Rural homeless: a big issue, too

The public face of homelessness is "the sort of people you step on when you come out of the opera", as the former housing minister Sir George Young put it. But in National Housing Week we should remember that the homeless are also sleeping on other people's sofas in pretty villages in the National Parks. While the numbers of homeless in towns and cities have been going down, they are rising in the countryside.

Homelessness in rural areas is more than a personal tragedy - it also spells the potential ruin of a village, economically and socially. The viability of a rural area depends on its keeping its young adults, otherwise the population can consist of just the retired and the commuting incomers. Schools, shops and pubs may close, farmers and other local employers can find it impossible to recruit workers.

Over recent years social housing has been lost as district councils have been forced to sell homes under right-to-buy legislation; many were sold to commuters. It is now up to housing associations to build new homes to preserve villages as living communities.

Financing these can be difficult. Local plans for many villages indicate that building outside their existing boundaries is not acceptable. While councils will give permission to "exceptions" for social housing, they want reassurance that the properties will not be sold into the private market. To be granted exceptions, housing associations are required to enter into Section 106 agreements.

These agreements (issued under the Town and Country Planning Act, 1990) specify that the property must be available to successive occupants as affordable housing. Recent surveys have shown that this has been interpreted in various ways by district councils. While some have accepted that a housing association will ensure that it is retained in perpetuity as social housing, others have demanded strict conditions regarding any future disposal.

Lenders are unhappy with narrow Section 106 agreements. The properties act as collateral for loans, and lenders have been predicting with increasing stridency over recent months that some associations will collapse as a result of reductions in housing association grants. Lenders want the freedom to sell on the open market.

Conflict over Section 106 has led to difficulties for most councils and housing associations, according to a recent study conducted for the Rural Development Commission. The RDC found that all lenders except the Co-operative Bank were unhappy about the use of Section 106 agreements.

"We sometimes find ourselves in long and protracted discussions on Section 106 agreements," says Douglas Cuthbertson, finance director of the Newcastle- based Home Housing Association, which has completed more than 700 homes in 52 small villages over its 60-year life. "Section 106 agreements can be useful in getting the right type of people housed, but there is a need to reassure lenders that they have an escape route."

The RDC and the Housing Corporation are asking lenders to recognise that in reality there is little risk. They say that supervision by the corporation makes it unlikely that associations will collapse, and argue that other associations would in any case step in. The RDC offers the more radical alternative that councils should be permitted to specify tenure within a planning permission and that the Housing Corporation acts as guarantor on rural housing schemes.

The Home Housing Association and others are asking councils to be more flexible, on the grounds that lenders would in practice want properties to be sold to other associations. Councils' anxiety has increased, though, with the comments of John Major that he would like the right to buy to be extended to more housing association tenants. Councils are worried that properties built as "exceptions" will enter the private market, leaving a large social need unresolved. The Association of District Councils is keen that "exception" properties be excluded from any extension of the right to buy.

Housing associations and lenders are looking to new methods of raising capital. One option is being pioneered by Chato Investments, a subsidiary of TR Property Investment Trust, bringing pension fund and other institutional investors into housing. Instead of lending money to associations, Chato owns properties, leasing them to associations.

Nick Slade, investment manager for Chato, says: "We don't have a problem with rural areas, though there would be a problem if we were looking for a market rent. We have not been involved in a Section 106 agreement, but we would have no problem with it. We are confident that if one housing association went down, another would come in, or it would change its name and re-establish itself. If a council has got a Section 106 agreement we don't have much option but to keep the leasehold with a housing association."

An alternative is being launched this autumn by the Quaker Housing Trust and Mercury Provident, an "ethical" bank. Supporters will be able to open a savings account, attracting interest of around 2 to 3 per cent (though it is expected that some depositors will waive their interest), invested to build new social housing. The Cumbria Rural Housing Group, a consortium of councils, hous- ing associations and building societies, intends to copy the scheme before the end of the year, offering investors a bond option as well.

"We can't replace state funding, which is inadequate and will continue to be inadequate," says Chris Leaper, project manager at Cumbria. "We can explore new ways of bringing in new money. This will enable people locally to invest in housing, to produce housing at relatively low cost."

In another welcome development, some district councils are negotiating with the Ministry of Defence to lease some of the thousands of empty MoD homes in rural areas.

Bringing into use more of the 1 million or so other empty properties could end homelessness at a stroke. But most of those homes are in the private sector, symptoms of the continuing depression in the housing market. And even in National Housing Week there is no solution in sight to that problem.