Written evidence submitted by London Borough of Enfield [FSS 049]
1.1. Enfield Council is a large outer London Borough with inner London pressures and particularly in respect of housing. We have 15,000 council owned homes and a pro-active housing and growth strategy. Council and affordable housing plays a vital role in the community.
1.2. We welcome the committee’s investigation into the sustainability of the social housing sector. We are a significant player in the delivery of affordable housing as recipient of the GLA Affordable Housing Programme and delivering new council homes and regenerating estates is a key part of our strategy for council housing and the viability of the Housing Revenue Account.
1.3. This is a timely investigation. Enfield is experiencing acute housing pressures with one of the highest numbers of residents in temporary accommodation and because of the fundamental change in the private rented sector leading to a drop off in accommodation increased use of hotel accommodation which is unsuitable for families.
1.4. We have not responded to every question to remain within the word count for submissions but can provide further evidence as is requested.
2.1. Enfield has a backlog of investment needs for its existing housing stock having had the second lowest level of Decent Homes in the Country in the 2000s. Due to a lack of funding since this time it has never caught up. This means that considerable investment is required in the stock alongside meeting the new requirements for building safety and decarbonisation and the prospect of a new Decent Homes Standard on the horizon.
2.2. In this context interventions in decisions around rent which break the link between CPI on income and expenditure causes further pressures. The interventions made in 2016 around a 4-year 1% reduction resulted in reduced capacity of £300m over the 30-year Business Plan and this year by way of the rent cap have resulted in a reduction of capacity of £95m over the 30-year Business Plan. It is simply not possible to plan and deliver the levels of investment required with interventions in business plans and a lack of funding that addresses the renewal needs of aged, expired stock.
2.3. Enfield has seen an increase in repair costs against baseline business plan assumptions of £750k this year. This is because of increased materials and labour cost pressures and the heated market in London.
2.4. With usable reserves at £17m tight financial management is required and control over costs and exposures.
3.1. The results of the economic turbulence has been significant both affecting deliverability of schemes on financial grounds and also timescales while programmes are reconfigured. The operating context also presents a different risk environment which must be assessed.
3.2. Key challenges include:
4.1. We operate within a financial framework to protect the viability of the HRA so schemes and our development programme must meet prescribed hurdle rates. These are lower than would be expected in the private sector and we include our own internal subsidy to support schemes and judge net profit in the context of the wider investment benefits achieved in the Borough and social outcomes related to our corporate plan. However, when all aspects of the business plan are under challenge, we cannot take development risk which would expose the HRA to unfundable cost pressures and delays to income/sales receipts.
5.1. The cross-subsidy model is becoming increasingly unviable in the face of market conditions as illustrated in our private sales scheme outlined above. Having experienced this sales risk future Council programmes must seek to mitigate this risk unless measures are put into place to address these exposures – for example support to flip homes to social rent after a 3–6-month marketing period.
6.1. Despite considerable investment in its social housing stock, Enfield is on a path to achieving the Decent Homes standard by 2026. Considerable investment is required. In reviewing the options for the future of three Large Panel System tall blocks in the Borough, Cabinet has agreed to their decommissioning. This has been a difficult decision with the loss of over 300 social rented homes at a time where social housing has never been more needed. However, retaining these blocks and meeting the investment needs required would reduce our ability to deliver decent and safe homes over the rest of the stock.
6.2. Drawing on the government’s English Housing Survey findings, the GLA has calculated that 43% of the capital’s social rent dwellings – which make up about one fifth of London’s total – are in need of funds to bring them up to scratch, with conditions in some of those that don’t meet the Decent Home Standard posing serious health threats due to damp, mould, cold or infestation.
6.3. The previous Decent Homes programme provided funding which allowed many landlords to invest in stock to deliver the standards required. It was delivered alongside a requirement to demonstrate good performance in its management. This is in contrast to the current approach which appears to be directly reducing the capacity of HRAs, setting new standards for social housing addressing important – but unfunded – new requirements around health and safety alongside a new pro-active regulatory regime. In London the housing standards baseline, cost environment and availability of labour is such as to make this range of challenges impossible to deliver without positive measures to provide support.
7.1. It is essential to deliver both new homes and invest in existing stock. At Enfield this is for several reasons. First, we have a high percentage of flatted, smaller units with a high demand for family homes. Second, we have an aging stock portfolio which is becoming increasingly costly to maintain hence the need for a more balanced stock portfolio. Third some of our stock needs to be decommissioned and we must replace it for the viability and sustainability of our HRA business plan.
