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Abolish or reform Right to Buy?

At the Labour Housing Group AGM in February 2023, we debated whether the Right to Buy (RTB) for council tenants should be reformed or abolished. The majority of members supported reform. 

The mover of the motion to abolish RTB, Martin Wicks, wrote a blog criticising the outcome.

I proposed the amendment making the argument for reform, so feel I should reply. 

The Conservatives have been in power for 13 years and I think that a motion aimed to mandate the Labour leadership to adopt an unpopular policy is a mistake. The right wing press will attack us for being against homeownership, and working people aspiring to gain more financial security. In addition, we should not be seen to be telling 1.4m working class families who have bought their own home that they have done something wrong.

Due to the political risk there is little chance of the Labour leadership prioritising the abolition of RTB. However, there is a realistic chance of the leadership signing up for reform, especially if proposals reinforce their devolution agenda.  

I do not ‘oppose the campaign to end the Right to Buy’, as suggested by the title of Martin Wick’s blog. I support a campaign that involves talking with working class people, debating the issue and if possible winning the argument. We have to be aware of the charge that we are a largely middle-class party telling working class people what is best for them. 

A nationwide ban on RTB is a blunt instrument. The housing crisis is experienced differently in different areas. Whilst the case for stopping RTB is compelling in areas of high housing stress, there are other areas where social housing is less in demand and RTB has stabilised communities. Reform directed towards reducing the negative effects of aspects of RTB will be harder to vilify than a blanket ban. Reform has to be based on the principle that if the Labour leadership supports RTB, because it supports homeownership and giving some working class families greater financial security, it must be prepared to compensate those facing the negative consequences, families on the waiting list and council tenants living in homes that desperately need investment. 

In her conference speech, Lisa Nandy talked about council housing being a locally controlled and collectively owned asset. If a government requires this asset to be sold in order to meet wider policy objectives then it should step in to replenish it. This means a commitment to replace the homes sold and providing councils with the funding they need to maintain their housing stock. If it seems a big ask for a Labour government to prioritise spending public money on reforming RTB, the Chartered Institute of Housing estimates that the Treasury has made £47bn from RTB. A small fraction of this amount coming back to councils will make a massive difference. A way to reduce the public money required to compensate communities is to require homes to be sold much closer to their market value; the effect will be to reduce the discount.  

The principle of compensating communities for accommodating national priorities, such as infrastructure projects, new houses, industry and wind farms, is increasingly accepted.  

RTB represents a huge transfer of wealth to 1.4m working class people over a 43-year period – albeit that the transfer happened in a random way, with those living in the most popular council housing benefiting to the greatest extent. For the first time, some working class people had an asset that they could use to help their families when they hit a crisis. 

RTB allows working class people who want to own their own home to stay within their communities. Paul Watts in his book Regeneration and its Discontents[1] writes that  some working class people view RTB as strengthening for them and giving their children the ‘right to stay’ in their home. Council tenants have a secure tenancy, but the 2016 Housing and Planning Act demonstrated that this security could be taken away by a hostile government.

An issue to consider is differential financial outcome between council tenants who exercise the RTB and those that do not. Council tenants who have paid their rent for 40 years have effectively paid off the cost of building their home. However, when they die, they will leave no asset for their children. We could consider a cash bonus for long-term council tenants.

This Tory Government has been tightening succession rights, so adult children who have lived their whole lives in a council home are sometimes forced out when their parents, the tenants, die. We should certainly restore succession rights.

Resident activists have struggled heroically to maintain the liveability of their estates in face of funding cuts and Conservative Governments who believe that council housing should be the tenure of last resort for ‘needy’ families. Jane Jacobs, author of the seminal work the Death and Life of Great American Cities[2] understood that to bolster under-threat neighbourhoods you needed to encourage those earning a little bit more to stay within, rather than flee, their community. 

A policy solution could be to continue to allow existing tenants to be able purchase their homes. However, introduce a requirement that if they want to move out, or their children want to sell the property on their death, that the local authority should have the option to buy-back the property, with an appropriate allowance for the increased value of the property in the intervening years. 

The exception to the continued RTB for existing council tenants should be for those moving into new build properties. These homes are particularly precious and should not be lost at a discounted price. 

