Written evidence submitted by Inclusion Group [EXA 007]

EXEMPT ACCOMMODATION INQUIRY

Inclusion Group can provide evidence to substantiate each assertion within this submission and is willing to provide representation at the Committee to respond to any questions or clarifications from Members.  The representatives would be experienced and highly knowledgeable individuals who have operated the model successfully and provided advice to several prominent UK and foreign funds, investor institutions, pension funds, developers, commissioners and care providers.  These are individuals who negotiate, influence, implement and operate this model on a daily basis rather than trade body, regulatory, bureaucratic or self interest groups who have limited exposure to how the lease based exempt accommodation model works.  These are sub sector experts operating in the regulated and non-regulated sector within a unique business with a track record of successful growth over 6 years, twice a European Business Award winner and holder of the Queens Award for Innovation.

The Committee welcomes evidence submissions on the terms of reference outlined below. The closing date for submissions is 28 January 2022.

In particular, the inquiry seeks information on the following points:

EXECUTIVE SUMMARY

The evidence submission below has been devised to support the following views and commentary. 

1. Traditional housing associations who provide supported/exempt accommodation have moved out of this market and in many cases divested themselves of supported housing, mainly due to the complexity, risk and limited returns.  This is recognised and confirmed by the Regulator of Social Housing (RSH).

2. The lease-based model is providing much needed new and refurbished accommodation with commissioner support, as it is helping these agencies achieve their strategic plan objectives.  Inclusion Housing is at the forefront of this providing 1 unit of new accommodation for the most vulnerable in society every day for the last 7 years.

3. The lease backed model is risk sharing; so that the investor ultimately carries the long-term financial cost; the developer is exposed to the cost of development, the care provider covers the care and support risk while the registered provider assumes the tenancy and estate management risk.  This cohesive approach is antidote to the weaknesses of the traditional model of supported housing provision with one supported housing provider being financier, developer, manager and in many cases the carer; this is a significant risk for one RP to assume for a relatively small, complex market with marginal returns – resulting in lots of RPs not investing or even divesting themselves of supported housing.

4. The speed of provision is much quicker, responsive and successful than traditional public sector procurement and subsidy-based systems that have failed to deliver discrete localised community provision. Commissioners are utilising this model more and more for specialist supported housing as they recognise its many benefits and their ability to influence provision.

5. The economic impact of the new investment is significant not only in regard to property refurbishment and build but in reducing excessive costs of institutional care; helping to deliver against the Governments own transforming care agenda. The net social impact of provision of quality community-based accommodation is significant; in Inclusion Housing (IH) case this is +£122.5M for 2020/21 (independently assessed according to established and recognised formula including Government Green Book methodology)

6. There have been instances of failing Registered Providers (RP’s) but superior landlords have demonstrated their willingness and ability to intervene to ensure that the vast majority of homes are retained for their original purpose and tenants stay in situ.  It is in the best interest of all parties (superior landlord, RP, care provider, commissioner, tenants and Regulator) that this has happened to provide an effective, responsible and sustainable market-based response. Compare this responsible approach with traditional RP’s who have abandoned the supported housing sector.

7. Regulatory intervention has been on the most part counter-productive or at best irrelevant.  The investment market is ahead of the regulation as major institutions invest hundreds of millions in the supported housing sector.   The RSH view and approach is irrelevant to the decisions made at a national and international level; the regulator needs to adapt to the reality of market investment decisions and the structures that underpin them rather than continue with a blinkered anti lease model approach.

8. Through the RSH approach they have registered relatively new lease backed RP entities and failed to monitor them; then despite an early warning from Inclusion Housing in 2015 some RPs ‘imploded’ and the Regulatory individuals who failed to act in regard to monitoring were then involved in enforcement action.

9. Inclusion Housing is an example of a responsible, award-winning enterprise which is operating the model successfully with quality accommodation and excellent services; our offer (4 years ago) to work with the RSH to develop a more sophisticated and bespoke approach to regulation has been ignored.  

10. The RSH unsophisticated, shallow and dogmatic approach has resulted in the creation of ‘Zombie RP’s that remain in a permanent state of regulatory purgatory.  Despite the offer from a successful, accredited and award-winning company (Inclusion Housing) to assist in rescuing them into our stewardship this was actively briefed against.  A state of uncertainty and confusion has been created because of regulatory inertia when a market approach is possible led by a responsible, successful, regulated, not for profit specialised provider.

11. Another consequence is that investors and providers continue to invest in an ethical and sustainable sub-market but are required to implement new and elaborate structures that mostly fall outside of the regulatory remit; as the RSH has stated that they do not intend to register new lease backed providers.  Through belligerence and failure to engage the RSH has effectively separated itself from the reality of the market by not agreeing a way forward that regulates the model responsibly and in a sophisticated way that deals with the lease arrangement. Other sectors have managed to achieve this but the RSH constantly fails to engage meaningfully with responsible actors.

12. Housing benefit departments already have the responsibility and expertise to determine exempt rents and stronger emphasis on the administration of this should help ensure efficient, if not perfect, arrangements are in place to ensure that each rent is compliant and appropriate.  Further RSH involvement does not add any value; only confusion and the use of HB data to identify outlier exempt application numbers and levels needs to be routinely employed and utilised.

13. The RSH needs to be more intelligent and sophisticated in using dynamic data and analysis to monitor RPs such as Inclusion, on a quarterly basis. This has been offered (but ignored) as an alternative to the ‘Zombie’ RP approach to allow for responsible specialist RPs to continue to deliver more good in a market where there is under provision.

14. Provision of more supported housing is required on a national basis, as set out in part through the Social Care White paper.  Leased based provision offers a responsive and high-quality product (with exception) as the market has now normalised.  This normalisation is evidenced through increased interest in the lease model and support from commissioners to deliver more units in their locality to provide for vulnerable persons.

