This article was first published in the April 2018 Ireland edition of Accounting and Business magazine.

Housing association borrowing is set to go on the government’s balance sheet, potentially reducing the availability of funding for new social housing. The Central Statistics Office (CSO) has warned the government that associations are not sufficiently independent of public sector control to continue to be treated as non-government bodies.

The European Union’s statistical agency Eurostat last year asked the CSO to review the classification of Irish housing associations to confirm it met Eurostat’s standard, ESA 2010. The CSO responded: ‘As regards approved housing bodies, the issue of their classification will need to be revisited in the light of ESA 2010, taking into account the discussion held and the points raised by Eurostat.’

The potential debt reclassification would affect all housing associations managing 300 or more units of accommodation. Assuming the reclassification goes through, the move will add around €17m to the government’s balance sheet, which held liabilities of €200bn at the end of 2016. The change, however, could affect billions of euros of additional debt needed to fulfil the government’s social housing targets contained in the Rebuilding Ireland programme (see box).

A spokesman for the Department of Housing, Planning and Local Government says: ‘The department recently attended a briefing session with the CSO on its analysis in relation to the potential reclassification of expenditure of 16 of the 18 largest AHBs [approved housing bodies] as being on the general government balance sheet. There has been extensive and detailed engagement between the CSO and the department, as well as with representatives of the AHB sector, over the last year since the assessment process began to inform this review.

‘An initial classification recommendation from the CSO is that 14 of the 16 AHBs examined should be reclassified as falling within the public sector, under the broad local government classification. It should be noted that this is a preliminary conclusion of the CSO, but that it is ultimately a matter for Eurostat to review this opinion, as well as other considerations, in coming to its own decision, which is not expected before mid-Q1 2018. The department will be considering the provisional assessment in detail, in close collaboration with minister Paschal Donohoe’s departments and the AHB sector, with a view to identifying the potential impact of a future reclassification decision by Eurostat.’

Dr Donal McManus, chief executive of the Irish Council for Social Housing (ICSH), explains: ‘To date housing associations are classified as non-profit private institutions and their activities are not included as part of the government sector for purposes of accounting. The ICSH will be examining closely the rationale for CSO to reclassify housing associations as part of the government sector. Housing associations own and account for their own assets on their balance sheet and not the state.’

Mistaken relationship

The ICSH believes that the CSO is acting on a mistaken assumption about the nature of the relationship between the government and housing associations, which it argues are not state-controlled. ‘The implications of this recommendation by the CSO to Eurostat will be significant for housing associations that are working to deliver as much social housing as possible under the Rebuilding Ireland programme,’ argues McManus. ‘This decision by the CSO puts the delivery of much needed social homes in serious jeopardy based on the current funding structure. ICSH members expect to deliver at least 4,500 new social homes over the next two years. If there is not an urgent examination of the CSO reclassification decision, this vital social housing pipeline will be put in jeopardy.’

Seán Cremen, head of treasury at the Housing Finance Agency (HFA), which provides much of the funding for associations, also expresses concern. He says: ‘The possible reclassification of Approved Housing Bodies by the CSO means that almost all Tier 3 AHBs would be classified the same as local authorities under government accounting rules. Since the majority of funding raised by AHBs comes from the HFA, which is already on the state’s balance sheet, this action will have no material impact on gross government debt levels. However, the impact will be felt on annual government spending and, therefore, the government will be faced with making choices on where to direct annual spending on housing in order to best address the current challenges. This could be through local authorities and/or AHBs or through other means.’

Reclassification of Irish social housing debt as public debt follows similar action in the UK, until a recent act of parliament reduced the regulation of housing associations in England and strengthened their independence from councils. Associations were then reclassified back as independent, with their borrowing removed from the government’s balance sheet, just two years after the associations had initially been reclassified as public bodies. The devolved governments in Scotland and Wales are also taking action to remove social housing debt from their balance sheets, but the absence of a government in Northern Ireland means that action cannot be taken to remove its housing associations from being treated as part of the public sector. However, the UK’s experience demonstrates that social housing debt reclassification does not need to be permanent. 

Paul Gosling, journalist