Written evidence submitted by Liverpool City Region Housing Associations [FSS 034]

Executive Summary              

The business plans of housing associations are under considerable pressure on several fronts. Notably this includes the need to invest in fire safety work, decarbonisation of homes and improving the overall quality of homes. Housing associations are able to raise private investment to tackle these challenges, but nowhere near enough to solve them. Long term certainty on rent and grant funding, as well as in related policy areas, is necessary to underpin the financial model of the sector and ensure the safety and comfort of social housing customers in the long term.

Liverpool City Region Housing Associations

Liverpool City Region Housing Associations (LCRHA) is an alliance of social landlords in the Liverpool City Region. We work together to speak with one voice where this enables us to make the case more effectively on behalf of our customers.

Together, we provide 150,000 homes for 270,000 customers. We add more £1.5bn to the City Region economy every year by building more than 1,000 homes, investing £400m improving customer homes, employing more than 5,000 people and supporting thousands into training, work and apprenticeships.

We are at the forefront of tackling the housing crisis in our City Region. This includes working to reduce homelessness, finding suitable homes for growing families and older people, and supporting aspiring homeowners getting onto the housing ladder. The housing crisis is complex and layered in Liverpool, as across England, so we work to support a range of housing needs and aspirations for every group or individual in our communities. Demand for the homes and support we offer is escalating rapidly as the cost of living continues to rise and regional inequality continues to deepen.

Pressure on Housing Associations

The business plans of housing associations are under pressure on several fronts, including: 

• Fulfilling the requirements of the Building Safety Act to help ensure that a tragedy of the sort that happened at Grenfell can never happen again
• Decarbonising ageing social housing stock, initially to get all stock to EPC C by 2030, but then to move on toward net zero carbon
• Improving the quality of social rented homes to ensure all homes are warm, dry and healthy and prevent any repeat of the tragic death of Awaab Ishak in Rochdale

Building safety costs

Liverpool Housing Associations are committed to providing safe, warm and modern homes for our customers. The safety of our tenants will always be our first priority and we are all committed to fulfilling our legal responsibilities under the Building Safety Act.

Liverpool City Region has relatively few high rise residential towers compared to London or to other Northern cities, although safety improvements to communal buildings still present a financial cost to many local housing associations. Nonetheless, available funding pots, such as the Building Safety Fund and Medium-Rise Scheme, do not cover the enormous cost to our sector of completing work required by legislation. Many have explored and secured alternative finance, but this comes at the cost of capacity to invest in other areas of the business plan.

Decarbonisation and retrofit costs

Liverpool housing associations are committed to decarbonising our housing stock to support the move towards a net zero carbon UK economy. The scale of the challenge is huge. According to the Northern Housing Consortium, 60% of homes in the North are at EPC D or below. Fulfilling the cost of retrofitting current stock to at least EPC C, as featured in government strategy, is a major challenge to the financial sustainability of housing associations in our City Region and beyond.

Our sector simply does not have the financial strength to do this alone. Whilst welcome, the Social Housing Decarbonisation Fund is a commitment of £3.8bn over a 10 year period, compared to the cost of £11bn estimated by the Northern Housing Consortium and IPPR (Northern Powerhomes, 2020).

We are seeing more funding solutions emerging from investors interested in putting their money to work reducing carbon. But we simply cannot borrow our way through this alone. For example, we own many properties more than 100 years old that often cost more to retrofit than to buy. The value of these homes rarely rises, so the business case for investing in them is much weaker than the moral case. Without grant funding to complement private investment, the numbers simply do not add up.

Housing quality

Our sector was shocked and saddened by the tragic death of Awaab Ishak in a social home in Rochdale. We recognise that keeping our residents safe must be our top priority. The Government, Regulator of Social and the Housing Ombudsman have each taken action to place the spotlight on examples of poor quality in social housing. In response, the Better Social Housing Review was commissioned by the National Housing Federation (NHF) and Chartered institute for Housing (CIH). The recently published Action Plan following the Review sets out a route-map to making sure that a tragedy of the sort seen in Rochdale never happens again. It covers areas including the quality of data on homes and customers held by housing associations and a range of actions to tackle inequalities in housing. 

Where social homes are of a poor quality this is often driven by the age of social housing stock. This is particularly the case in Liverpool City Region, where relatively low land values can mean it costs more to improve a home than the property is worth. Getting older homes up to the standard our customers expect and deserve is expensive and acts as a further source of financial demand on the sector, in addition to the need to ensure fire safety and reduce carbon (although often these areas of spending will overlap).

Recommendations

Housing associations are playing a crucial role on a number of fronts: complying with building safety legislation; building more homes to meet the housing crisis; decarbonising our stock. This is all against the background of persistent high inflation and capped rents. We cannot do it all and as a result tough choices are being made across the sector about what should be prioritised, amongst a list of objectives that are all worthy of being prioritised.

The business plans of housing associations are under considerable pressure due to the need to invest in fire safety, decarbonising homes and improving overall quality of homes. In Liverpool City Region, pressure is felt most acutely in relation to decarbonisation and quality due to the age profile of social homes in the City Region.

Against this background, it is notable that investment in new homes risks being scaled back in response to this pressure. This will bring long term implications for the sustainability of the sector. Fewer new homes means less income across the years of our business plans, potentially resulting in a contraction of the sector and reduced supply, as the oldest homes are disposed of and fewer new homes are built.

It is also notable that there is currently no grant available for the demolition and replacement of poor quality social housing stock. In particular, the net additionality rule applied by Homes England means that grant funding is not available for sites that have already been cleared or for homes where it is not economical to invest in further improvements. This acts as a roadblock to regeneration in many areas and particularly where land and property values are persistently low.

Long term policy making in several policy areas is necessary to provide the certainty and confidence that housing associations, and our funders and suppliers, need to ensure we can deliver the safety and comfort of social housing customers in the long term.

These are our six recommendations to the Inquiry:

• Long-term, index-linked rent settlement: Certainty on rent income is the single most effective decision a government can make to underpin sector financial sustainability. A five or ten year agreement to increase rents by CPI +1% would give us the financial strength to play a positive role in tackling the challenged set out in this document.

• Certainty on decarbonisation funding: A long-term grant settlement for decarbonising social housing would provide certainty for housing associations as we discuss funding solutions with private investors and assess the timescales for procuring contracts to complete the work.

• Confirming energy requirements for social housing: The sector has long presumed that EPC C would be the standard required by 2030 but this has not yet been confirmed. There will be reluctance to commit to significant spending programmes until the regulatory requirements we are working to are locked-in.

• Targeted grant funding for new homes: A long term grant settlement is needed for new social homes that reflects the scale of need and the likely net loss of developer contributions due to the replacement of S106 with the Infrastructure Levy. Funding should be tilted towards areas with lower land values to help reduce regional inequality, whether through devolution deals of through targeted Homes England programmes.

• Planning reform to support delivery: Mandatory targets should return for local authorities to deliver new homes, including new social homes, based on up to date assessments of local need should. This would encourage housing associations to remain ambitious for delivering new social homes despite the pressures on their business plans.

• Update net additionality guidance: Homes England guidance should be updated to allow AHP money and other funding streams to be used to replace the poorest quality homes, providing better value for money and unleashing regeneration schemes on sites across England.

May 2023