence of housing associations through, for example, allowing them to decide which homes should be sold and how they should be replaced.

A big stumbling block is the level of compensation that will be offered to housing providers. Stacey says it costs about £135,000 to build a new home in Sheffield, but his organisation would recoup only about £90,000 under the initial proposals. "The government is at risk of breaching charity law," he says. "You just can't go in and raid people's assets. The government knows it needs to come up with a deal that works for housing associations - otherwise we will be instructing our solicitors."

A spokesman for the DCLG says it is unable to comment on the proposals ahead of the publication of the housing bill in the autumn. A spokeswoman for the Charity Commission says it has not yet been provided with detailed proposals so is also unable to comment.

Stacey wonders whether the right-to-buy proposal could set a dangerous precedent. "Who is to say that a government in the future might not set its eyes on other assets?" he asks. "For example, some schools have fantastic wealth. The government's argument is that housing associations have grown using government grants. That's partially true, but that's only since 1974 - housing associations were going for more than 100 years before then."

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