Barker : RSLs' credit woes restricting building power

The Barker Review has highlighted the restricted borrowing power of many housing associations as a major factor holding back the amount of affordable homes they build.

Many registered social landlords have trouble borrowing at favourable rates because of government restrictions on what they can use as security for loans.

The review said: "This is a major concern: political decision and RSL boards will influence individual RSL growth.

"However, growth for the sector as a whole cannot occur unless RSLs have the ability to add to their financial commitments."

The review found that if all registered social landlords had credit ratings, more than one third would get poor ones ("How RSLs compare", right). This illustrates why they have trouble borrowing at decent rates.

The finding is all the more significant given the review also identified an annual shortfall in housebuilding of 39,000.

With the decline of council housebuilding, RSLs are now virtually the only providers of affordable homes. However, they completed just 13,330 in England during 2002/3. Last year the government allocated £1.5bn to RSLs to fund affordable housebuilding.

The report also found there was scope for greater efficiencies by associations. It said: "There are 1542 RSLs that own fewer than 100 properties but their combined stock is 130,946 units. This is a significant number of units with scope for economies of scale if fewer RSLs owned and managed this stock."

Following the release of the review, Barker said: "It is striking that there is evidence of different efficiency levels across associations.

"I don't want to preempt the full report that is being done: I just wanted to draw attention to the fact that these exist and I suspect there is scope for the money to be better spent."

Jim Coulter, chief executive of the National Housing Federation, said: "These are independent bodies so it would be difficult to force them together. It would be wishful thinking to say the widescale programme of mergers would be desirable and secure efficiency gains."

The news also adds to doubts about the sector's ability to deliver homes on the scale hoped for by government.

The Audit Commission is exploring ways in which RSLs can be encouraged to increase their efficiency and effectiveness. The results – to be circulated within Whitehall before Christmas – are expected to influence the amount of funding allocated for the sector at next year's comprehensive spending review.