Written evidence submitted by Greater Manchester Combined Authority [FSS 064]

The Greater Manchester Combined Authority (GMCA) is led jointly by the leaders of the ten Greater Manchester local authorities and Mayor. Our collective vision is to make Greater Manchester one of the best places in the world to grow up, get on and grow old; a great place to invest, do business, visit and study.

The current state of financial resilience of social housing providers

Summary response to this section (Q1-6)

• We do have significant concerns about the multiple pressures upon the social housing sector, and on the individual organisations within it.
• The Committee’s inquiry is a welcome contribution to understanding the scenarios facing social housing, in the context of continued huge demand for safe, decent, truly affordable housing and housing costs becoming increasingly substantial elements of the cost of living crisis facing households in GM and nationally. Our latest GM Residents’ Survey finds 53% of renters and 35% of mortgage holders reporting difficulties in affording their housing costs.
• So social housing is vital, but social landlords need to wrestle with the need to invest in building safety including dealing with damp and mould issues, retrofit of homes to reduce carbon emissions and tackle fuel poverty, delivering much needed new additional affordable housing including higher proportions of social rented homes, raising the standard of those new homes to net zero carbon to avoid the need for subsequent retrofit, and supporting local authorities in efforts to tackle rough sleeping and homelessness, provide supported housing, etc. With the additional challenges of high inflation and energy bills, Government needs to respond to the crunch facing social housing.
• Our response to the Government’s consultation on social rents pointed to the long term impact of rent caps on social landlords’ finances – the savings (estimated to be around £3 billion) generated for DWP from reduced welfare payments could have been used to at least partially restore the sector’s financial position while still protecting tenants from higher rents. These trade-offs inherent within our complex systems of housing support and subsidy need to be made with an understanding of their impact on the sustainability of landlords and their continuing ability to play the multiple roles expected of them by their residents, broader communities, local authorities and central government.

New challenges to the social housing sector:

1. The Secretary of State has specified that more resources need to be directed towards maintaining and improving the existing stock. How feasible is this for social housing providers?

• The impact of the unfunded 7% cap on rent increases is estimated to be a £47m reduction in rent roll in 2022-23 in Greater Manchester alone.[1] This deficit will mean that housing provider budgets are stretched ever further at a time of acute need for investment in the existing stock.
• The recent focus on social housing quality and prevalence of damp and mould in the wake of the inquest into the death of Awaab Ishak is very welcome. It is clear that the scale of the issue in existing stock is significant, and the £14.9m of funding provided by DLUHC to Greater Manchester to support damp and mould remediation works is welcome to support this work, however long term it will not be sufficient to ensure all homes are damp and mould free.
• There is also a critical need to plan and commence the retrofit of their stock to meet our 2038 targets, to reduce carbon emissions, tackle fuel poverty, and to provide their residents with homes resilient to the changing climate. If the cross-tenure estimate produced for GM by Parity Projects of an average £13,000 per home to achieve cost-effective near net-zero retrofit applied to all social homes, this would represent a programme well in excess of £3 billion. Importantly, there is no mechanism for charging tenants to recover savings on household bills which energy efficiency improvements will generate, so the full cost again falls on RPs’ existing (reducing) resources.

2. No comments.
3. What issues does the requirement on Housing Associations to carrying out building safety present?

• There is a continuing need for providers to invest in building safety as the lessons from Grenfell and the failings of the building safety regulation, product testing and enforcement regimes continue to emerge, and Government’s financial response continues to fall short. This impacts on individual RPs differently depending on the nature of their housing stock, particularly (though not solely) on those with significant numbers of high-rise or mid-rise homes. These costs are coming out of existing resources, and are effectively non-discretionary.

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

• Yes, for authorities who retained an HRA this has made a difference – though not necessarily enough to add net supply given continued Right to Buy sales.

5. No comments.
6. No comments.
7. 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? 

• Partnership working between RPs and local authorities is crucial to delivering the strategic objectives of all organisations. At a Greater Manchester level, the GM Tripartite Agreement ‘Better Homes, Better Neighbourhoods, Better Health’ is a unique collaboration between Greater Manchester Housing Providers (GMHP), Greater Manchester Combined Authority and NHS Greater Manchester Integrated Care to deliver positive change across the city region. The Agreement sets out a collective vision to work alongside local people, neighbourhoods and stakeholder organisations to create lasting solutions to complex issues and challenges centred on housing and health. We are also working at GM level with housing associations and other stakeholders including GM local authorities on approaches to modern methods of construction and achievement of truly affordable net zero new homes. The intention is that aggregation of demand and sharing of learning will lower the barriers to (and ultimately the costs of) adopting high quality, net zero new build techniques as business as usual.
• At local level, there are informal and formal partnerships and relationships on specific issues such as supported living as well as on broader development and delivery of new affordable housing. Departmental programmes including Affordable Homes Programme, Brownfield Fund, Levelling Up pots etc are often used to underpin this partnership working, though the degrees of unpredictability or restricted applicability of different funding programmes which apply can limit the impact achieved by adding risk and uncertainty to what would ideally be long term investment and strategic development programmes.