We need to confront the negative effects of RTB. It has resulted in the transfer out of local, democratic ownership of 1.4m homes, at a time of acute housing shortage. Whilst the focus on the housing crisis has been on urban areas, council housing is a precious resource in rural areas. Access to a council house is often the only way that families can stay in the area in which they grew up. In areas of high housing stress, the abolition of either RTB or the discount is entirely reasonable. The other alternative is for the government to fund the gap between the RTB sale and market value, so that councils can build replacement homes.

We also need to consider the effect on other council tenants of sales below the market value. When a property is sold the council loses the rental income. The RTB discount is £87,200 nationally and £116,200 in London. The sale price is based on a tenanted rather than vacant possession valuation. The valuation can be held for up to 18 months, which means that the benefit of house price inflation is lost to councils. Councils have to predict expected major works costs for five years after the initial sale and have to follow complex leasehold legislation. If they get either wrong, leaseholders cannot be recharged for works and tenants have to pick up the bill. 

A consequence of the underfunding of council housing is that when major works do happen the recharges to leaseholders are high. Many councils have schemes whereby tenants fund a three-year interest-free loan to leaseholders to help them pay their charges. When major works recharges have been particularly high, some councils have capped recharges to leaseholders, requiring tenants to cover the shortfall. Council tenants are required to cross-subsidise leaseholders more affluent than them. There is important research to be done on the total cost of selling homes at less than their market value and subsequent undercharging. It is a crude assumption, but if we assume that the combined cost of the under-valuation and under-charging is £50,000 per property, at today’s costs, on total of 1.4m sales the amount lost is £7bn. This amount could have made a significant difference to the upkeep of council homes, and probably saved Michael Grove from having to emote about the ‘deplorable condition of some council homes’.

The current Government has caught council housing in a perfect pincer movement. Whilst being responsible for underfunding maintenance it is offering to act as the tenants’ champion against their ‘incompetent landlords’.

Housing Associations have resisted the imposition of mandatory RTB because it would undermine their business plans, but no such consideration has been given to councils. 

Over the last 20 years, whilst the number of social rent homes has been declining, the private rented sector has been growing, to the extent that there are now more properties in the private rented sector. The consequence is that hundreds of thousands of people who need the security and affordability of social housing are now living in the unregulated private rented sector.  Lisa Nandy committed a Labour Government to reversing this trend in her Conference speech, with a pledge that there will be more social rent homes than those in the private rented sector by the end of the first term. For this to be achieved, in addition to new council house building, tens of thousands of homes need to be transferred from the private rented sector to councils and cooperatives. If left unchecked RTB is a powerful engine to frustrate this aspiration. Nationally, 40% of RTB properties are now in the private rented sector, with most London Councils reporting over 50%. An incoming Labour Government will need to legislate to include in the lease of future RTB sales a covenant prohibiting the renting out of the property. 

What is particularly unpopular with other estate residents is when ex-council properties end up with slum landlords, short-term lets or as AirBnB properties, all of which work against the efforts of resident representatives to sustain communities. 

With regard to RTB properties already rented out, covenants cannot be introduced retrospectively to stop this. However, the opportunity to buy properties back will arise. The majority of council housing is over 50 years old; an incoming Labour government will need to invest a substantial amount of money to make these homes liveable, safe, damp free and energy efficient. Leaseholders will need to contribute to these significant major works costs. For many buy-to-let landlords their asset will no longer be profitable and they will welcome the option of a sale back to the council. The Mayor of London, Sadiq Khan, has found that adding to the stock of social housing through buy-backs is often less expensive than building new homes. 

Whenever the state undervalues an asset and underfunds the administration of its disposal, it invites fraud and dishonesty. Companies and criminal gangs have preyed on vulnerable and cash-strapped tenants. In addition, families have funded aging relatives to exercise the RTB so that they can benefit financially when they die. An incoming Labour government should commit to funding a more robust vetting regime.  

LHG member Steve Hilditch reports that Westminster Council is forced to buy back RTB properties that it sold at a discount, at five times the original cost to help meet its obligations to people who are homeless. A Labour government committed to sound public finance should not allow this to continue. 

In this blog I have argued for the range of policy initiatives, such as halting RTB in high housing stress areas, reducing the discount, placing restrictive covenants on future RTB sales, central government compensation for lost council income and finance to replace and buy back homes. The effect will be to devolve decision-making powers and finance to local democratically elected representatives, reinforcing Labour’s devolution agenda. 

