Written evidence submitted by Rentplus-UK [FSS 051]

About Rentplus-UK Ltd

• Rentplus is an affordable home ownership provider funded by institutional investment. Our rent to buy model helps renters who otherwise couldn’t afford it onto the housing ladder by removing the deposit barrier.
• We are delivering in over 50 local authority areas as part of their affordable housing provision and partner with housing associations across the country, who manage the homes during the rental period. This provides them with an additional revenue stream without having to take on any extra risk. The associations we work with range from small providers with portfolios of 400 homes up to larger associations with over 100,000 homes.
• Under the model, the homes are provided at an ‘affordable rent’ level for 5 – 20 years, enabling tenants to save more each month than they would be able to if they were in the private rented sector.
• Tenants have the option to buy their home at 5 yearly intervals and at this point, we gift them a 10% deposit to add to their savings and reduce the mortgage they need. They own the whole of the home as if they had bought on the open market.

Response

The current state of financial resilience of social housing providers

• How would you assess the financial resilience of the social housing sector currently? Are increasing pressures and requirements putting financial viability at risk? There are significant financial pressures on social landlords currently, including requirements for improvements in tenancy services, environmental standards and building safety, and maintenance and retrofitting of older stock. This is against the backdrop of regulatory rent caps, high inflation and increased rent arrears. All of these things provide challenges for the viability of the sector.

• To what extent can social housing providers maintain output levels in housing development to provide a counter cyclical balance in otherwise tightening market conditions? Given the challenges set out above, the development programme within the sector is generally being reduced as the focus shifts to housing quality and maintenance of existing stock and carbon reduction strategies.

• What impact have changes in the housing market in recent years had on the strength of housing associations’ balance sheets? Whilst overall the sector is attractive to investors for long-term, low risk investments, the recent rent cap announcements and continuous policy change risk undermining this confidence. The sector needs a period of stability.

• Does the cross-subsidy model, by which market housing helps pay for social and affordable housing, have any continuing viability? Yes, there is a role for cross-subsidisation in the context of viability – market units provide the capital for housing associations to then invest in other social and affordable housing. However, we would encourage diversification of capital in the sector to enable the delivery of a wider range of affordable homes. Private capital can facilitate the development of additional affordable homes to support viability whilst also reducing the amount of government grant that is required to do so.

• To what extent have private equity investors, and in particular international investors, been entering the sector? What challenges does this present? We work with institutional investors who are driven by social outcomes, including major UK pension funds such as BAE. We know that there is appetite in the affordable housing market from investors and the potential for a significant funding injection to the sector, which is generally viewed as a low-risk, long-term investment.

There a number of benefits to be gained by attracting institutional investment. As well as bringing more funding to the affordable housing sector overall, if private investment was focussed on delivering affordable home ownership products, this would enable local authorities to direct their grant funding on delivering more housing for social rent.

Homes England figures have spoken about it being a priority to increase the diversity of capital within the affordable housing sector. Its chair, Peter Freeman, has said that “Matching public need and private enterprise around a set of principles that can deliver both public and commercial value represents a huge opportunity to positively increase affordable housing delivery in this country.”

In our experience, this position needs to be better communicated to local government to provide councils with the certainty that it is ok to accept affordable housing funded through institutional investment rather than government grant. There is a requirement for education on what can be delivered through the NPPF and the funding models available, including how new, innovative products can help to meet local need. At the moment, local authorities often seek legal advice before accepting privately funded affordable housing models as part of their housing policy. As well as prolonging the delivery of new homes, this is costly, at a time when local government finances are constrained.

New challenges to the social housing sector:

• How do social housing providers choose whether to undertake new development or to focus on maintenance and upkeep of existing stock? Is it currently possible to achieve both objectives? Yes, but the introduction of investment from other sources is key. Some of the smaller housing associations we work with have said that the rental income they receive from managing the homes that we own (which they couldn’t have afforded to invest in delivering) has enabled them to invest in programmes of stock maintenance and improvement that they couldn’t otherwise afford.

• Where social housing providers are undertaking new developments, what consideration has been given to the types of homes they are building? For example, houses versus flats? This is normally determined through the planning process by the council based on local affordable housing need. The challenge is that in many cases the affordable housing need surveys are out of date and do not consider new products in the market, which makes it difficult for these providers to deliver. For example, many of the local authorities that we have spoken to are still operating from outdated versions of the NPPF. Whilst tenure mix should be considered, it should be caveated with a generic statement ensuring that new entrants and products are not excluded.

• Has the lifting of the cap on the Housing Revenue Account made a difference to supply or improved housing from Local Authorities? Yes, marginally.

• Have for-profit Housing Associations made the sector, as a whole, more financially robust? They have made the sector more financially robust as there is more cash available and security around assets. However, there is an issue in terms of the governance and management structures, and their regulation, around some of these RPs. This is in part borne from the fact that some for-profit associations have been created through purchasing small housing associations that are already registered with the regulator. This enables them to begin delivering homes straight away however means that there is less strict regulation at their inception.