• To what extent do local authorities and Housing Associations collaborate when considering development plans for housing locally?

• In general across Greater Manchester there is a good deal of collaborative working through strategic housing partnerships at individual district level. These vary in focus and membership, but scope for new development is a common theme. Day to day collaboration is seen between RPs and councils around specific sites, use of public land, connecting to commissioning teams in relation to supported and specialist housing development, pre-application discussions with planning teams and use of s106 to secure additional delivery. As the GMCA we also have an investment along with 10 of our GM Housing Providers group partners in a joint venture development vehicle Hive Homes.

8. No comments.
9. No comments.
10. Will the introduction of the Infrastructure Levy and changes to section 106 significantly affect the capacity to develop affordable housing?

• GMCA is concerned that the proposed consolidation of CIL with s106 will result in a reduction in the contributions received in Greater Manchester. CIL does not work particularly well in areas of more marginal viability, and removes the potential for local authorities to negotiate to increase the level of contribution as exists currently with s106.

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

1. Is the current Departmental policy on social housing and affordable homes appropriately focused?

Right to Buy

• The Right to Buy (RTB) policy was intended to stimulate home ownership and generate receipts for reinvestment in new homes, and since its launch in 1980, there have been over 90,000 RTB sales in Greater Manchester. The imposition of higher discounts on Right to Buy properties in 2012 mean that RTB receipts are lower than pre-2012. In low value areas, such as some parts of Greater Manchester, a discount of up to £81,000 leaves local authorities with very little leftover in terms of sales income.
• After administrative costs, debt and assumed income have been taken into account - including compensating the Treasury for any lost income in comparison to the earlier RTB scheme - the amount of net receipt allotted to local authorities is often too low to replace homes on a one-for-one basis. In some cases no funds may be left over at all.
• As the net receipt can only fund 30% of costs of replacement, this is not enough to adequately replace a home sold through RTB in Greater Manchester. The restrictions placed on how and when the remaining RTB receipts can be used means that it may not be practical to accomplish a one-for-one replacement using the receipt.
• In Greater Manchester, many homes sold under RTB have found their way into the Private Rented Sector; meaning that the original aim of the policy to increase homeownership is no longer being fulfilled, while social housing stock is decreasing and providers are losing out financially. This can lead to public funds via Local Housing Allowance supporting higher rents for ex-RTB properties which may be of lower quality than neighbouring retained social homes whose rents are considerably lower. The Right to Buy also acts as a disincentive for impacted social housing providers to invest in new social housing supply, as the risk of a forced sale at a discounted price gives no long term certainty of returns from the asset.

Social housing funding

• As previously stated, the impact of the unfunded 7% cap on rent increases is estimated to be a £47m reduction in rent roll in 2022-23 in Greater Manchester alone. This deficit highlights the dependence of some crucial GM and national priorities on rents paid by social housing tenants and follows on from the much larger reductions in rent rolls driven by the previous period of frozen social rents.
• For example, RPs’ role in leading the residential element of transition to net zero new build and comprehensive retrofit of existing homes is crucial in building the capacity, knowledge and supply chains needed for the remainder of the housing stock to follow – ultimately benefitting owner occupiers and private landlords and tenants. However, this innovation will largely be funded through the rental income from social tenants.
• The new burdens and work created through the new regulatory environment post-Grenfell are a significant area of work for Housing Associations & Local Authorities. This vital activity should be financed via the Revenue Support Grant in Local Government, but it seems that currently there is no financial mechanism for supporting Housing Associations with these costs and therefore such costs are passported onto rents.
• Furthermore, local authority budgets in the north of England have been hit hard by 12 years of austerity, with cities seeing an average of a 20% cut in spending between 2009 and 2017, and more thereafter.  This, paired with the removal of previous funding initiatives such as Housing Market Renewal and Decent Homes programmes, and the inadequacies in the Affordable Homes Programme and housing retrofit funding initiatives, leaves local authorities and the wider public sector poorly placed to fund this vital work.
• This presents us with an opportunity to think differently as a system about how such innovation and market shaping, which will ultimately benefit society as a whole, is funded.
• In the GMCA response to the rent cap consultation, it was noted that in the short-term, modelling by DLUHC and GMCA clearly shows that Treasury will be the main financial beneficiaries of this policy through savings to DWP in terms of welfare benefits.
• GMCA therefore asked that in the event of the costs of rent capping not being met in full, that the savings to Treasury be redistributed to housing providers and Local Authorities in order to enable crucial activity around net zero carbon new build and retrofitting to continue apace, and to protect the provision of vital supported and specialist housing. This ask has so far not been met, which means that these activities, which are more important than ever to support people through an energy and cost of living crisis, are at risk of being reduced or stopped altogether.