[1]  Paul Watts: Regeneration and its Discontents (2021)
[2]  Jane Jacobs: The Death and Life of Great American Cities (1961)

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The urgency of moving beyond coproduction

Coproduction, residents and staff working collaboratively to design, evaluate and deliver public services, has been in vogue for many years. However, there is a new urgency to achieve genuine coproduction that produces a tangible benefit for residents. In their report, Stigma and Social Housing in England, Denedo and Ejiogu argue that having tenants on the board of directors is a way to end stigma, and to focus the organisation on the needs of tenants. However, Kensington and Chelsea, where the Grenfell Fire happened, had tenants on the board and described themselves as a tenant managed organisation. Rochdale Boroughwide Housing Association, where Awaad Ishak tragically died from the effect of mould, describes itself as England’s first tenant and employee owned mutual. 

Those of us working in council housing know how chronically underfunded we are and how risky the current situation is. In common with most experienced housing managers, there is an element of ‘there but for the grace of God go I’ when I read the press reports. Tragedies and appalling services have happened across the social housing sector. Having tenants on the board certainly does not make the housing service riskier, but the question for Kensington and Chelsea and Rochdale is why didn’t it make it safer? Why didn’t having tenants on the board affect the culture of the organisation?

The Building Safety Act requires housing providers to meaningfully engage with our residents about building safety. Tenants need to be able to affect the priorities of the organisation and its everyday practices, but they also need good quality advice from their paid professionals. 

Genuine coproduction that produces a positive impact for residents is tough to achieve. I know, I’ve been manager of Leathermarket JMB for 25 years, which is a tenant managed organisation (TMO), with a board comprising of ten resident directors, elected by fellow residents. We manage 1,550 homes under a Right to Management Agreement with Southwark Council. This partnership with Southwark Council represents that greatest devolution of control and responsibility to council estate residents anywhere in England. The JMB is self- financing in that we keep the rents and service charges our residents pay, we then pay Southwark our proportion of the borough-wide debt and for the services that council continues to provide. We then use the rest of the pay to provide services and deliver major works.

We seek to maintain estates that include blocks that are a hundred years old, with no cavity walls to insulate, and a factory built tower block, which now seems to be part of the late 1950’s experiment to see how cheaply council housing could be built. Unfortunately, democracy does not wash away damp. It needs money to eradicate damp. As I explained in my Red Brick blog, The Secret of Council Housing Self-Financing, council housing across the country is underfunded. Paul Watt in his book Estate Regeneration and its Discontents makes a compelling case that Southwark has the most underfunded housing stock in England. As a TMO with fully devolved financial and repair responsibility we grapple with the consequences of this underfunding every day; but at least we have greater control than any other tenants’ group in England. 

Democracy does not produce the technical expertise required to solve complex cases. However, democracy does clarify priorities. When disrepair cases started to pop up on the regional news, our resident chair phoned me up to demand a list of our complex disrepair cases. As soon as the lockdown restrictions ended the Board told me to get our staff visiting tenants’ homes to find out what had happened to the well-being of our tenants and the condition of their homes during lockdown.  It is our residents who face the greatest challenges who are least likely to be persistent in demanding a response from us if there is damp in their homes.  

Another advantage that the JMB has is that we are a local organisation, rooted in our community. We are very open to our residents, which means that families who have damp in their homes are less likely to get lost in the bureaucracy. Also, even when we have had overspends I’ve never been asked to limit expenditure on damp eradication. Our resident board members would not stand for this. 

As highlighted by the Ombudsman, damp is not a life-style issue; however, if the cause is not penetrating/ rising damp or overcrowding, sometimes the family can work with us to manage the consequence, to argue otherwise takes away agency from residents. A family can’t reduce the size of its household or pay for heating it can’t afford, but it can run a mechanical ventilator or open a window for half an hour after bathing and wipe away minor signs of damp.  I wrote a damp policy that included a contract, which sets out what works we will do and the realistic action that families can take to help. When I distributed it to our directors I got told to re-write it, because I’d trodden too close to the life-style line. Good damp management requires intensive work and good coordination within the office, especially between the repairs, major works and housing management teams. I have the address of every home where we know damp is present written on a whiteboard in my office. We have a student on placement from London Metropolitan University to chase up action on all of our homes affected by damp. We have set up a project team, with a resident director, to ensure that our approach becomes more effective.

