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Housing associations: right to buy versus right to property

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Fast forward five years. A new leftist government is elected in Britain (majority 12) with a flagship policy to extend home ownership to “Generation Rent”. Legislation is drawn up to force private landlords to sell their properties at a discount to their tenants under a radical right to buy scheme. Unfortunately there is a stumbling block. One of the few human rights still standing amid the ruins of the old human rights regime following the Human Rights (Abolition of Trivial Provisions) Amendment Act 2017 is the right to property. Forcing owners of rental properties to sell them offends against Part 1 Chapter 1 Article 1(1) of the new British Bill of Rights which says:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.”

Fortunately, though, there is a precedent. Backtrack five years and the Conservative Government of 2015 had just such a radical policy of redistribution of property. It similarly forced property owners to sell homes to their tenants at a discount of 35% or more – caring not whether those property owners were driven to bankruptcy as a result. The fact that the property owners are housing associations doesn’t mean they don’t have human rights: they are private bodies (hence “legal persons”) and the flats they let out are their private property. The wording quoted above is that of Article 1 Protocol 1 of the European Convention on Human Rights, which applies now and which the Tories have no known plans to repeal – because the human right to property is one of the “important” human rights they set great store by.

Housing associations are private bodies – some simply companies, others are trusts, charities or cooperatives. Some get public money for investing in homes but they have other sources such as charitable monies and, crucially, bank loans – they have more than £60bn of borrowings. Here is how the Information Assistant of the former Tenant Services Association described them:

“There is no requirement in the Act ( Housing and Regeneration Act 2008 ) for registered providers to be public bodies or not, or to be not-for-profit or profit making. Registered providers are independent private organisations; most are Industrial and Provident Societies registered with the Financial Services Authority, and most of the others are charities registered with the Charity Commission and/or companies registered with Companies House.”

So all this adds up to a complex structure with a network of finances which are not the Government’s to dip into and redistribute as it thinks fit. Take charities: Those housing associations that are charities will be barred (as the law stands) from selling homes at a discount since that is in effect giving a cash windfall to specific individuals rather than satisfying the purpose of the charity – to offer housing for low rents.

Or look at the £60bn of borrowings: these are loans that will have been offered by the banks according to certain conditions – one of which certainly won’t be that the housing associations can liquidate their assets, handing a third or more of the value to the people who buy them, and apply the residue elsewhere. The money was lent specifically to buy or build homes for rent; banks will want the security of those properties underpinning the loans and also the security of a flow of income from the rents to maintain those loans. Once those things have gone, banks will have every right to their money back – especially if a housing association is in danger of folding because of the forced sale. Expect lenders to be very unhappy indeed about the threat to the assets on which they have made their loans.

So the Government may be wading into very uncertain legal waters, not restricted to interpretation of ECHR Art 1 Prot 1. It will be particularly difficult because the situation of each housing association, and even each property, will be different – and housing associations’ finances are pretty complex and opaque as it is.

The Government seems to be suggesting it will compensate housing associations for the discounts (which can amount to £102,700 per property in London and £77,000 in the rest of England) by transferring from local authorities the sums they raise by right to buy sales. But that doesn’t begin to deal with the financial and legal chaos the Government will be imposing on housing associations – and merely reduces the amount that councils might have for housing needs. And it seems unlikely that councils will necessarily raise enough each year to cover housing association discounts (the National Housing Federation has put the likely cost at £5.8bn a year) – meaning the money will lead to pushing up the public sector debt. Not quite the Conservatives’ priority for this Parliament. 

There is already a scheme for some tenants to “acquire” (meaning buy at a discount of between £9,000 to £16,000) their housing association home, but only if it was intended for sale and paid for through a social housing grant – money from the Government(s) or a local authority after 31 March 1997. The restrictions on this scheme make the point – that the State can be as cavalier as it wants with public money and shovel it into windfall gains for individuals if it so desires – and if it thinks it can win more votes that way than votes lost among the rest of us who might realise it’s our money being used. But commandeering other people’s private property is a different matter. 

Are human rights engaged in housing association sales?
Article 1 Protocol 1 says deprivation of possessions can only be “in the public interest and subject to the conditions provided for by law and by the general principles of international law”. It goes on to says its provisions “shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

We have, of course, been here before when the Leasehold Reform Act 1967, under which freehold landlords were forced to sell houses to leaseholders, was challenged in the Court of Human Rights by the Duke of Westminster and others (James and Others v UK) in 1979 (Application no. 8793/79). The judges found the matter finely balanced as regards the public interest but noted: “The long-leasehold tenant and his predecessors will over the years have invested a considerable amount of money in the house which is their home, whereas the landlord will normally have made no contribution towards its maintenance subsequent to the granting of the original lease.” In other words the leaseholder will already, in a real sense, have paid for the house – not rent.

