Written evidence submitted by London Borough of Redbridge [FSS 066]

Call for Evidence	The finances and sustainability of the social housing sector
Enquiry Link	https://committees.parliament.uk/committee/17/levelling-up-housing-and-communities-committee/news/194496/levelling-up-committee-launches-inquiry-on-social-housing-finances-sustainability/ https://committees.parliament.uk/call-for-evidence/3097/
Organisation name	London Borough of Redbridge
Your role in lead organisation	Strategy & Partnerships Officer
About Your Organisation	The London Borough of Redbridge is a stock owning Council in the north east area of London, and owns approximately 4500 tenanted properties and around 2500 leasehold homes. The Borough is currently developing new council homes to add to its own housing stock to meet increasing levels of housing needs. We currently have over 7500 households on our housing register and over 2900 households living in temporary accommodation both within and outside of the Borough. We continue to engage with the Greater London Authority on the development of new homes and the facilitation of new housing grant to enable schemes to be developed. We are aware that market conditions at present are making new schemes difficult to build out due to rising inflationary costs. The Borough is home to several housing associations (with around 4900 rented homes and 800 shared ownership homes) and we are in regular dialogue with the larger registered providers on their development plans and any management issues. They too are reporting difficulties and, in some cases, have stalled further development. Some have reported the need to balance issues around investment in their current stock against the financing of new housing schemes. Our response is based largely on our experience as a local authority that is developing homes, and any information we are aware from Registered Providers.

QUESTION	LB Redbridge 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?	Within our Housing Revenue Account (HRA), as a borough we are facing significant financial pressures. We must provide good quality repairs and maintenance services, ensure building and fire safety, address challenges within our stock and support implementation of a new Decent Homes Standard, respond to a changing and more intensive regulatory environment, deliver net zero carbon, and sustain our new build programmes. These initiatives are being delivered on top of the range of day-to-day services that our housing teams provide. We are now expected to deliver these new initiatives on a reducing budget. The 7% limit on social housing rent increases in 2023/24 compared to the CPI+1% formula of 11.1% will have an ongoing loss of income to the HRA under present regulations. We calculate a loss of income of £1.067m in 2023/24 alone, rising above £6m across the medium term to 2027/28, and c.£56m through to 2051/52. We will continue to address the housing needs of Redbridge residents but the acute pressures on our HRA make this incredibly challenging.
What pressure has high inflation, increased energy costs and any other additional costs placed on the finances of social housing providers?	Building new homes to meet needs are incredibly challenging with significantly higher building costs and PWLB currently at a higher rate of around 4.5 to 5%. Some energy costs are recoverable from tenants and leaseholders in the form of service charges. However, the pressure comes from the government capping rent income levels below inflation. Where Redbridge set a rent increase at 7% as opposed to 11.1% effective April 2023, this has an ongoing loss of income to the HRA under present regulations. We calculate a loss of income of £1.067m in 2023/24 alone, rising above £6m across the medium term to 2027/28, and c.£56m through to 2051/52. Our residents are reporting hardship due to high inflation, energy costs and other aspects of the cost of living crisis and as a result rent arrears are increasing. The Council supports residents through the use of the Household Support Fund but this is inadequate to the task.
To what extent can social housing providers maintain output levels in housing development to provide a counter cyclical balance in otherwise tightening market conditions?	With growing homelessness and wider housing market pressures the role of councils in delivering affordable housing is growing in importance. Without increases in housing grant from GLA this will be challenging. Costs are rising throughout the housing development world and RP partners are reporting this too. If the government wants to produce a counter cyclical balance a significant increase in grant will be needed. For Councils this could be accompanied by an increase in the proportion of RTB receipts used to support development.
What impact have changes in the housing market in recent years had on the strength of housing associations’ balance sheets?	Not applicable
Does the cross-subsidy model, by which market housing helps pay for social and affordable housing, have any continuing viability?	The cross subsidy model is becoming increasingly difficult to make work financially due to suppressed sales value, particularly in the face of rising mortgage costs, adds uncertainty and increases the exposure of development schemes that rely on open market sales.
To what extent have private equity investors, and in particular international investors, been entering the sector? What challenges does this present?	We’ve had very little engagement with private equity investors, but are aware there are UK pension fund investors entering the space seeking positive outcomes.