Given the current underfunding of council housing and the cost of living crisis faced by residents, coproduction has to move beyond ‘the added value of customer insight’. It arguably has a life and death importance.  Social Housing Regulator please take note.

For more information about Leathermarket JMB:

In the Shadow of the Shard – A film by John Rogers: https://www.youtube.com/watch?v=dPrsDCU2qUc 

The Caring City-Juliet Davis. Bristol University Press. 2022

Coproduction: A paradigm shift. An MA dissertation by Andy Bates: Available London South Bank University Library 

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The secret of council housing self-financing

On a cold January morning local councillors, tenants’ reps and Stephanie Cryan, Southwark’s lead councillor for housing, are walking around the Longfield estate in South Bermondsey. The estate was built between 1930 and 1950. Next to one of the old blocks are steps down to an air raid shelter, bricked-up when the war ended. There is a big archway built into one of the blocks for coal horses to pass through and the older blocks are only four floors high so the coal man would not have to walk up too far. The kitchens are small because middle class architects thought working class families spent too much time in the kitchen and should spend their time together in the living room.  

The councillors are asking for the communal staircases to be painted. Stephanie runs through the major works needed across the borough. The cost of keeping Southwark’s communal heating systems working, plus decarbonisation is £350m. On top of this is the cost of fire safety works, keeping lifts working and buildings watertight.

Walking around the estate, it is as well-kept as it can be without major investment, with no signs of any vandalism. The active Tenants and Residents Association has successfully campaigned for an outdoor gym and children’s play facilities. It is typical of thousands of estates across the country. If we can understand why residents on the Longfield estate are having to wait for their estate to be decorated we will understand the way council housing is funded, or rather underfunded.

The trail quickly gets tricky. The estate built by the old Bermondsey Borough Council, would have been funded by a mixture of government subsidy and local authority rates (now council tax) and borrowing. Where we are on firm ground is the knowledge that if the rents paid over the years by Longfield estate tenants had been ring-fenced between when the estate was built and today, the debt would have been paid off, the management and maintenance costs covered and there would be a substantial surplus to pay for the extensive modernisation of the estate. Unfortunately for many years the money paid by Longfield estate tenants and the costs of running the estate have been swallowed up by local and national rent and cost pooling. So more investigation is needed.

There is income pooling within the council. Over the years Southwark has had, exactly what Stephanie is describing today, more problematic estates that have demanded more extensive works to keep them liveable.

However the bigger picture is more significant. Historically council tenants’ rent money has leaked away to pay for other national and local commitments, such as keeping the rates bill down. A detailed history is provided by Martin Wicks, Labour Campaign for Council Housing in his blog:

https://thelabourcampaignforcouncilhousing.files.wordpress.com/2021/02/caseforcancellingchdebt.pdf

In the 1980 Housing Act the notion of a ring-fenced Housing Revenue Account was introduced. The idea was that within each council area tenants’ rents should be spent on paying off historic debts and the management and maintenance of their housing. As Wicks demonstrates, this turned out to be a fiction, with council tenants not on housing benefit paying towards the housing benefits of council tenants who needed support. Also, the Conservative Government imposed the Right to Buy on local councils, which still represents this country’s largest privatisation with 1.8m council homes being sold with an estimated value of £6.4m.

The financing of council housing was under the control of central Government, with councils only finding out what their annual allocation would be three months before the start of the financial year. The effect was that councils who were the custodians of a housing stock with a combined value of billions could only plan a year ahead, when a long-term asset management strategy was needed.

The last Labour Housing Minister, John Healey, listened to campaigners and decided that housing should truly be self-financing, at least in future. The idea of self-financing Housing Revenue Accounts was entirely sound, even in the context of historic injustices. Councils for the first time could implement a proper asset management strategy, over 30 years. Councils had certainty over their income, rents would increase with inflation and they could predict income from leaseholders’ service charges. On the expenditure side, councils could assess their stock and have a long-term plan for major works and management.