15. RSH opposition to the operation of the model is not promoting equality of opportunity by placing additional barriers to provision; this is not in the national care interest nor that of vulnerable adults;  Especially as the sector cannot offer a consequential alternative with many traditional supported housing providers being financially at risk.

16. Inclusion Housing is a model example of how the lease-based model can be successfully and responsibly implemented by a not-for-profit social enterprise for the social and economic benefit of the country, care sector as well as for vulnerable residents and their families.  Contributing toward the national strategic priority, we are assisting local commissioners to provide quality accommodation backed by excellent accredited services; helping at least one vulnerable adult every day to achieve a long term, sustainable lifetime home with appropriate support. Despite regulatory opposition we are demonstrating that the model can operate successfully and contribute toward the net economic benefit of the country as well as to do more good.

We would recommend that the Committee consider the following recommendations.

17. Devise and adopt sophisticated bespoke regulatory guidance for lease backed providers; that recognises the significant benefit of a lease backed approach but is flexible to allow for the alternative financing arrangements. At the same time to adopt consistent regulatory intervention to address the inherent weaknesses of traditional supported housing organisations with an asset backed model.

18. Influence the RSH to adopt an outward looking proactive approach to registering, regulating and working with lease-backed providers as opposed to their current irrelevant, exclusionary approach that has no motivation, route or incentive for responsible providers to register.

19. For the RSH to proactively engage with investors and RPs to agree on further iteration of the lease and leased based model to provide further risk mitigation with the assurance that compliance can be achieved by responsible RP’s.  It is in the best interest of superior landlords that lease based supported housing is sustainable backed by quality service providers. 

20. Ensure that the failure to promote equality regulatory approach that places significant barriers to entry and new provision is dealt with to enable new commissioner backed provision into the sector.  These barriers are not in place for other sub-markets.

21. Housing Benefit/Allowance administrators to utilise data to identify trends and exceptional incidence to target ‘out-liers’ and then apply appropriate existing enforcement action to deal with non-compliance to the existing housing benefit guidance.

22. For the housing regulator to utilise more frequent financial and performance data to enable responsible RPs to operate in the social housing sector on a compliant basis.

23. Undertake investigation to ascertain why subsidy baked Registered providers are charging excessively high rents for supported accommodation.

24. Allow the market to rationalise to allow for ‘Zombie RP’s to be rescued by existing responsible lease-based providers; the existing Regulatory approach has no solution except de-registration.

1. What is the quality of exempt housing provision?

CUSTOMER EXCELLENCE

25. Overall there have been issues associated with customer services within lease backed RP’s; however, this is common across the Housing Association sector irrespective of the model.  Evidence provided by the Ombudsman identifies that the poorest service providers are traditional asset backed (usually larger) providers.  Insignificant housing regulation and the willingness to ignore, tolerate and reluctance to intervene or use publicly available data and analysis to address bad service is a general sector wide weakness and not confined to exempt housing providers.  The Housing Ombudsman’s office saw a 139% increase in complaints in the year to date compared with 2020-21, and a 65% increase in formal investigations.

https://www.insidehousing.co.uk/news/formal-investigations-by-housing-ombudsman-up-by-65-72864

26. Inclusion Housing has demonstrable evidence of being an excellent exempt housing provider. Inclusion has achieved independent quality accreditation including Customer Service Excellence, Investors in Excellence and Leaders in Diversity. Customer satisfaction is near to national top quartile level delivering local services on a national basis through a network of locally employed colleagues and sourcing local contractors.

27. Inclusion is in the Top 20 best performing RPs regarding customer complaints when compared with all Registered Providers. The Committee should not isolate or associate the wider issue of poor service being delivered within this sector with the operation of this model; it is common within traditional, asset backed providers as highlighted through ombudsman reports and ITV reporting.

https://www.insidehousing.co.uk/insight/insight/the-complaints-failures-index-how-does-your-organisation-rank-68087

28. Awards & Accreditation Inclusion is a twice European Business Award winner and holder of the Queens Award for Innovation.  The business has demonstrated how determined leadership and innovative thinking can turn around organisations and to highlight how organisations/individuals have become outstanding leaders in their field.  This is unique for the specialist supported housing sector.

• Investors in Excellence 2021
• European Business Award 2020 (Chairman’s’ Category)
• Parliamentary Review 2019
• International Corporate Social Responsibility Winner 2019
• Queens Award for Enterprise (Innovation) 2018
• Leaders in Diversity 2018

2. Is the current model of exempt accommodation financially viable, and does it represent value for money?

29. Despite the financial mismanagement of many exempt providers Inclusion Housing has demonstrated that the model is financially viable through efficient business planning, prudent assumptions, strong cash flow management and reducing costs well below those of the inefficient, wasteful housing association sector. Inclusion income over the last five years increased from £15million to £47 million driven by the increase in the number of units in management ; with a projected continued sustained increase in income in 2021/22 to £54 million and £61 million a year later.

https://www.inclusion-group.org.uk/company-publications/Annual-Report-2020-21.pdf

30. The costs of specialist supported housing is substantially lower than registered and hospital care; PSSRU data comparison demonstrates that Inclusion Housing gross rents are 79% lower than alternative public sector care accommodation costs. The Regulator continues to implement an unsophisticated approach to rent comparison; seeking to compare local social rents with exempt rents when a care sector cost comparison is appropriate. Comparative analysis shows that Inclusion Housing average gross rent levels would account for only 21% of the average cost of accommodating our tenants in registered or a hospital environment; this percentage is decreasing year on year as care costs escalate ahead of Inclusion Housing accommodation costs. 

