Pea and Thimble of Stock Transfer

Governments pushing privatisation of public housing always make out stock transfer is the best thing since sliced bread. They launch an expensive and glossy PR Campaign - usually only promoting one side of the argument. They often break what most people would think are basic consultation formats to make it hard for anyone to put the case against stock transfer.

Community Housing Providers [CHPs] are free standing corporate structures bound by the same laws that apply to any other company or trading entity in Australia. Any relationship that they may choose to enter into with any government agency is bound by those laws. Any relationship that they may have with any financial institution is bound by those same laws. They are able to be bankrupted as is any other company or trading entity if they can not meet their financial obligations. Their survival is totally dependent on their ongoing commercial viability.

Stock Transfer gives the CHPs the land on which public housing was built as well as the buildings on the land - government owned infrastructure. Transfer often leads to demolition and higher density rebuilding, financed by mortgaging the former government infrastructure.

We're told Stock Transfer will be to a locally-based organisation. There is a high potential that the CHP will get into financial trouble and be taken over, or will expand and diversify into a huge business empire. Smaller associations tend to become part of a group structure. This has already happened in Australia and is an established pattern overseas.
With the recent announcement from government of incentives to encourage private developers to build social housing, CHPs will be under even greater pressure to compete. Failure to compete will lead to their demise. The government watchdogs for CHPs actively encourage mergers and takeovers.

The decision to merge or be taken over is made by the CHP in the first instance. The tenants as such have no say in the decision making. Many tenants who accept transfer to a local CHP set up especially to manage their homes may well suddenly find themselves the tenants of a completely different landlord who manages stock all over the countryside and has no interest in their local concerns at all. There is a drive by the government for mergers which is underpinned by the reduced costs of administration of the relationship between government and the Community Housing Providers [CHP]. There are also pressures from lenders. The bigger the collateral, the smaller the risk. (In other words, the more houses a CHP owns, the more money it can borrow.) Banks put pressure on organisations to join up and pool their assets in order to minimise risk.

CHPs will behave like any other private sector entity. As they become increasingly commercialised they will be under pressure to make surpluses.  In their search for ongoing viability the sector leaders will be aggressively expanding into the private marketplace chasing improved income streams. Already they are increasingly consumerist in their practice. Their new lexicons characterise CHPs as behaving increasingly like private sector organisations - 'property-driven' and managing stock as an asset to maximise returns.

In 2010 the government announced plans to let CHPs borrow against their ‘assets’ to finance expansion of their housing stocks. That means using tenants' homes [CHP assets] as collateral for loans - and if those loans are not serviced, the banks could seize tenants' homes to pay back the loans. One way of avoiding the immediate seizure of tenants’ homes would be for the defaulting CHP to merge with another CHP with the capacity to meet the loan repayment. Ultimately the loan has to be repaid, with the CHP’s primary source of money being the rent paid by their tenants.

The drive towards mergers creates yet another problem besides the loss of democracy and localism. Restructuring CHPs in this way comes at a price. Vast amounts of money will be wasted through failed merger negotiations. There is as yet no published reliable data on the costs, to date and projected, of failed negotiations in the CHP sector, but the direct costs of successful negotiation must also be high, as are the hidden costs of damaged morale, abortive effort and tarnished reputation. On top of the tangible costs of lawyers and accountants, there are non-tangible costs such as the amount of time chief executives and management spend on mergers.

The government claims that Stock Transfer is 'nothing to do with privatisation' because CHPs are 'non-profit making' organisations. This is a play on words. Non-Profit making in the eyes of the law simply means that income generated will not be distributed to shareholders. It must be used to further the Aims and Objectives of the organisation. The earning of money as such is not forbidden to 'non-profit making' organisations. Engaging in normal commercial activities is not forbidden to 'non-profit making' organisations.

Don't be fooled by the promotion of 'community ownership'. CHPs will function increasingly like businesses, with mergers, takeovers and lenders at the helm. They need to become profit earning landlords to remain viable and self sustaining. The key thing to remember about any CHP is the fact that they will be borrowing money from the banks to finance their expansion and will be accountable to them. The higher interest rates [in comparison to those paid by government] charged by banks and other credit sources have to be serviced from somewhere. Tenants will pay - through higher rents, and the taxpayer will pay - through higher housing benefits/subsidies from the government.

Wild claims are made that making tenants 'stakeholders' will empower tenants, but there's no basis for these claims. Tenant 'stakeholders' in a CHP organisation won't even have the right to select the whole board.  As tenants of the government the tenants had a voice in the selection of their landlord. If the tenants didn't like the way the government ran public housing they could vote  against them every four years at the ballot box. This direct democratic relationship will be lost after transfer to a CHP.

During the Stock Transfer sales campaign tenants are often led to believe that they will have an explicit role in representing the interest of their fellow tenants on the board of the CHP. This is a con ranking with the original pea in the thimble trick. This impression is in direct conflict with the legal obligations that dictate board members at all times have to act in the best interests of the organisation. The government is trying to hijack the spirit of the co-operative housing movement to support privatisation.

When changing landlord from government corporation to CHP tenants lose significant security of tenure and access to genuine external complaints resolution systems. In NSW for example the tenant transferring from public housing to a CHP looses the ability to access the services of the Ombudsman when in dispute with their landlord.

CHPs are not safe, risk-free organisations. Many of them face financial shortfalls, poor performance and "governance" problems. The worst nightmare for tenants must be when the CHP which has taken over their homes gets into financial trouble and has to find a bigger partner to buy them out.

The next time the government carpetbaggers selling Stock Transfer and Community Housing Provider schemes set up their card tables remember that which thimble the pea is under is dictated by those running the ‘game’. The same people dictate who will be the short term winners and who will be the long term losers. The sole purpose of the game is to make money for the operators.

Ross Smith
Waterloo

References:

www.defendcouncilhousing.org.uk/dch/dch_StockTransfer.cfm
http://download.audit.vic.gov.au/files/20100623_Social_Housing_Full_Report.pdf
www.abc.net.au/7.30/content/2009/s2778921.htm
http://mpegmedia.abc.net.au/730report/video/podcast/r490547_2544303.wmv

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