New challenges to the social housing sector:
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?	We already face significant challenges in maintaining sufficient levels of decency across our housing stock. Inflationary pressures across the construction industry are affecting the margins and viability of contractors. As previously outlined the four year rent reduction alongside the rent increase cap in the last financial year have led to significant losses for the Council’s HRA over the life of the 30 year business plan, this is all money that is not available to improve and maintain our stock. We will be taking steps to address non-decency within our housing stock, but as outlined earlier, the acute pressures on the HRA make this a significant challenge, Further, significant investment is needed for the decarbonisation of the housing stock to hit Net Zero and to meet fire and building safety standards. Given the establishment of the Building Safety Regulator and the changes to the way the Regulator of Social Housing will be funded in future and the costs of the Housing Ombudsman we will have over £100K of additional costs for regulation in the HRA next year.
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? 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?	With limited resources difficult decisions will have to be made regarding a future new house build programme. Limited resources mean we have to consider that the first priority be to existing housing stock: achieving and maintaining the decent homes standard, dealing with compliance issues, and, working towards zero carbon. The HRA Business Plan has not fully costed achieving zero carbon, and it is a commonly held view that across all RSLs this is unaffordable. In short, no, it is not possible to achieve both objectives. In a Greater London context, it is inevitable that most developments will contain a large proportion of flats. It should be noted that the UK has a very low proportion of flats compared with most other countries, even those with lower population densities such as the United States. We are somewhat agnostic to the form of development, however ground floor maisonettes are a useful way of providing the layout of a 'house' with the density of flats, and by reducing the amount of common area required, may allow for lower management costs and service charges. More of an issue is that it is difficult to secure many 3 bedroom flats, or any 4 bedroom flats, within developments; in spite of our Strategic Housing market Assessment stating that this is where the greatest need is for social rented housing.
What issues does the requirement on Housing Associations to carrying out building safety present?	From our discussions with key partners we understand that a focus on building safety is a higher priority than development
Has the lifting of the cap on the Housing Revenue Account made a difference to supply or improved housing from Local Authorities?	Yes, and as a Borough we have sought to use this to build new council homes. However we are constrained by lower than planned rent income flows and high interest rates both of which threaten the sustainability of the HRA Business Plan.
Have for-profit Housing Associations made the sector, as a whole, more financially robust?	We have no direct experience of that in borough.
Traditionally, struggling Housing Associations have merged with stronger, sometimes complementary, Housing Associations. Will this continue to be possible? To what extent can mergers result in the creation of an umbrella group too large to discharge its duties and responsibilities to its tenants?	It is unclear how the current environment will affect mergers however the increased focus on building quality may add new dimensions to mergers. We have seen examples where large organisations have become challenging to engage with both for us and for their tenants. We have had to make it clear to our largest RP partner that their services were not acceptable due to the level of complaints we were receiving. The problem has now been resolved. At a local level one implication is that borough RP representatives may not be of the seniority to engage effectively and enable meaningful local decision making.
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?	We plan to engage in a joint venture in the near future with a housing association and to engage housing associations in the assessment of opportunity sites and those with planning permission that have stalled. Historical cuts to local authority funding have placed pressure on strategic 'back office' functions required to facilitate such explorative activity. This is the opposite of encouragement to partnership but has in fact caused the demise of many partnerships on housing within local authorities There was little collaboration with housing associations when producing the previous Local Plan, but it is necessary to have greater involvement with them when considering both demand and supply of new housing in plan-making. This is an idea that has been suggested by the Elphicke review in 2015
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?	The over supply of affordable home ownership compared to affordable or social rented is compounding the housing crises in our borough for those most acutely excluded from the housing market. There is concern that shared ownership schemes are becoming unaffordable to people even on moderate incomes. Data from our latest SHMA states that affordable rental homes are the most critically needed. In regards to deliverability and considering the increased costs of developing new homes it remains unclear how other forms of affordable home ownership such as discount market sale provide an opportunity to those excluded from the existing market due to affordability.