The legislation allowed for a further payment, albeit below market rate (according to a formula rather than a discount) to buy the freehold compulsorily.

The court said: “United Kingdom Parliament’s belief in the existence of a social injustice [to leaseholders] was not such as could be characterised as manifestly unreasonable.” The issue therefore became: was leasehold enfranchisement (ie compulsory sale if the leaseholder wished to buy) proportionate to the aim of the legislation. The ECtHR decided it was.

The Conservative Government in the present case would therefore have to show that it was addressing a legitimate problem and that sale of housing association properties was a proportionate means of dealing with it. It cannot easily be argued that there is a social injustice affecting tenants who are, after all, renting homes on below-market rents, as per the purpose of housing associations. In fact it could strongly be argued that the Government is following a purely ideological and party political project – that of individual home ownership.

The housing associations (and banks with an interest in the current system) might be able to show the extent of problems thrown up by sale of homes – the disruption of their finances and, crucially, the disincentive to charities and housing associations ever seeking to provide low rent housing again – since it would always be at risk of vicarious expropriation by government fiat. It would be difficult for the Government to show that its policy was reasonable (in terms of identifying a real problem) or their action proportionate (in terms of its response to whatever the problem is they have perceived).

Twitter: alrich0660

Note: Since publication of this piece, Labour leadership contender Jeremy Corbyn has indeed proposed the extension of the right to buy to those in the private rented sector. See the Independent. The policy would be paid for by removing buy-to-let subsidies to landlords. 

Also David Cameron has declared housing associations to be “part of the public sector”: “They are a part of the public sector that has not been through efficiencies and has not improved its performance, and I think it is about time that it did. Hansard 16 Sep 2015 : Column 1038. This may be his ignorance or a ploy to get around the legal problems outlined above. But the paradox is that if they are part of the public sector the Office for National Statistics will want to add their debt (including the private part of the debt with banks) as public debt – adding £60bn to the balance sheet. How to remove it? Sell the whole housing association sector to private developers. The problem is described by Lord Best here: Lords Hansard 20 July 2015 : Column 913. He said:

  • “If government compels charitable housing associations to sell their assets—even if they are reimbursed by the Government—and then tells them how to spend the money they receive from selling their assets, these charities may become classified by the Office for National Statistics as ‘public bodies’. If government takes away the autonomy of charities and assumes the role of their boards or trustees in crucial decision-making, a line may be crossed. Already, government heavily regulates the activities of charitable housing associations and determines their income by instructing them on the rents that they must charge. In the event that government also tells them when to dispose of their assets and at what price, and subsequently instructs them on how to use the money, intentionally or not, the charitable housing associations could be deemed by the independent Office for National Statistics as public bodies.”

See also:
This piece
by Public Policy argues that the Government will settle for extending the discounts for the “right to acquire”, which is already legal, rather than risk the potential legal pitfalls of a full right to buy.
David Orr of the National Housing Federation writes here

Baroness Hollis has attacked the proposals in the House of Lords, saying, inter alia: “Housing associations are charities, not public authorities. Their £60 billion mortgage debt is not on the public accounts any more than landlords’ mortgages are. They are independent charities, many of which are a century old, financed often by gifts from local benefactors. Would we accept the Government asset-stripping Eton or Winchester to fund academies? Perhaps the NHS would like the endowments of medical charities to pay for the drugs bill. Or perhaps we would accept National Trust assets being used to restore this Palace of Westminster. Consult your lawyers – that is my advice.” Hansard 2 Jun 2015 : Column 321    

Note: The proposed discount will be worth 35% after a housing association tenant has been in the home for three years with the value of the discount rising 1 percentage point for every extra year the tenant has rented in the public sector. In the case of a flat, the discount will be worth 50% after the first three years, rising by 2% each year afterwards. Source: The Guardian

Background: The Court of Appeal in R (Weaver) v London and Quadrant ruled that housing associations were “public bodies” but only in the narrow sense that they provided a public function and so their tenants should have the benefit of access to human rights legislation. It could not be argued from this that the Government can treat them financially as public bodies. Their property is not state property. In 2004 the Government also accepted housing associations were public bodies with regard to procurement and so should abide by European Union procurement rules, for example for the issuing of contracts, intended “to open up the public procurement market to better ensure the free movement of goods and services within the EU”. Again this does not mean they are state property.
UK accepts EC Procurement Directives for Registered Social Landlords (Word 48KB) 

Conservative proposals on the Human Rights Act

“The use of the new law will be limited to cases that involve criminal law and the liberty of an individual, the right to property and similar serious matters. There will be a threshold below which Convention rights will not be engaged, ensuring UK courts strike out trivial cases.” Conservatives: Protecting human rights

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About alrich

Journalist and blogger on legal and financial/economics issues

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