Written evidence submitted by Stockport Homes Group [FSS 055]
Background to Stockport Homes Group
Stockport Homes is an Arm’s Length Management Organisation (ALMO), and we manage the Council housing stock of approx. 11,500 homes on behalf of Stockport Council, in addition to owning and managing our own growing portfolio of approximately 800 properties. We work closely with the Council to ensure safe homes and communities and we established our Group structure in 2016 to strengthen our service offer for customers and residents in the Borough.
As well as managing homes and communities, we provide homelessness support on behalf of the Council, deliver employment initiatives, provide money advice services along with telecare, private sector lettings and much more. Driven by the mission ‘One team, transforming lives’.
We are submitting this response so that issues faced by an ALMO in a polarised area is understood and considered as part of this call for evidence.
The financial resilience of the social housing sector is at an all-time low. The recent rent cap, following from the recent 4-year rent reduction policy, coupled with exceptionally high inflation, has left Business Plans facing significant difficulties. Decent Homes maintenance is now threatened, as is any other major investment, such as carbon neutral investment and longer-term sustainability projects.
In addition, tenants are under more pressure with the cost-of-living crisis and the benefit cap for larger households.
Energy costs have added additional costs of just under £1m. Construction inflation has meant that development schemes have become unviable, significantly hindering the provision of new build homes. Another significant factor for ALMO’s is the Local Government Pay Award, which added costs of nearly £1m in 2022/23 with a further proposal for 2023/24. These costs have been compounded with the energy and construction inflation and will mean that the Business Plan is unviable over the longer term unless the Government can re-introduce some form of rent restructuring and/or other measures.
High inflation in construction costs have meant that some schemes are currently unviable. Options include new grant monies being released by Government, the level of grant funding increased, or measures implemented to bring inflation down. The recent retention policy for RTB’s might help in the short-term to bridge some viability gaps, but this is not a longer-term strategy.
Low interest rates have enabled a buoyant housing market, which in turn has pushed up prices, particularly in Stockport, and helped increase valuations and therefore surpluses from shared ownership and outright sales. Demand remains strong in Stockport. However, its also makes site more expensive and the development of affordable homes more challenging in certain areas.
Due to the reasons stated in the questions above, the cross-subsidy model is hampered due to the higher costs being incurred, with margins from market housing significantly lower. This will not sustain viability for social and affordable housing.
Not applicable in Stockport, only Council borrowing permitted.
New challenges to the social housing sector:
In the absence of any new policy measures and or grants to support this, redirecting resources to maintaining and improving stock will mean a reduction in services to customers elsewhere. Often these are the types of services that enable customers to live in thriving communities, whether that be reduction in ASB, quality housing management services that create safe communities, support services to enable customers to live independently in their own homes, there are many more examples. These types of services reduce pressures on other public services, and enable customers to sustain their rent payments etc. Other problems and spiralling costs will ensue without protected investment into these services.
It has been possible to achieve both objectives in the Stockport model. The ALMO borrows money via the Council for new development, which is discreet from the HRA, and therefore new build does not detriment the upkeep of existing stock. Where development is within the HRA, every new development must be viable otherwise it would end up being subsidised by the rest of the HRA.
The need for building safety is clear however one of the challenges being had by HA’s is how are the requirements fulfilled or met. As a new service area there isn’t any benchmarks for how such a team should operate and what their specific duties should include. It has been through a collaborative approach with other local and national HA’s that SHG have been able to establish an approach to managing Building Safety that works for us, however this may not be work for another similar organisation.
Another challenge is getting suitably qualified people and consultants to undertake the work that is required such as fire assessors.
Yes, for those providers that are still Council owned, the hybrid arrangement has increased supply. The HRA in Stockport has delivered 241 new homes since the lifting of the cap, with a further 223 in the pipeline, so 464 in total. Ownership sits within the HRA, but the ALMO has developed and managed the properties.
No, can’t see how they have - they have different priorities and business model.
The focus should be on the customer voice and service. If a merger improves a failing organisation, then customers should benefit. If there are other reasons, then it’s doubtful it will have a positive impact.
Don’t believe this has made the sector more resilient but it is a positive move. Place based working will benefit customers and housing associations working with councils in their local areas will have a positive impact.
Stockport is pre-dominantly a high value area meaning affordability is a major housing issue. Therefore, shared ownership works very well as a product and there is high demand for all the shared ownership homes we build. We have a register of interest of 2,400+ households awaiting the release of new shared ownership homes.
In Stockport the model of delivery works very well – Stockport Homes (ALMO) develops for both Stockport Council within the HRA and in its own right using the Council’s borrowing facility. Over the last 10 years we have delivered more than 1,000 new homes owned either by the Council (through the HRA) or Stockport Homes. Access to PWLB borrowing has enabled viability and VFM.
It is likely that the infrastructure levy and changes to S106 will impact on our capacity to deliver new affordable housing. The introduction of first homes in Stockport will reduce the opportunity to secure affordable homes through the S106 process.
What are the policy and regulatory challenges to the Department and the Regulator?
Policy is focused on achieving numbers and does not support regeneration projects. In addition, it encourages the development of affordable housing in the cheapest areas. This causes issues in areas like Stockport which is polarised. It needs to recognise the increase cost but also the increased benefit.
Additional flexibility would be helpful to meet local needs rather than national policy which doesn’t always fit.
It is likely that additionality would only impact on small pockets of Stockport. Stockport’s housing market is generally buoyant and private investment will happen regardless of intervention by Stockport Homes. The issue in Stockport is predominantly one of affordability and a chronic shortage of affordable housing in relation to demand.
Grant levels have not kept pace with construction cost inflation, additional costs imposed via changes to building regulations and the higher cost of borrowing. Older persons shared ownership as a product does not work financially and as the only older person’s home ownership tenure acceptable to Homes England is leading to a reduced supply of this type of housing. In addition, grant policy drives affordable housing development to cheapest areas.
As mentioned previously no Homes England grant is available for regeneration projects.
This should be corrected – exempt accommodation should be regulated.
Consent from lenders is still required, so that should in theory, as act as a break to mergers which don’t work from a viability perspective.
VFM is a difficult area to regulate and opinions as to what is VFM can differ widely. RSH covers it as part of its IDA assessment of RPs, but not local authorities and regulatory opinion is captured as part of the Governance judgement.
The regulator does look at risk seriously and is part of their judgements. There is also a greater focus on stress testing that supports their judgements.
What are the policy and regulatory challenges to the Department and the Regulator?
While the regulator does have the skills, there is a question of capacity and whether they have the time to get under the skin of how some organisations operate.
For-profit providers are different entities and are a driven by different motivations. However, the regulatory regime should be adaptable to assess both types of organisation.
Yes. Contractors going into administration is further delaying the completion of new homes in addition to the financial challenges posed by rising construction costs, higher standards imposed through building regulations, safety, and higher costs of borrowing.
May 2023