https://www.pssru.ac.uk/project-pages/unit-costs/unit-costs-of-health-and-social-care-2021/

31. In addition the RSH needs to take into consideration subsidy when regulating rents; traditional RP’s ‘flipping’ subsidised supported housing schemes into exempt accommodation and inflating rents to above comparable market levels has been ignored at a cost to the taxpayer.  For example, Inclusion Housing gross rents are 20% lower than registered providers who have received subsidy for the accommodation (source Lord Best Supported Housing Letter 2017). In 2017 the average specialist supported housing gross rent for traditional RP’s was approximately £389 per week, while Inclusion Housing average rent was approximately £100 cheaper. Four years later Inclusion Housing average rent charge is still substantially below the average 2017 level.

https://www.dropbox.com/s/lnithigao4fgh3r/Letter-from-Lord-Best-to-Chair-relating-to-the-future-of-supported-housing-13-September-2017%20%281%29.pdf?dl=0

32. This inflated rent level of is being further exacerbated by traditional asset backed RP’s that are charging CPI + 1% annual rent increases.  Compare this to Inclusion Housing where the majority of leases provide only for a CPI increase which means that the average annual rent increase over the last 3 years is  3.9% lower than the sector target average (CPI+1%) since 2020/21. While sector rent has increased by 8.3% over the last 3 years Inclusion rents have only increased by 4.4% since 2020/21. It is envisaged that this positive trend of rent increase being lower than the average sector level will continue in future years as the sector average rent level is impacted by RP’s being allowed to increase rents 1% above inflation, while Inclusion Housing increase rents mainly by inflation, usually CPI.

33. Inclusion Housing has grown substantively over the past 6 years with more growth to forecast. Over the past five years IH has demonstrated strong financial gains on a consistent basis, providing a strong platform to provide further specialist supported housing in the future.  Strong working capital management and surplus generated has enabled cash reserves of £17.8 million to be realised and retained, including a property sinking fund of £6 million. The lease backed model is financially viable if managed by competent leadership; however, it cannot be assessed against a one size fits all regulator promoted asset backed assessment model; this is unsophisticated and irrelevant.

Inclusion Housing Financial Trend Analysis

34. The annual Inclusion Housing financial trend analysis is presented below for information; derived from year end management accounts. It is noticeable that over the last 3 years (since RSH assessment) Inclusion Housing has continued to significantly enhance its financial position; its sixth year of improvement. 

• Since 2017/18 turnover has increased by 115%; while gross surplus has increased at a higher rate of 136%. 
• Gross surpluses equate to a 11.8% return; while profitability excluding lease costs (which are passed on and provide no return) equate to 32% return.
• It is notable that cash reserves have increased by 224%; while the net asset position has increased by 199%.
• Cash in the business is now 33% of turnover or 53% of lease costs; equivalent to 6 months cover; an approximate 50% improvement in coverage compared to 3 years ago. 
• Overall, the 2020/21 results are the best ever and the improvement trend is consistent with the previous 6 years: demonstrating long term success of the business plan growth strategy.
• The 2021/22 financial statements are likely to show even further improvement: the seventh consecutive year of progress and achievement.

Comparative Finance Indicators 2019/20

35. Annual analysis of similar supported housing providers annual accounts has been undertaken for the financial year 2020/21. Sixteen registered providers accounts, including Inclusion Housing, have been analysed to compare financial and value for money performance. Last year’s analysis demonstrated that Inclusion Housing was the best ranked company for both overall and financial indicators (third year running), despite having the worst regulatory gradings; while the worst ranked RP enjoyed a V1 G1 Rating. 

36. There is an issue of the Regulator utilising a one size fits all approach of assessing financial viability of exempt providers against an asset backed model; it lacks sophistication and not fit for purpose in regard to the increasing utilisation of the lease model in the sector. This demonstrates the inconsistent regulatory approach in regard to comparative viability assessment; especially as the RSH own model demonstrated that Inclusion Housing (IH) compared favourably with other providers. Overall, there are some key points that are worthy of consideration when analysing the latest data: -

• Cash reserves for the other 15 RP’s have increased by 37% in two years from 18/19 to 20/21.  IH cash reserves increased by 111% in the same period.

• The average liquidity of RP cover is 23% (cash as a % of turnover); compared to 33% at Inclusion Housing. 

• It is noticeable that four V1 rated traditional RP’s have very thin liquidity cover compared to the sector average.

• The underlying balance sheet trend over the last 12 months shows that the average across the traditional RP’s has remained static; Inclusion Housing balance sheet has increased by 31% during the same period.

• Inclusion Housing balance sheet is not as strong as other RP’s mainly because IH has not had the advantage of decades of accumulated profits nor the ability to assume massively subsidised/grant income generating assets into its portfolio.  It is estimated however that IH will achieve comparable balance sheet strength ratio within the next decade; even quicker if the financial position of traditional supported housing providers deteriorates (which is a likely risk to crystallise) while Inclusion significantly increases its balance sheet year on year.

• IH average operating costs (£4190 per unit p.a.) is 65% less than the average for the other 15 RPs of £12,018.  Despite the extraordinary high costs of management there are 14 compliant RPs, notwithstanding significant concern in regard to the Value for Money Regulatory requirement. 

• IH productivity of £803k per FTE employee is 717% better than the average for the other traditional 15 RP’s; their average is £112k per FTE.  This highlights a concern regarding waste and inefficiency in the sector.

37.   The combination of Inclusions continued growth in income and the control of costs has resulted in yearly sustained surplus before gift aid & tax achieving a consistent return of 7% in the year 2017/18 and 2018/19. One off exceptional costs incurred in 2019/20 dampened the return, with the 2020/21 results at 7% in line with budget expectations. The next two years financial forecast is in line with the business plan reflecting a 7% return. Inclusion Housing demonstrates that the model is financially sustainable.

