Government rent reform could mean hard times ahead for housing associations.
Mark Lupton looks at why government should bail out organisations which are perceived to be flush with money (below) and Danny Friedman and Liz Potter explain their proposals to safeguard the sector.

The current debate over the housing Green Paper proposals on rents highlights the strange position of registered social landlords. They are theoretically independent, not-for-profit businesses, but have a statutory basis for their activities and their growth has been dependent on government grants and housing benefit. In response to the accusation that they were becoming "agents of the state" Peabody Trust chief executive Richard MacCarthy has rightly countered that they are in fact "strategic partners of the state".

The problem for RSLs is that the state's strategy is changing. The rent proposals will cause problems for many RSLs. But we do need to recognise that the government has a right to introduce a rent policy aimed at keeping rents down, just as the last one had a policy which allowed RSL development to prosper but which resulted in raising rents.

There is logic to the housing minister saying recently that tenants should not have to foot the bill for wider regeneration activivities. The state does however also have a clear role in ensuring that having supported and encouraged RSLs to take a wider view of their role they cannot then disable them from doing it.

In many deprived areas it is often the way that public services have been pared down to concentrate on core functions, on the basis of narrow views of efficiency and declining funding, which have reduced the range of support and the links which join up services. As a result social landlords, because of their continuing presence on the ground, have been drawn into activities beyond the traditional housing management role. There is a real danger of a similar "paring down" by RSLs as a result of these proposals.

But RSLs must be clear that cries of despair are likely to be met with a significant degree of scepticism, and need to recognise how some organisations have fed that scepticism, if it is to make a realistic response. Civil servants have been heard to complain more than once about chief executives expensive company cars and substantial pension rights. Such excesses – even if uncommon – simply reinforce an image of organisations flush with money.

More fundamentally the belief that rents could go on rising, and the bidding down of the grant rate during the 1990s, undermined the National Housing Federation's efforts to show that the sector was genuinely interested in what was affordable. This has also contributed to the view held in some very important circles that, despite recent changes by many RSLs, the sector is overly driven by new development rather than by effective service delivery.

What we do therefore need to defend are the service to tenants, investment in the stock and the ability of the sector to play a significant part in meeting housing and related needs. Consideration needs to be given to measures which, whilst testing the efficiency of RSLs, ensure that there is a sufficiently soft landing for the sector for it not to overly concern private funders and ensure that RSLs can play a full part in wider government strategies.

These issues must be addressed by government, and the federation is right to focus on dealing with the problems caused by the rents policy, rather than falling into the trap of attacking the principles themselves.

There is a logic to a rent restructuring fund, as the federation has suggested. The housing Green Paper explicitly states that those RSLs with "little prospect of adjusting to the new rent policy….may be best served by merging with a stronger partner". Yet the very proposals in the Green Paper are likely to make RSLs more cautious about taking on a partner, particularly if that RSL has financial problems. Generally RSLs will be more careful not to compromise the credit assessment of lenders.

If however this fund is to be a revenue grant to support RSLs in trouble this does seem problematic. The logic of this is that it should be paid for by a tax on the surpluses of the beneficiaries. Do we really want to return to those old friends RDG/RSF and GRF?

It is also important that such a fund is not aimed at defending the RSL sector as it is. Is the current structure of the sector the most effective possible for delivering those services, particularly given the dispersed nature of a great deal of the stock as a result of the competitive environment of recent years? Do we really need 55 RSLs in Manchester? These are among the questions which suggest a rationalisation of the sector might be necessary.

What we are likely to see is that once a formula is agreed for rent restructuring, each RSL is going to be asked to use this to reassess its business plan and show how it will affect them. It is also important that this is accompanied by an analysis by local authorities of the local market and, as a result, in concert with the Housing Corporation, of the strategic RSL capacity which they require in an area. This kind of information will give a picture of where and how RSL activity needs strengthening or protecting.

A restructuring fund should then aim to support and incentivise activities and strategic capacity and to produce a sensible rationalisation of the sector This would focus on:

Ensuring strategic capacity in an area. There is a danger that in certain areas the local capacity of RSLs will be adversely affected by operating RSLs being unable or unwilling to continue to invest owing to the rent changes. Bids could therefore be considered to support plans for the reshaping of the sector in the area to ensure that long term capacity is there by supporting mergers, stock transfers and asset management strategies.

Where an RSL is not viable in the long term and is going to be unable to meet the reinvestment needs in its own stock, then a financial incentive for a merger or alliance with a more viable RSL could be put in place.

Where the threat to an RSL would result in a reduction in the necessary diversity of RSLs in an area and so adversely effecting the HGP aim of "a more diverse pattern of dynamic and competitive organisations to run social housing", particularly in relation to BME RSLs, then support for the RSL to continue could be considered.

Where the proposal are likely to threaten particular activities or services which are vital to the future of the community and which tenants have supported, funding could be made available to directly support these.

The kind of strategic approach to the sector needed to implement rent restructuring for RSLs will require a very different approach to regulation by the corporation, something which the Department of the Environment, Transport and the Regions prior options review acknowledged. The Green Paper talks of the corporation having "an enhanced role" in implementing the new structure and the corporation will need to have a much more robust approach to assessing RSL business plans. This in itself is something to be welcomed if it is part of the package which leads away from a focus on procedures to a real engagement with the RSLs on their future plans. The corporation will however need different skills and capacity and these have to be put in place before the new regime takes hold.