Supervision of housing asscociations
Housing associations have attracted controversy in recent years for their alleged financial mismanagement. They are currently the subject of a parliamentary inquiry. We have audited how the supervision of social housing has functioned since 1996. Our audit report is intended to assist the inquiry committee by providing information on the supervision of social housing exercised by the Minister for Housing and the Central Government Sector (W&R). The Minister supervises the associations’ effective, efficient, regular and honest performance of their core public duty: building, managing and letting out sufficient affordable homes.
Supervision of the housing associations’ performance has been overly cautious and incomplete in the past 20 years. Against their better judgement, the responsible ministers placed their trust in the efficacy of self-regulation of the sector and in the internal supervision exercised by the associations’ supervisory boards. We base this main conclusion on the following secondary conclusions.
Many changes in the sector
The policy and organisation of housing associations have been through many changes in the past 20 years. The Housing Act has been amended 78 time and 12 ministers have been responsible for the sector since 1996. The sector itself has seen continuous change, driven in part by mergers and a steady increase in duties and responsibilities.
Little capacity to supervise the sector
Very little capacity has been available in the past 20 years to supervise the associations in the social housing sector: about 10 FTEs. At the same time, internal supervision by supervisory boards showed many shortcomings. With few exceptions, the responsible ministers continued to place their confidence in the efficacy of self-regulation and internal supervision within the sector.
No annual opinion on social housing performance
The minister holding the portfolio for social housing is obliged by law to express an opinion every year on the performance of housing associations. However, no opinion has been expressed in the past 20 years. Successive ministers therefore did not have a good insight into the functioning of individual associations.
Poor insight into the commercial activities of housing associations
Moreover, the responsible ministers did not have a full insight into the commercial activities of the housing associations. The associations did not inform the ministers of these activities in advance as they are required to. The associations’ annual reports and accounts did not provided the requisite information. Central government therefore had no insight into the financial risks associated with such activities. The ministers did nothing to tighten their grip on these activities.
Most commercial activities loss-making
The assumption that commercial activities would earn a profit for the associations to fund their core activities proved unfounded between 2007 and 2012. The sector as a whole made a loss on commercial activities in those years.
New EU rules expose associations to financial risks
Under new EU rules, housing associations can borrow money on favourable terms only for their core social housing activities. The associations will therefore have to refinance a large proportion of their commercial activities at higher, market rates of interest. More than €13 billion will have to be refinanced (as at the end of 2012). It is uncertain whether and on what conditions lenders will be willing to refinance the commercial property portfolios. Furthermore, the associations will have to repay the interest benefit they enjoyed. The EU rules will therefore expose the associations to financial risks.
We made the following recommendations to the Minister for W&R:
- Step up and professionalise supervision of the social housing sector and supervise it proactively;
- Make good working agreements with the Inspectie Leefomgeving en Transport, the Ministry of Infrastructure and the Environment’s inspectorate of social housing.
- Clearly define the core and secondary tasks of the housing associations.
- Improve the insight into the associations’ secondary activities and into their financial and/or management links to subsidiaries, fellow shareholders or other legal persons or companies.
- Ensure that the Social Housing (Permitted Institutions) Amendment Act is implemented quickly.
- Transpose the new EU rules that came into effect in 2011 into Dutch law as quickly as possible.
Response of the minister for W&R
The Minister for W&R responded to our audit on 22 May 2014. He described the changes that were already being made in the supervision of housing associations and the changes that would be made in the coming period. He also announced that the regulations would clearly lay down what activities housing associations could undertake and what other (new) activities they could undertake only subject to strict conditions. We read the Minister’s response with approval and await the legislative proposals, the new regulations and the findings of the parliamentary inquiry into housing associations with interest.