38. Strong working capital management and surplus generated has enabled cash reserves of £15.5 million (March 2021 – improved further in 2021/22) to be realised and retained, including a property sinking fund of £5.4 million available to support the future property investment to ensure the IH properties are maintained to a high standard; providing desirable places to live for the long term. Business plan cash reserves over the next two years reflect strong cash flows being maintained and further growth being achieved to £20 million.  Inclusion Housing demonstrates that the model is financially sustainable.

Financial Ratios

39.  The financial ratios support the improved financial position of Inclusion Housing from achieving small margins in 2014/15 through to sustainable operating margins around 7% in 2020/21 to support the delivery of services for the long term. The improved Liquidity ratio supports the future cash requirements to cover the risks associated with long-term lease commitments, excellent service delivery and investment in additional units in management.  Leasing the majority of the properties in management means IH has no debt requirement.

40. The above points provide evidence of inconsistency in sector regulation, where financially vulnerable traditional Registered Providers are regulated with greater leniency.  Overall, it is expected that analysis of the 2021/22 annual accounts will demonstrate that Inclusion Housing will retain its dominant financial comparison analysis across supported housing providers: while significantly strengthening its balance sheet further and at a much faster rate than traditional RP’s.

Return on Assets

41. Ensuring IH is at an optimum level of financial viability, each scheme is required to make a positive contribution after the deduction of direct costs in line with the business plan assumptions. The required level of financial return for individual schemes is 19%; in addition, IH recognises all schemes are in management for public benefit and to provide a home for adults in need. 94% of the schemes in management returned a positive financial contribution for the 2020/21 half year, making them independently financially viable. The proportion of schemes in management over the last four years making a loss has fallen from 8% to 6% as the organisation has improved its void management mitigations.

42. The percentage of units in management making a negative contribution has continued to fall from 12% in 2016/17 to 6% in 2020/21, a positive trend.  In 2020/21, 73% of the leased schemes were classed as green, 21% as amber and 6% as red. This is a continuing positive trend with loss making schemes accounting for only 0.6% of business turnover.

Value for Money

43. Cost Indicators.  During the last five years, IH has achieved a significant reduction in operating costs since 2017/18, a 5% reduction, falling from 93% to 88% of turnover.  Overall, as Inclusion grows it is reducing its costs in all areas of the business and will continue to do so whilst retaining excellent levels of service.  The table below highlights that our management and property costs are lower than other operators in this market. Overall traditional RP’s costs are inflated and despite the value for money standard, high cost and poor service providers are tolerated within the existing regulatory arrangement.

44.       Operations Indicators Overall operation indicators have improved during the last few years in regard to reducing current and former rent arrears. Void loss is reducing and we aim to improve further in regard to average re-let days. Inclusion Housing is demonstrating its ability to provide high performing, accredited and quality services at a low-cost level; something that is innovative within the sector.

45. Value for money metrics were introduced by the RSH to capture performance across the sector in a fair and comparable way; it is however acknowledged that any metric will inevitably be more appropriate for some providers than others. The lease-based model does provide some results outside the sector norm. Overall Inclusion Housing is a national top quartile performer except for operating margin; however, this is supposed to be a not-for-profit sector where 28% average margins are made and little taxation paid. The table below highlights the independent benchmarking within the sector.

Table 1 - Sector Benchmarking

RSH source: Global Accounts 2018/19 VFM Metrics

46. It is noticeable the Inclusion Housing is delivering more units of accommodation and at a substantially higher rate of growth than the majority of Registered Providers.  Demonstrating the ability of the model to generate substantially greater economic activity compared to an apathetic sector used to subsidy with an unwillingness to utilise strong reserves and massive cash flow to generate the substantial economic impact that it could deliver for social tenants.

47. As the lease backed model operates on a ‘cash flow’ basis the company is already incentivised to operate efficiently to generate a surplus; compare this with wasteful, high-cost traditional registered providers (RP’s)

3. Are there significant geographical and regional differences in the provision and the problems of exempt accommodation?

48. Inclusion operates on a national basis across England with a presence also in Wales and Scotland. Our finance and development partners have identified that this is a competitive advantage for the business as it means that they can identify and complete new business opportunities across the country and work with one provider rather than a number across the country.  Inclusion through its existing network of contacts and service providers can also assimilate new developments into its operational portfolio with minimal effort and difficulty. 

49. This national footprint is supported by Regional Managers, Property Managers and Managing Agents ensuring robust operational management is delivered with a ‘local provider’ emphasis.  Increasing our services or stock within a geographical area means that we can deliver greater value for money through or management and supply chain. 

50. Rationalisation within the exempt rent sector would be beneficial and Inclusion Housing has made an offer to the RSH to assist in this regard 3 years ago but to no avail and be actively briefed against when Inclusion has attempted to do so.

4. What is the proportion of exempt accommodation that is provided by registered compared to non-registered providers, and is an appropriate balance being struck?

51. The statement from the RSH that anyone primarily operating the lease backed model would ever be likely to achieve a compliant rating has led to sector stakeholders to introduce new models of provision that sit outside the registration of the RSH.  This is a normal and innovatory response if operators are dealing with an exclusionary rather than an inclusive Regulator who fails to engage constructively with operators and investors to take the model forward.

52. There is also an unwillingness of the RSH to register new providers primarily operating the lease model; therefore, the Committee consideration of an ‘appropriate balance’ is presently irrelevant as the means to increasing the proportion of registered providers is effectively blocked by the Regulator. Responsible and reasonable housing providers are not welcome and need to make their own arrangements to operate exempt accommodation. It is noticeable that the RSH is registering ‘for profit’ providers therefore it is being selective in its approach to sector regulation.