Provision of new social and affordable housing

• We welcome recent changes to departmental policy on social housing and affordable homes, specifically in relation to funding for new social rented homes. Previously, this was available to councils where private rents were £50 more than social rents in 2018, which in GM meant that only five of our councils (Bury, Manchester, Salford, Stockport and Trafford) were eligible to bid for full grant funding needed for new social rented homes. 
• The Affordable Homes Programme (AHP) 2021-26 is aiming to deliver 50% of homes at discounted rent, including affordable rent and social rent, and 50% of homes as affordable home ownership (majority shared ownership). With 69,000 households on housing registers across Greater Manchester, of which 34,000 are in reasonable preference for social housing, there is a need to significantly increase the provision of the most affordable ‘product’ available to accommodate households in need - social rented housing.
• The GMCA has committed to delivering 30,000 net zero carbon homes for affordable and social rent by 2037 in order to respond to the climate emergency, minimise the need for subsequent retrofit of new build homes, and to help tackle longstanding social inequalities and cost of living pressures.
• At present, there is some financial leeway from Homes England to encourage social housing providers to use modern methods of construction (and specifically Strategic Partner RPs are expected to deliver 20% of their programmes using modern methods). While this potentially leads to lower carbon homes, Homes England funding does not stretch to help meet the additional cost of achieving net zero carbon standards in new affordable homes. The ongoing energy costs of net zero carbon homes are likely to be substantially less than traditional housing stock. But where the housing is built for rent, the owner of the property incurs the costs of construction and does not benefit from reduced energy bills that could otherwise pay back the investment over the longer term. This therefore requires capital subsidy to install the measures needed to achieve net zero standards until this becomes business as usual for the construction industry. Without that additional funding, the best remaining option will be to build new homes in such a way to make future retrofit to net zero carbon more easily achievable.

Regeneration

• Historically, Government has provided support for local authorities, social housing providers and other partners to collaborate on large scale regeneration projects, for example through the Housing Market Renewal programme.
• Since 2011, there has been no equivalent funding to enable local areas to intervene in challenging housing markets to better match supply to demand, and to support local economies reduce inequalities. Moreover, there is limited funding available through the AHP to support housing providers with regeneration efforts, such as refurbishment of moribund stock or wider estates regeneration.

2. Is Homes England being directed appropriately by the Department, and is it achieving its objectives?

• As outlined above, the direction that Homes England has received in terms of the provision of new social and affordable housing does not sufficiently prioritise the tenure types that are most needed in Greater Manchester, neither does it meet some of our strategic objectives as a city region.
• In terms of tenure types, the AHP emphasis on delivery of affordable homeownership products rather than affordable rent tenures means that we are not able to meet the need for truly affordable rented accommodation in Greater Manchester.
• In terms of meeting our strategic objectives, the inability of grant rates to stack up to deliver specialist and supported housing schemes in many cases means that we are not delivering the scale of supported and specialist housing required to meet the needs of our population (and the difficulties in matching upfront capital funds with longer term revenue required for supported housing are a longstanding barrier to the delivery of new accommodation for people with ongoing need for support in their home).
• The lack of grant to meet the additional costs of delivering net zero carbon homes means that social housing providers are having to fill the gap with their own capital funds, decreasing viability and increasing risk for the provider, or developing to lower standards and delivering more homes which will need retrofit installations in the future.
• We are hopeful that the flexibilities announced in our recent Devolution Trailblazer deal will enable us to better address the issues noted here, and look forward to developing the detailed flexibilities in the use of the Affordable Homes Programme in GM with Government and social housing providers. We would hope that this will produce practical benefits for GM residents, and learning which will ultimately enable those to be shared with and adopted by Homes England in non-Trailblazer areas.

3. Has any evaluation been undertaken of the impact of the additionality guidance on the supply of social housing?

• In November 2022, Savills and Homes for the North produced the research report “Improving Housing Quality and Boosting Delivery in the North: why net additionality needs to change”.
• The report suggests that the additionality guidance hinders development on brownfield sites in the north of England, and is a barrier to replacing poor quality existing stock as part of wider regeneration schemes which would help to level up the north.
• The report states: “The net additionality rules in the Affordable Homes Programme (AHP) are a barrier to housing associations in the north seeking to provide the right homes for their customers, support local economic growth, create high quality places, and cut the environmental impact of their portfolios. The result is a large proportion of public housing funding being used to deliver new homes on greenfield sites.”
• The recommendation of the report is that AHP rules be revised to widen the scope for replacement under ‘moribund property’, which would enable regeneration at the scale needed to level up areas of higher deprivation. This would also help to deliver many of the objectives of the GM Tripartite Agreement.

4. Is the current range of grant funding available appropriate to address the issues and challenges that the social housing sector faces?

• As outlined above, additional grant funding for social and affordable rented tenures, grant to support the increased costs of delivering net zero carbon homes, enhanced grant rates to support increased costs of delivering supported and specialist accommodation, and grant to support large scale regeneration schemes would be welcomed.

5. No comments.
6. No comments.
7. No comments.

1. No comments.
2. No comments.

3. 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?

• This seems inevitable, and this is being exacerbated by general inflationary pressures in the economy which impact directly on the social housing sector, the construction industry and their supply chains. The overall picture is of a sector with growing investment needs, rising costs, and an income constrained by rent setting policies which are substantially outside the sector’s control. With limited scope and appetite for diversification to raise alternative income streams – and a regulator rightly wary of the risks that may arise – it is clear that social housing providers have much restrained room for manoeuvre as they seek to balance the various requirements and pressures placed upon them.

May 2023