Re-classification muddies funding model for new housing

Housing association borrowing is set to go on the Government’s balance sheet, potentially reducing the availability of funding for new social housing. The Central Statistics Office (CSO) has warned the Government that associations are not sufficiently independent of public sector control to continue being treated as non-government bodies.

The potential debt reclassification would affect all housing associations managing 300 or more units of accommodation. Assuming the reclassification goes ahead, the move will add around €17 billion to the Government’s balance sheet, which held liabilities of €200 billion at the end of 2016. The change, however, could affect billions of euros of additional debt needed to fulfil the Government’s social housing targets contained in the Rebuilding Ireland programme.

The Irish Council for Social Housing (ICSH) has expressed its deep concern with the decision of the Central Statistics Office (CSO) to reclassify a large number of developing housing associations as bodies controlled by government and the proposal that these be classified in the government sector.

According to the ICSH, the proposal by CSO appears to be based on a number of assumptions of control and financing issues that do not accurately reflect the contractual relationship between housing associations and the State.

Housing associations, as private non-profit bodies, offer accommodation, similar to private landlords, to low-income households in need of housing. As a consequence, they are not controlled by the State. Currently, housing associations in Ireland (also known as approved housing bodies) are classified as private non-profit controlled institutions.

According to ICSH, a reclassification decision could have a number of serious implications. These include limiting the ability of housing associations to deliver homes with private borrowing. A re-classification decision would also reduce the amount of finance available for social housing to be delivered by housing associations. It would also create significant uncertainty and delays for building programmes that are ongoing while impacting on the fiscal space.

ICSH CEO Donal McManus says: “This decision by the CSO puts the delivery of much needed social homes in serious jeopardy based on the current funding structure. The ICSH and the sector will be looking closely at the background to the recommendation and is calling on the Government to ensure that any classification will not impede current and future new developments especially as, in the context of the housing and homelessness crisis, the sector is playing its part.

“ICSH members expect to deliver at least 4,500 new social homes over the next two years. If there is not an urgent examination of the CSO reclassification decision, this vital social housing pipeline will be put in jeopardy.”

Significantly, Eurostat, the body charged with the responsibility of providing statistical information to all agencies of the European Union, agrees with the stance taken by the CSO. In a letter to the CSO on the matter, a Eurostat director states that housing associations are controlled by government, adding: “Reasons for this include the degree of financing, contractual agreement, special regulations and risk exposure. Moreover, Eurostat considers that housing associations have a non-market nature due to their principal aims and other existing provisions.

“This decision by the CSO puts the delivery of much needed social homes in serious jeopardy based on the current funding structure.”

“Furthermore, the prices charged for renting cannot be seen as being economically significant, due to the fact, among others, that they do not seem to respond to change in the market or to economic signals, and have little influence on how much the producer is prepared to supply and on the quantities demanded.

“As a consequence, housing associations, being not-for-profit organisations, controlled by government and not being market producers, should be classified in the government sector.”

A spokesman for the Department of Housing, Planning and Local Government outlines: “The Department recently attended a briefing session with the CSO on its analysis in relation to the potential reclassification of expenditure of 16 of the 18 largest approved housing bodies as being on the general government balance sheet.

“There has been extensive and detailed engagement between the CSO and the Department, as well as with representatives of the approved housing body sector over the last year, since the assessment process began to inform this review.

“An initial classification recommendation from the CSO is that 14 of the 16 approved housing bodies examined should be reclassified as falling within the public sector, under the broad local government classification.

“The Department will be considering the provisional assessment in detail, in close collaboration with Minister Paschal Donohoe’s departments and the housing association sector, with a view to identifying the potential impact of a future reclassification decision by Eurostat.”

Speaking in front of the Oireachtas Joint Committee on Housing, Planning and Local Government, Housing Alliance’s Chairman Brian O’Gorman said that approved housing bodies (AHBs) play an increasingly important role with a current total of approximately 30,000 dwellings.

“AHBs did not run their development capacity down in the period following the financial crash. This means that they are able to make a contribution to social housing output that is disproportionate to their size.

“The current government target for social housing output is 50,000 additional homes by 2021. It is envisaged that AHBs will deliver one Third of that figure, which will represent a major contribution to social housing output at a time when it is universally accepted that we are experiencing an unprecedented shortage.”

According to O’Gorman, the AHB sector is very diverse. Almost 232 bodies are registered with the regulator and they are divided into three tiers. The 17 Tier 3 AHBs, which are the largest, with between 300 and 6,000 tenancies each, account for almost three-quarters of all AHB housing stock.

He adds: “At the end of 2016, five of the larger bodies came together to form the Housing Alliance, with the aim of promoting practical and innovative solutions for the enhanced development and management of social housing and affordable housing.

“All members are primarily providers of general needs housing, that is, housing for people who have a housing need but not a particular personal need, such as older people or people with physical or intellectual disabilities.

“Together Housing Alliance members own or lease a total of just under 16,000 dwellings, which represents more than 50 per cent of all AHB tenancies.”

“ICSH members expect to deliver at least 4,500 new social homes over the next two years. If there is not an urgent examination of the CSO reclassification decision, this vital social housing pipeline will be put in jeopardy.”

The Housing Alliance has proposed the establishment of a working group that will focus on the reclassification issue. The aim of the working group will be to examine the rationale for the reclassification decision and to determine what changes need to be made to put the AHB sector in a position where an application can be made for a further reclassification back to an off-balance sheet status.

He explains: “In our view, the working group should include representatives from the Department of Housing, Planning and Local Government, the Department of Finance, the Housing Agency and representatives of larger AHBs.

“We believe that the appointment of an independent chair for this working group would provide additional strength to its recommendations and would assist in a speedy conclusion. We feel that it is important to establish such a working group as a matter of urgency.”