53. Charitable and not for profit organisations registered with other Regulators (e.g. Charity Commission) must be considered as registration with the housing regulator would result in additional cost and complexity, creating further barriers of access to much needed accommodation for the most vulnerable in society.

54. The RSH has consistently failed to engage constructively or to provide a view on what a ‘compliant regulatory lease or operator’ look like.  When asked their opinion the standard response has been that it is not for them to provide advice in this regard; this is not helpful or constructive in promoting further registration, market maturity or responsible regulation.

55. The RSH approach is not helpful in regard to learning from, engagement with nor taking forward the lease backed model; this is a failure of the RSH to adapt to a fast-moving market of new models and new investment; increasingly from international based funds and investors.

56. The inappropriate regulatory approach has created a body of ‘zombie’ associations; deemed to be non-compliant without a route to compliance.  In such circumstance it is expected that providers implement alternative routes to deliver exempt accommodation outside the auspices of a Regulator, whose approach undermines the investment market and the provision of supported accommodation.

57. The RSH policy and little regulator approach to lease backed providers makes it irrelevant to the reality of the investment market and adult social care strategic requirement; disengagement and non/de-registration does not provide the strategic, intelligent or responsible approach required to adapt to a global investment environment.  The Regulatory approach needs to be more sophisticated and relevant to the environment and investor market; especially as much needed supported housing is being provided despite rather than because of the Regulatory attitude.

5. What is the proportion of exempt accommodation provided by commissioned compared to non-commissioned providers, and is an appropriate balance being struck?

58. Inclusion Housing ensures that it undertakes appropriate due diligence with local commissioners to ensure that they are aware and support any new scheme. Our growth demonstrates that the model is increasingly ‘popular’ for public bodies to support/commission as it delivers against several their priorities:

• No subsidy requirement
• Ability to refer in their own clients and need group(s)
• Cost saving as opposed to registered or hospital care
• Influence upon  and support for the locality of scheme and number of units
• Ability to influence design and specification
• Ability to close existing, unsuitable facility to gain a capital receipt
• Substantially quicker delivery of new units as compared to traditional procurement route
• Ability to influence rent levels
• Ability to influence care provider designation
• Delivery of much needed specialist accommodation within an average of 12 months
• Help more clients and their families to enjoy greater opportunity and quality of life
• Provision of long term tenancies as opposed to short term/insecure hospital and care establishments

59. We have numerous examples of best practice in this regard and it is evident that the specialist supported housing market has ‘moved on’ over the last 3 years.  Inclusion due diligence approach was in place 7 years ago before Regulatory intervention by the RSH into this market, who at this time was registering and ineffectively monitoring lease backed entities.

60. Inclusion also ensures strong local referral arrangements are in place with the local authority via a care provider who is contracted or listed on the local care framework to deliver support and care.  Care packages and funding are checked with substantive information shared with the local authority when housing benefit is claimed.  This is a responsible and compliant approach which should be sufficient if effectively implemented through local housing benefit checks.

6. How does whether a provider is registered or non-registered, or commissioned or non-commissioned, impact the quality of provision?

61. In the case of Inclusion Homes (a non-registered RP) the quality of the accommodation is very high with top quartile compliance standards, sinking fund provision backed by an effective repairs service.  This is comparable to Inclusion Housing, a registered provider.

62. Inclusion provides quality accommodation across England, Scotland and Wales maintained to a high standard and with a strong emphasis on property compliance.  Our net promoter score for satisfaction with the condition of the home is +44%. This reflects the high quality, purpose refurbished/built accommodation that this model is providing every week.

63. Latest information provided by the English Housing Survey¹ states that the National Average SAP rating for social housing is 68 with the private sector housing average rising one point to 63. Inclusion Housings current average SAP rating has seen a slight increase from 75.95 to 76.44. When you consider that a newly built property generally achieves an average SAP rating of 81, the average across IH properties clearly demonstrates that many of our properties are energy efficient.

64. Energy Efficiency Band Ratings (EER) In the 2018 - 2019 English Housing Survey the distribution of EER bands varied. There was a greater proportion of owner-occupied homes in band D (52% compared with 48% of private rented sector dwellings). In the social sector 56% of dwellings were in EER bands A to C with 44% of dwellings in bands D to F. Inclusion Housing has seen an improvement from 78.6% to 80.19% of dwellings in bands A to C and a reduction of properties in the lower bands from 21.4% to 19.10% in D to E with no IH properties in band F.

65. Poor quality accommodation and service is associated as much (if not more) with traditional asset backed RP’s; recent high profile media cases highlight this and housing ombudsman analysis confirms it.

7. How should exempt accommodation be provided and what should the service cost?

66. Traditional subsidy and public sector procurement routes to exempt accommodation provision is a failed approach; it is bureaucratic, lengthy, costly and uncertain.  Inclusion can approve and deliver a specialist supported housing scheme through a market backed approach with commissioner support within 12 months on average.  Our experience of working through local authority projects is more than 3 years in duration; we undertake very few commissioner led schemes as many fail to materialise beyond the original concept.

67. The lease backed model is risk sharing; so that the investor ultimately carries the long-term financial cost; the developer is exposed to the cost of development, the care provider covers the care and support risk while the registered provider assumes the tenancy and estate management risk.  This cohesive approach is antidote to the weaknesses of the traditional model of supported housing provision with one supported housing provider being financier, developer, manager and in many cases the carer; this is a significant risk for one RP to assume for a relatively small, complex market with marginal returns – resulting in lots of RPs not investing or even divesting themselves of supported housing.