7.2. As a general principle we aim to fund development through self-financing borrowing and investment in existing stock through existing business plan capacity. This is becoming increasingly challenging and increasingly we need to borrow for existing stock which does not deliver additional income to the business plan.
8.1. Self-financing, lifting the borrowing cap and the availability of AHP grant funding has enabled councils to become strategically important deliverers of affordable housing in London and to invest in homes and services. However, interventions on income levels do have an impact in long term business plan assumptions and erodes capacity as we have illustrated previously.
9.1. Enfield delivers development directly through the HRA or General Fund where we can fund and manage development risk. Our Housing Company provides private rented accommodation and lets accommodation on assured shorthold tenancies which cannot be granted through the HRA.
10.1. The proposal for an Infrastructure Levy (IL) remains a major concern. We believe it poses the following risks to delivery and our finances.
10.2. The loss of gains being made under the existing section 106 arrangements, in particular the successful delivery of affordable housing, including the supply of new low carbon homes, and the funding of successful employment initiatives (such as apprenticeships, skills development and supporting young people into employment). It will be important to ensure that these benefits are not lost (i.e. maintained at current levels as a minimum) as a result of changes proposed in the Bill.
10.3. The risk of increased financial exposure for boroughs, for example, due to IL payments being made on completion rather than at application stage – there will be a lag in payment and uncertainty over what this income will be.
10.4. The risk that the flexibility recently introduced for how IL payments can be used by local authorities, may, because of other financial pressures, divert the funding needed to deliver development schemes, with particular concern for the impact on new affordable housing.
11.1. While recent Departmental changes such as improved PWLB rates and increased flexibilities in use of Right to Buy receipts are welcome, we do not believe that the current range of policy changes will sufficiently achieve the Department’s goals of improving existing standards and expanding new supply. In order to deliver on the range of policy initiatives set out above, while maintaining financial solvency, we support the London Councils ask around the following policy changes:
11.2. Further grant funding is needed for the delivery of new affordable housing. Research commissioned by the GLA has shown that London would require an additional £4.9bn annually to deliver the number of affordable homes that London needs – more than six times the current funding settlement.
11.3. Further capital grant funding should also be provided to support investment in, or replacement of existing stock. This funding should be targeted at areas such as fire and building safety, energy efficiency, Decent Homes, and the replacement of obsolete housing.
11.4. Further flexibilities in use of RtB receipts is needed if many development programmes are to be financially viable. While allowing boroughs to retain a greater percentage of the receipts from RtB sales supports borough HRAs, the ongoing RtB cap per dwelling is likely to mean that this money will not be best utilised. This cap on the use of receipts per unit (currently capped at 40% of scheme costs) should be significantly raised or removed entirely if boroughs are to maintain development programme viability. Removing restrictions on combining receipts with other forms of grant such as AHP grant is also necessary to provide boroughs the local flexibility needed to plan viable development programmes during this period of significant economic uncertainty. Finally, restrictions on the use of receipts to support acquisitions should be removed entirely. Acquisitions can be used strategically by councils as an efficient and quicker means of expanding the supply of council-owned affordable housing, including replacing lost homes, especially within the context of land constraints in London.
11.5. Further reductions in PWLB borrowing rates, or preferential rates for affordable housing development, should be provided to support long term financial stability.
11.6. Government should provide short-term HRA revenue relief to support local authorities in keeping rents below the CPI+1% formula.
11.7. Government should support residents through the cost-of-living challenges by increasing Discretionary Housing Payment (DHP) allocations for 2023/24 and introduce specific criteria and proportionate additional funding to reflect the increasing difficulties that social tenants are experiencing.
12.1. The current range of grant funding is not currently appropriate if the issues and challenges in the social housing sector are to be addressed. Inflation in the construction sector has been running higher than CPI, with some estimates as high as a 35% increase over the year. Such large increase in costs requires a significant reappraisal of the current rate of grant funding for new build. A full range of grant funding asks are set out in our answer to the question earlier.
13.1. Enfield agrees the recently announced changes for the AHP programme in London which will help support the continued delivery of affordable housing, even if at lower levels than initially intended. These changes are vital in preventing an even sharper drop in short-term delivery. As noted above, current economic and financial challenges means that we face significant obstacles in maintaining viability in development programmes and in managing risk exposures. New requirements such as those proposed in the recent consultation on second staircases shows that the policy terrain is still uncertain, and new costs could further push programmes into unviability. If affordable housing delivery is to not collapse entirely, including by Councils that can play such a significant role with their land and community connections, more funding is needed quickly and decisively.
May 2023