The problem with Healey’s sound policy was that the level of debt inherited by councils was determined by the incoming Conservative Government, committed to austerity. Wicks argues that the Treasury manipulated the debt settlement and imposed a debt settlement of £26bm, far higher than the actual debt. The debt was divided, unevenly, between the 169 English councils who still owned council housing. A critical assumption was that at least central Government would let councils get on with the running of their council housing.

The concept of self-financing Housing Revenue Accounts was introduced in the 2011 Localism Act and became operational in April 2012. Since its introduction, the financial situation for council tenants has become significantly worse.  There was no legal protection for local councils written into the Localism Act guaranteeing that the debt would be renegotiated or written-off if circumstances changed. However, critically, Part 7, Chapter 3, clause 169, does allow for the level of debt to be reassessed if there is a ‘change in any matter taken into account when making the original settlement’. Councils do not have a legal right to demand a reconsideration, but the door is open to make a reasoned case.

The primary assumption that underpins self-financing is that there would be certainty over income and that rents would increase at least with inflation each year.  However for wider political reasons, George Osborne imposed a 1% per year rent cut for four years, wrecking newly written Housing Revenue Account business plans.

The Grenfell tragedy has raised the profile of fire and building safety, with legislation on its way requiring councils to undertake billions of pounds of work that no one envisaged when preparing their business plans. Also, not written into business plans is the steep acceleration on spending required to decarbonise council housing as a response to the climate emergency.

Councils are now committed to tackling damp and have accepted that a tenant’s lifestyle cannot be used as a reason to avoid responsibility. Damp is an issue for some tenants on the Longfield estate, as the estate is single brick, rather than the more modern cavity wall, with insulation.

Some councils experienced a significant dip in rent and leaseholder income during the pandemic, particularly as there was a moratorium on taking legal action against tenants in arrears. This problem will outlast lockdown, as the county court system has collapsed, meaning that legal action to recover outstanding debts will take years.

It was optimistically hoped that Housing Revenue Account surpluses could contribute towards the cost of building new council homes. However, building costs have spiralled. There is also an equity issue about whether council tenants, on lower than the local average income, should be paying for tackling the societal problems of climate change and homelessness. Even if the outstanding debt disappears councils will still need significant government capital funding to start to address 40 years of underfunding.

Unsurprisingly, the self-financing settlement is imploding.  Wicks reports that the council housing debt bill was virtually unchanged at £25.95bn in 2019/20. One part of the explanation is that councils have to start by paying off the interest before they can start to reduce the principal.  Additionally there is the irony of councils saddled with debt being forced to borrow more to meet their commitments. At least one council with a high starting debt and huge safety requirements has agreed the deferment of debt payments with the Government.

There is the possibility that the historic debt on council housing will become a version of the student loan debt, whereby the Government accepts that the debt cannot be paid back, but it stays on the balance sheet as an asset. Whilst delaying debt repayments provides short-term relief, the problem with this approach is that councils will need to hold sufficient reserves in their Housing Revenue Accounts to pay the government the back-payments if they are demanded. This means that council housing will continue to be denied the investment it needs.

What our investigation has revealed is that residents on the Longfield estate, along with most other tenants are not getting the modernization that council tenants collectively have paid for. This issue is disguised because in much of the country council rents are substantially below private rents. Council rents are sub-market, but this is because they much more closely reflect the actual cost of providing and managing housing. Market rents are high because a substantial profit is being made.

Wicks was instrumental in the drafting of the housing motion passed at the Labour Party’s 2021 conference. Attention has been focused on the commitment to build 100,000 new council houses per year. However another important clause in the motion referred to the need to maintain the council housing we already have and specifically to ‘review council housing debt to address the underfunding of the Housing Revenue Account’.

Wicks makes the case that the ‘bogus debt’ should be written off. This is not as outlandish as it may seem. To put the £26bn debt into context, housing expert, Anna Minton, writing in the Financial times on 21.1.22, estimates that the cost of quantitative easing in the 7 years after 2008 was £445bn and the cost of emergency pandemic relief was £455bn. Chancellor Rishi Sunak is estimated to have written off £4.3bn furlough and other business relief payments that were fraudulently claimed. Writing off a bogus debt of £26bn no longer seems such a big ask.

Whilst council housing financing remains so opaque and unfair, the residents of Longfield estate know that they are getting a bad deal, without knowing why.

Andy Bates
Andy Bates

Andy Bates is an Executive Member of the Labour Housing Group.