68. Overall the risk sharing model of provision is sustainable; international investors have taken this position despite the Regulatory concern as fundamentally this is a UK property investment in the healthcare sector where there is under provision and increasing demand while doing good; hence significant lease based investment from UK and overseas funds.  The Regulatory view fundamentally needs to recognise the reality of the economic and social benefit of the lease-based model and adapt to regulate it responsibly and intelligently.

69. Existing HB guidance is clear and concise in regard to housing benefit paying for property and tenancy service elements; appropriate implementation is what is required with no additional provision for support services.  Inclusion submits its rent and service charges on an annual basis for scrutiny, which is entirely appropriate and effective.  Where challenged then we respond accordingly; it is appropriate that HB sections should undertake rigorous checks. There is also a legal, independent tribunal system to consider and resolve dispute.

70. The data for each rent and service charge element is provided to every HB section.  To ensure appropriate charging and to identify exceptional events in different localities, it should be possible to utilise analysis/logarithms to identify exempt rent concerns (incidence and cost) through targeted investigation. Intelligent analysis and discrete intervention will be much more effective and efficient on a national basis as opposed to more regulation, guidance and bureaucracy for a stretched housing benefit front-line resource to ‘police’ inconsistently. 

8. How should the regulatory oversight of exempt accommodation be organised?

71. First of all the exiting Regulator (RSH) must change its policy to actively want to register exempt lease backed providers; without meaningful engagement then the RSH is irrelevant. It then must put in place an intelligent, reasonable, relevant method to the regulation of this model rather than to impose a one size fits all asset backed regulation approach.

72. Many non-registered care, non-profit and charitable organisations operate exempt accommodation in a regulated environment.  These organisations should not be expected to be forced to register with the RSH; this would be burdensome and costly. However, the RSH approach to stop registration, de-register and to impose a high cost, bureaucratic form of regulation upon responsible providers must be fundamentally changed to encourage further registration.

73. The RSH approach is purely focussed on governance and viability with a complete disregard for equality and charitable purpose as well as consumer regulation; to such an extent that the Regulator effectively places significant barriers and costs to providing specialist supported housing.  This fails to promote equality for those who are excluded or with limited opportunity; charitable and social enterprises established to provide a means to access to much needed supported housing should not be penalised in providing supported housing for vulnerable clients compared to the general population. 

74. The RSH response to the question of who will provide specialist supported housing if not organisations such as Inclusion Housing is that ‘this is for another Regulator in a different sector’; this is unacceptable. Regulatory oversight needs to be equitable and not seek to limit exempt housing provision through application of unsophisticated regulatory assessment. There needs to be a fundamental recognition by Government that current regulatory oversight is a barrier to addressing adult social care problems as highlighted in recent damning reports.

https://www.disabilitynewsservice.com/watchdog-warns-social-care-is-at-crisis-point-and-calls-for-legal-right-to-independent-living/

https://committees.parliament.uk/committee/81/health-and-social-care-committee/publications/

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/945235/Social_Housing_Lettings_in_England_April_2019_to_March_2020.pdf

https://www.gov.uk/government/publications/people-at-the-heart-of-care-adult-social-care-reform-white-paper

75. The RSH need to adopt sophisticated data analysis to monitor lease backed providers to allow responsible providers (such as Inclusion Housing) to operate on a compliant basis whist providing monthly/ quarterly financial and performance data to allow for real time analysis and confirmation of viability.  This has already been offered (and ignored) to the RSH by Inclusion Housing as opposed to the irrelevant system that currently operates.

76. The RSH was forewarned of the perils of the lease backed model in 2015 by Inclusion Housing which self-referred itself; this was ignored until First Priority Hosing Association ‘imploded’ and the RSH then acted in panic to cover its failings and make up for 3 years of ineptitude.   It was the Housing Regulator who registered the failed lease backed providers and negligently monitored them until such a time that they began to implode in 2018.

77. RSH Individuals who incompetently monitored the lease backed providers were then involved in the enforcement action taken against other providers; effectively fettering the regulatory view and approach despite their systemic failure.  Confidence needs to be rebuilt to ensure a cohesive and proactive approach to lease backed provider regulation so that the positive social care and economic benefits may be realised.

9. What should be the regulations governing exempt accommodation and how should those regulations be enforced?

We would recommend that the Committee consider the following recommendations.

78. Devise and adopt sophisticated bespoke regulatory guidance for lease backed providers; that recognises the significant benefit of a lease backed approach but is flexible to allow for the alternative financing arrangements. At the same time to adopt consistent regulatory intervention to address the inherent weaknesses of traditional supported housing organisations with an asset backed model.

79. Influence the RSH to adopt an outward looking proactive approach to registering, regulating and working with lease-backed providers as opposed to their current irrelevant, exclusionary approach that has no motivation, route or incentive for responsible providers to register.

80. For the RSH to proactively engage with investors and RPs to agree on further iteration of the lease and leased based model to provide further risk mitigation with the assurance that compliance can be achieved by responsible RP’s.  It is in the best interest of superior landlords that lease based supported housing is sustainable backed by quality service providers. 

81. Ensure that the failure to promote equality regulatory approach that places significant barriers to entry and new provision is dealt with to enable new commissioner backed provision into the sector.  These barriers are not in place for other sub-markets.

82. Housing Benefit/Allowance administrators to utilise data to identify trends and exceptional incidence to target ‘out-liers’ and then apply appropriate existing enforcement action to deal with non-compliance to the existing housing benefit guidance.

83. For the housing regulator to utilise more frequent financial and performance data to enable responsible RPs to operate in the social housing sector on a compliant basis.

84. Undertake investigation to ascertain why subsidy baked Registered providers are charging excessively high rents for supported accommodation.

85. Allow the market to rationalise to allow for ‘Zombie RP’s to be rescued by existing responsible lease-based providers; the existing Regulatory approach has no solution except de-registration.

