Affordable rents - a risk for charitable housing associations?

Wednesday, 23 March 2011 00:00

The Charity Commission has warned 1,200 plus associations that they risk losing their status if they choose to implement the new regime, and that they should seek independent legal advice before doing so.

To qualify for grants, housing association must make bids to the Homes and Communities Agency in May. They must demonstrate how the additional income generated by these rents will be used to fund further development and housing. It is unlikely that there will be enough Government funding to go round so some associations will have to approach banks and other lenders, increasing the cost of and competition for scarce finance.

Under the regime, new tenants may be charged up to 80% of the market rent of their homes. The Charity Commission's concern is how that fits, or not, with a charitable aim of 'relieving poverty'. In a letter to the Tenant Services Authority, it says it "cannot be definitive" about whether the introduction of an affordable rents product will affect charitable status, which brings reputational and funding benefits as well as reliefs from tax and business rates.

It is perhaps ironic that the very housing associations who may able to provide the most benefit, by supplying housing in areas where market rents are high, may be deterred from doing so if their charitable status is at stake. Are we in danger of appearing to have one rule for independent schools and another for housing associations? But there is at least an argument that a 20% discount to market rents does make housing more 'affordable' for some (especially as some associations let out at near market rents), and that public benefit will be advanced if the scheme does indeed fund new building projects for those in need. And housing associations do a lot else to relieve poverty besides providing housing.

Charitable associations will need to consider in detail whether affordable rents fit with their objects. Will their properties be accessible to those who need them? How will they monitor a tenant's ongoing eligibility? By adopting the regime will they be opening their assets up to 'significant risk' through additional borrowing?

The cost of losing charitable status may in some cases be substantial. So it is essential that those housing associations seek sound advice now on whether the test of public benefit can be met in implementing the affordable rent regime. Our specialist charity and housing teams are ready to help on these important issues.