• Traditionally, struggling Housing Associations have merged with stronger, sometimes complementary, Housing Associations. Will this continue to be possible? Yes.
• To what extent can mergers result in the creation of an umbrella group too large to discharge its duties and responsibilities to its tenants? This is all about service provision and ensuring that the supply chain and management systems are in place to ensure good quality provision can be maintained within the regulatory requirements. 

• Has the emergence of partnership working between councils and housing associations in local areas made the sector more resilient? What encouragement has the Department given to such partnerships?
• To what extent do local authorities and Housing Associations collaborate when considering development plans for housing locally?

Many local authorities are going through the process of setting up development companies to enable direct development of land owned by the LA, however there are very few of these that have delivered. In some cases these structures have slowed delivery down.

There should be more encouragement by the Department for joint venture partnerships between local authorities, the private sector and housing associations. Local authorities should be the enabler for this by providing the land assets that they own that have been identified as suitable for housing development, however the building itself should be delivered by developers. This is as opposed to the local authority being the development company as in many cases they don’t have the appropriate skillset and tools to carry this out effectively. Instead, joint ventures can facilitate the delivery of additional affordable housing on land that LAs own.

• The Affordable Homes Programme includes a high proportion of shared ownership properties. To what extent is this form of tenure desirable for potential purchasers and for social housing providers?

Shared ownership lowers the barrier to entry for home ownership by enabling buyers to purchase a share of the property whilst paying rent on the remainder, reducing the deposit required. However, buyers still need to have upfront cash to be able to access the scheme. Figures from the English Housing Survey find that almost half (48%) of private renters – over 2 million households - have no savings[1] at all, meaning they are still unable to access Shared Ownership.

The average deposit for those purchasing an initial equity stake under shared ownership in 2021-22 was £20,800[2]. The new model of shared ownership seeks to lower the barrier to entry further by reducing the minimum initial share required to 10% and introducing 1% staircasing so that tenants can purchase additional shares of their property in smaller increments.

However, it remains to be seen whether it is realistic and viable for tenants to staircase to full ownership under this model and how long this will take.

In a Public Accounts Committee oral evidence session in 2022, Peter Denton, the Chief Executive of Homes England, said that he is “not aware” of whether the agency directly tracks how many people buy their homes fully under shared ownership.

Some figures are published on shared ownership sales however they are not comprehensive. DLUHC notes in its release that the figures do not provide full coverage of the Shared Ownership market.

Given the public investment in the scheme, there needs to be detailed reporting on Shared Ownership across all providers (not only large ones as is currently the case) to ascertain:

-          What is the average income for tenants using the scheme?

-          How many, and what proportion, of shared owners staircase fully (buy their homes) each year?

-          How long did it take them to staircase to full ownership?

Without this, it is impossible to know whether the scheme is effective in supporting renters into home ownership.

Rent to buy is an alternative affordable route to home ownership that completely removes the deposit barrier, widening access to the housing ladder. Where it has been developed it has been oversubscribed in all areas. Benefits over shared ownership include that the tenant owns the whole, rather than just a portion of the home, at the point of purchase. Prior to this point they are not responsible for any repair and maintenance costs. Under shared ownership, tenants can still be required to pay for this even if they only own a small portion of the home.

What are the policy and regulatory challenges to the Department and the Regulator?

• Is the current Departmental policy on social housing and affordable homes appropriately focused? Appreciating that most in the sector agree on the need for more homes for social rent, one issue that we would raise is how service charges play into this. ‘Affordable rent’, which is set at 80% of market rent, is inclusive of services charges so means that tenants have a fixed cost each month and the risk of any price increases sits with the housing association. It is an ‘all inclusive’ rent cost for tenants. Under social rent, however, the service charges are charged on top of the rent level, meaning that the tenant has less control over these.
• Is Homes England being directed appropriately by the Department, and is it achieving its objectives? Homes England currently has a broad remit, from land disposal, funding, and manging the Affordable Homes Programme. It has become more of a housing enabling organisation rather than one that does the delivery. In some cases, however, the many programmes it operates are in conflict with each other. In our view, it would be more effective if the organisation was split into four distinct strands, with an infrastructure bank to manage loans to support delivery, a land disposal unit, the Affordable Homes Programme and an innovation centre. Each would have their own objectives and assessment processes to enable a better focus on delivery. There is a significant need for an element of Homes England to be focussed on innovation assessment as the biggest challenge faced by those delivering innovative products is providing the confidence to local authorities to try something new. If Homes England could assess new products and provide an indicative endorsement then this would support increased delivery, innovation and investment in the sector.

• Is the current range of grant funding available appropriate to address the issues and challenges that the social housing sector faces? Grant funding alone will not be sufficient to deliver the number of homes needed. The only way to do so will be with an injection of private sector investment in addition to this. This needs to be more proactively encouraged by the government and communicated to local authorities.
• Does the Regulator of Social Housing have adequate powers to ensure:
• value for money; and
• low risk from new sources of finance such as private equity? A specialised innovation assessment would cater for this if it were formed as outlined above.

• It is already accepted that the numbers of dwellings likely to be produced under the 2021 Affordable Homes Programme will be less than initially forecast. Will the financial challenges that the sector faces reduce these numbers even further? Currently yes, that is why the Government should be proactively encouraging partnerships with privately funded providers to support increased delivery.

April 2023