10. Is there sufficient publicly available information about exempt accommodation?

86. Through utilisation of existing data and analysis that is held by both HB departments, Housing Ombudsman and the RSH then a more detailed insight into the operation of exempt accommodation across the country is easily achievable.  Through such analysis averages, incidence and trends can be measured with exceptions being identified for more targeted investigation.  Further regulation, guidance and bureaucracy is not required as the data analysis can be made more readily available and published.

87. The positive social impact and savings being achieved through the provision of exempt and specialist supported housing also needs to be recognised and reported on; much accommodation is directly contributing to achieving local and national strategic objectives associated with adult social care and transforming care programmes.  Current regulation ignores this contribution.

https://www.inclusion-group.org.uk/inclusion-housing/companypublications/social-impact-report/

88. Information about subsidised supported housing charging excessive/exempt rents needs to be assessed and reported on.  The Regulator is ignoring existing publicly available data (Lord Best 2017 submission ) that indicates excessive rents are being charged by traditional Registered Providers who have received subsidy, compared to providers who have not received any subsidy.

89. Value for money in the traditional RP sector is still a concern and not been adequately addressed, not only in terms of costs but also the non deployment of substantial reserves to achieve more social housing.

APPENDIX 

INCLUSION HOUSING BACKGROUND

90. Inclusion Housing is a regulated Social Enterprise that has created an innovative new Group structure to attract direct institutional investment to aid growth; a first for the sector. Our business model provides a serviced portfolio of non-government grant funded leased housing units which delivers social good and commercial returns, to meet a range of housing needs for adults with disabilities. With 3,030 units in management, located across Great Britain we work in partnership with other organisations to meet the specific care and support needs of specialist client groups. Tenancies are granted to vulnerable people who receive a commissioned support package and daily care provision from specialist support providers.

91. Our unique approach means we have first class relationships with key partners – including institutional investors, commissioners, Clinical Commissioning Groups and developers. IH is a cutting edge, innovative company that can respond quickly to new opportunity. Non bureaucratic or hierarchical; we have established Inclusion Group to attract direct institutional investment for growth. Continued business growth is helping to meet the demand for specialist supported housing accommodation in the healthcare sector. Commissioners increasingly outsource their property requirements, IH is ideally placed to provide local and responsive community-based accommodation solutions.

Inclusion Group Company Structure

92.The Board has established a new Group structure in 2020; Inclusion Group being the Parent Company Limited by Shares (CLS), including Inclusion Housing Community Interest Company (CIC), Inclusion Homes (CIC) & Inclusion Property Holdings with a separately registered Inclusion Foundation (Charitable Incorporated Organisation).

93. The purpose of the business structure review was to propose an alternative group structure to allow Inclusion to attract investment, meet its growth ambitions and continue to do more good and help people in need.

94. Inclusion Group is the parent company of the Corporate group developing, providing and funding health & social care housing for vulnerable adults across the UK. The parent company is Limited by Shares, each director holds an equal number of shares issued, with no one party with overall control.

95. Inclusion Housing is a leading specialist supported housing and registered provider, helping vulnerable adults across the country for over ten years. It is a Community Interest Company (Social Enterprise) and regulated by the RSH and the CIC Regulators.

96. Inclusion Property Holdings, a Limited Company, is an investment and property holding company, providing and funding health and social care housing for vulnerable adults. Established as part of Inclusion Group IPH is designed to facilitate private investment aimed at delivering the development of housing stock, a financial return to investors and a surplus which may be distributed for the company’s purpose. The investment and property holding company is Limited by shares and the Parent company controls 100% of the shares.

97. Inclusion Homes is an asset locked community interest company established to provide an alternative route to growth through providing supported and general needs housing across the UK for the Group. It is a Community Interest Company (Social Enterprise) and regulated by the CIC Regulator but not registered with the RSH.

98. Inclusion Foundation is an entirely independent charitable incorporated organisation entity, transactions with the Inclusion Group are at arms-length and market rates. It is regulated by the Charity Commission.

INCLUSION CUSTOMER EXCELLENCE

99. Overall, 89% were satisfied with the overall service provided by Inclusion, while 94% were satisfied with the personal service received from their Managing Agent. Overall satisfaction with the condition of their home was more than 90% as well as satisfaction with Inclusion listening and responding to them. The main points to note from the survey are listed below using the Net promoter score calculation methodology:

• Overall Satisfaction with Inclusion +66
• Satisfaction with the Managing Agent service +74
• Satisfaction with the condition of your home +44
• Satisfaction with the Scheme/Area +59
• Satisfaction with response to Anti-Social Behaviour +53
• Satisfaction with tenancy support +73
• Satisfaction with being listened to +64
• Satisfaction with feeling safe at home +76
• Satisfaction with views being taken seriously +62
• Average for all questions +64

INCLUSION IMPACT 2020/21

100. 2020/21 has been Inclusion Housing’s best ever year in regard to finance, growth, operations and social impact. This has been a year of progress, success and strengthening across the whole company resulting in achieving the business plan target that we set ourselves in 2016 to achieve 3,000 independent living tenancies under our management. Through our capability, talent and ambition we have achieved and out-performed exigent targets during the most challenging of years.

101. Inclusion Housing brought 550 properties into management; much needed specialist supported housing with commissioner support that is making a real difference in improving the quality of life for the most vulnerable in society. This demonstrates partnership in action; positive, measurable outcomes rather than aspiration and target. There are now more vulnerable people being supported in their own Inclusion
Housing home than ever before.

102. During the pandemic we have assisted health, care, social and local agencies to rehouse people from hospitals, registered care and ‘at risk’ carers into independent, lower risk living accommodation. We stepped up at every opportunity to collaborate and assist agencies during the national emergency to do everything we could; vulnerable persons continued to be able to access our much-needed accommodation to reduce their risk and help our partners.