What contribution have council owned housing companies made to increasing social housing supply? Is the collapse of Brick by Brick – wholly owned by the London Borough of Croydon – a one off or the tip of the iceberg?	There are examples of council homes companies delivering new social housing like Ealing's Broadway Living. They can make a contribution to speeding up development and outside the parameters of usual local financing structures but with strict accountability and financial monitoring. We understand that there were specific failures that caused the collapse of Brick by Brick. We are not in position to assess how these failures may be replicated elsewhere.
Will the introduction of the Infrastructure Levy and changes to section 106 significantly affect the capacity to develop affordable housing?	The Infrastructure Levy requires a great deal of clarification at this stage. It is unclear what happens if the amount of affordable housing secured via the levy is less than the policy requirement of 35% on-site affordable housing within most London Boroughs. We also have concerns about the increased financial exposure for if for example, due to IL payments being made on completion rather than at application stage.
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?	The current range of policy changes will not sufficiently achieve the Department’s goals of improving existing standards and expanding supply. The focus on First Homes will not help us meet acute housing need in borough. It is unclear if these homes after discount will be more affordable than equivalent properties available for resale in the borough. They will however likely reduce the viability of low cost rented homes which are urgently required in a borough which has over 2900 households in temporary accommodation. There needs to be greater grant funding for the delivery of new housing including social rented housing, and capital grants to improve standards across our current housing stock. As outlined earlier, there need to be reductions in PWLB borrowing rates, or at least long term preferential rates for affordable housing development, should be provided to support long-term financial stability. We also support the view that the social housing sector should be enabled to implement a catch-up period following the rent ceiling period so that rents can gradually rise to the position they would have been under CPI+1% position. This would enable housing providers to recover some of the funding needed for investment in essential services and improving standards while protecting tenants from significant short-term annual increases in rent. There needs to be a greater alignment of objectives between government departments. The UK Government spends more on housing allowances [ie housing benefit] as a percentage of GDP than most other countries (OECD Report PH3.1 PUBLIC SPENDING ON HOUSING ALLOWANCES), and yet the UK does not have better housing outcomes as a result. This is in part because aside from the significant expenditure on housing benefit within the private sector, much other government expenditure is focused on subsidising demand, rather than facilitating supply.
Is Homes England being directed appropriately by the Department, and is it achieving its objectives?	The Greater London Authority is the body responsible for the allocation of housing funding in the capital
Has any evaluation been undertaken of the impact of the additionality guidance on the supply of social housing?	The general perception is that it is counter intuitive to achieving more affordable housing.
Is the current range of grant funding available appropriate to address the issues and challenges that the social housing sector faces?	Current grant is not appropriate if the issues and challenges in the social housing sector are to be addressed. New grant conditions that require social rent as opposed to London Affordable Rent will reduce supply of housing. Similarly new grant conditions only grant for net additional homes making regeneration less viable. Grant funding due to market pressures need to be increased.
On our inquiry into Exempt Accommodation we found that issues have arisen when providers are not registered with the Regulator. How does the Regulator of Social Housing engage with Housing Associations whose registration is voluntary?	Not applicable
Does the Regulator of Social Housing have sufficient power to ensure that mergers result in a financially viable new organisation?	We are unaware of mergers resulting in non-financially viable outcomes. However, we have concerns that larger organisations risk losing their local connection to areas and communities. It is interesting that the question focuses solely on financial viability and not the delivery of services to residents and the other parts of the regulatory framework
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?	The governance and viability gradings of the regulator are well established.
Does the Regulator of Social Housing have the resources and skills necessary to regulate the increasingly complex financial and corporate structures proliferating in the social housing sector?	As a local authority, we are bound by legislation that governs local authority finances. There has been a need to be flexible in order to achieve housing outcomes required for meeting housing needs and targets in the Borough. For the Regulator it needs to ensure it has the requisite skills and capacity to understand how that flexibilities deliver new housing and ensure the quality of homes and services are maintained to a minimum standard. The Regulator will also need to understand that as a democratically led body we are governed in a very different way to the Board of a Housing Association.
How appropriate is the existing regime in respect of regulating for-profit housing associations?	We have limited experience of for profit organisations working in borough. Our suggestion would be that regulation examines a ratio of profits linked to community investment.
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?	Yes As noted above, current economic and financial challenges means that boroughs face significant difficulties in maintaining viability in development programmes. If affordable housing delivery is to not collapse, significant more funding is needed quickly and decisively.

May 2023