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Rescuing the Affordable Housing Commission Report from the chaos of Covid-19

It is the misfortune of the Affordable Housing Commission to release their report in March 2020, just as Covid -19 took hold. Not only did the report get buried by more pressing news, but the Commission also had to rush out a Covid-19 supplemental report in July 2020.

We need to rescue the report because it offers a great analysis of the housing crisis and realistic policy proposals. This is exactly what you would expect from a Commission headed by Lord Best, one of the sharpest minds in UK housing and supported by the left leaning Smith Institute.

The main argument is the last 20 years has seen the continuing decline of social rent housing, and the doubling in size of the Private Rented Sector (PRS) up to 22% of current housing. There are now 1.5m private landlords. Whilst, the social rent sector has continued to decline. The problem is that people who need the security of social rent sector face the insecurity of the PRS. Those on a low and insecure income, elderly, the ill and those with children should not be living in a sector where you can be required to leave with just a couple of months’ notice. For instance, a quarter all households with children now live in the PRS compared to 8% in 2004.  People are staying longer in the PRS, often into old age. The Commission describes this as a ticking time bomb, as an increasing number of older private renters will find that they can no longer pay the rent when they retire.

The commission found that 23% of private renters are paying more than 40% of their income on rent, which is creating poverty. A Nationwide Foundation survey in 2019 found that a third of private renters had less than £39 per week to live on after they had paid essential bills.

In London the difference between social rent and private rents is the greatest, driving many below medium income into poverty. In the area of Bermondsey, south London where I work 50% of ex –council homes are now rented out, with private renters paying nearly four times more than their council neighbours and having to find a deposit of around £2,000.

The other effect of high rents is that it stops renters from building up the funds to escape into owner occupation. Bob Colenutt estimates a third of people born in the 1980’s and 1990’s will never be able to afford to buy their own home (Colenutt 2020). The average deposit needed by a first time buyer is London was a staggering £146,757 in 2019. Also the Commission highlights that the explosion of Buy to Rent mortgages has helped to force up house prices. Even George Osborne, the most political of Chancellors, recognised the need to slightly dampen down the increase in Buy to Let.

Within social housing, there has been a trend towards higher rent ‘affordable’ homes, rather than genuinely affordable social rents. Higher rents are seen as the way of spreading government money more thinly and building more ‘sub-market’ homes. Government subsidy has dropped by a third since 2010 and housing associations have moved 100,000 properties from social rents to higher affordable rents. The problem, as noted by the Commission, is that for low earners higher rents mean more poverty.

The Commission argues for a re-balancing of the housing market by increasing social rent housing, to provide an alternative for those for whom PRS is unsuitable. The Commission accepts that it will take 25 years to rebalance, and proposes that we start now so that a child born today should be able to live in an affordable home when they are 25 and want to live independently.

To achieve this, 90,000 new social rent and 55,000 shared ownership/ intermediate rent homes are needed each year to address the overall shortage of 3.1m social rent homes identified by Shelter

This will require an increase in government expenditure from 1.9% to 3%, which is £12.8 billion per year. To put this into context the housing benefit bill was £25 billion in 2016 and £1 billion was spent on poor quality temporary accommodation for homeless people in 2019, but neither expenditure resulted in any new homes. The cost of Help to Buy, aimed at helping first time buyers, was £10 billion in 2013 and there is a debate about whether the scheme added to supply or merely forced house prices up.

The Commission does argue for PRS rent caps, the end of Section 21 evictions and a landlord registration scheme to give some protection to those remaining in the private rented sector.

The Commission also calls for local authorities to be given discretion over the selling of their council homes, in the context of the intensity of housing need in their area.  

In a Zoom meeting with LHG members, Thangam Debbonaire, Shadow Secretary of State for Housing, was clear that this is too early in this Parliament to make spending commitments, especially as the full effects of the Covid-19 recession are not known. However, this report seems to set out a good general direction of travel.

<strong><span class="has-inline-color has-accent-color">Andy Bates</span></strong>
Andy Bates

Andy is on the Executive Committee of the Labour Housing Group and is a member of Old Southwark and Bermondsey CLP.

His is an advocate of residents collectively managing their own homes. Andy is a JMB Manager at the Leathermarket JMB. Southwark’s largest resident-managed housing organisation covering over 1,500 homes.