103. Inclusion Housing financial performance is better than our comparable peers in the supported housing market. We are proud to have posted our best ever financial results with higher turnover, increased surplus, strong cash flow and strengthening balance sheet. Overall, in the last 3 years we have doubled the size of the company and it is evident that our business strategy has been appropriate and successful in meeting the market requirement whilst also responding to the challenge of the national, regulatory and operational environment. Success at Inclusion Housing continues to breed success; we are incredibly proud of our people, partners and most importantly of making a difference to those who do not have as many life chances.

104. The social impact of what we do on an annual basis is incredible; information contained within this report demonstrates that our annual social value is in tens of millions of pounds; not our calculation but independently assessed using the Government’s own methodology. Compared to many in the social housing sector, we also pay our corporation tax; further evidencing our commitment to being a responsible company contributing to society.

105.Customer service is delivered on a national basis but utilising local employees and contractors to ensure a high quality, personalised approach that we have become synonymous with. Our high level of customer satisfaction, low complaints and popular handyperson schemes all demonstrate our ability to provide excellent services, without a high cost. Our operational cost and overhead is significantly lower than the market average for supported housing but crucially not at the cost of an inferior service.

106. Our focus is on the future and we want to grow the number of units in management to 5,000 units, assist struggling supported housing providers and help local care and health agencies to support more vulnerable people into quality independent living homes.

107. Everyone at Inclusion Housing realises that we have a great responsibility in helping the most vulnerable in society. Our duty of care goes way beyond good intention, empty gesture or hollow words; we provide
high quality independent living in the community to enable vulnerable persons to enjoy a better quality of life. This is what we do and it makes a difference.

INCLUSION 2020/21 FINANCIALS

108. 2020/21 has been Inclusion Housing’s best ever year in regard to finance, growth, operations and social impact. This has been a year of progress, success and strengthening across the whole company resulting in achieving the business plan target that we set ourselves in 2016 to achieve 3,000 independent living tenancies under our management. Through our capability, talent and ambition we have achieved and out-performed exigent targets during the most challenging of years.

109. The rate of growth achieved by IH over the last five years has been significant, averaging 27% in line with our strategic business targets to achieve 3,000 tenancies in management. Our prudent projection is for slower future growth over the next two years as we move toward 5,000 tenancies in management.

• The model delivers on the governmental priority of Transforming Care; providing independent community care at a local level
• whilst at the same time reducing hospital admission and bed blocking.
• Substantial savings are being realised; our wrap around average costs for a vulnerable adult are approximately £42k per person per year; compared to an average £65k in registered care or £180k in hospitals.
• The success of our innovation is demonstrated through growth which has increased from 275 units in 2014 to 2275 units in 2019; 2000 independent living units in 5 years.
• Inclusion has a supply chain in excess of 1000 independent living units to deliver in the coming 2 years

CREATIVITY & INNOVATION

110. Inclusion has developed and implemented a proven innovatory model of venture funding and private sector development to provide tailored accommodation to meet the commissioning requirements of local health and care agencies, without the need for grant subsidy. By challenging a traditional commissioning model of grant funding, public commissioning and delivery through a partnership model that shares/mitigate risk we have been able to work in partnership to attract sources of commercial funding to develop, lease and manage independent living accommodation for disabled adults that saves the public
purse thousands of pounds per customer by reducing reliance on registered care. Inclusion is recognised as best in sector to deliver specialised supported housing for vulnerable adults.

111. We are a successful and expanding disruptor business whose enterprise and innovation has been recognised by a Queens Award for Enterprise- Innovation.

ETHICS

112. We have a variety of supported living schemes designed to meet a range of housing needs for adults with learning disabilities, mental ill-health, acquired brain injuries, physical & sensory disabilities and Extra Care, including a specialist dementia scheme. We work in partnership to meet the specific care and support needs of client groups with specialist requirements. Inclusion has been awarded an International Corporate Social Responsibility Award in 2017 and 2019

113. Savings to Health & Social Care - The model delivers on the governmental priority of joined up health and social care commissioning, providing independent community care at a local level whilst at the same time reducing reliance on registered care, hospital admission and bed blocking. Health and care agencies are able to make significant savings through reducing hospital admission; reducing bed blocking; saving on direct provision, care cost efficiency through a dedicated community facility; and decommissioning existing facility for capital gain.

114. Community Solutions - Through working with commissioning bodies and care providers/charities to identify unmet need or provide more suitable independent living accommodation within the community. Our accommodation is of high quality, near to services and good transport links - ensuring that adults have the best chance to integrate into the community.

115. Institutional investment partners recognise that the creation of social benefits through our model in this sector also brings about the opportunity of sensible, stable, regular and reliable commercial returns for their stakeholders too.

SOCIAL IMPACT

116. In 2020 and2021 Inclusion commissioned Social Impact reviews which is an independent social impact calculation derived from the government’s own green book. The results were staggering and concluded that in 2019/20 our total social value and local economic impact was £57M through our routine activity across four areas of business. In 2020/21 the net social impact of our activity had increased to +£122.5M

117. Our HomeLife project allows us to delivered involvement activities to assist tenants to engage with the wider community, obtain new skills, build confidence and improve wellbeing. In 2020 our HomeLife project delivered 42 projects, training and other initiatives benefiting over 590 tenants compared to just 390 tenants in 2019.

118. Inclusions Managing Agents provide Intensive Housing Management services for all tenants. We assist tenants to take up, manage and maintain their tenancies, provide support in their applications for Housing Benefit and other welfare benefits, and ensure they are aware of their rights under their tenancy agreements.

January 2022