Written evidence submitted by Philip Shanks [EXA 021]
I am Philip Shanks former Social Worker and CEO (now retired) of Partners Foundation which is an exempt Registered landlord which I co-founded in 1994, delivering exempt housing stock throughout all of its life both as a RSL and previously as a voluntary organisation. I also wrote the original rentassure insurance policy specifically for the sector in 2002 and have advised and continued to advise various care and housing bodies across the country. I am currently a non-executive board member of a provider currently registering as an RSL.
It is important to note, before we proceed further, that exempt accommodation was not consciously created as an asset class but rather it emerged as an opportunity to be exploited and emerged as a response to acute demand and a lack of financial commitment from the government. I would like to illustrate this point by reference to my own early practice as a social worker.
I qualified as a social worker in 1987 which was the year that the housing benefit general regulations were enacted. My first job was to resettle 16 people with learning disabilities a year from the large learning disability hospitals that were being closed. The favoured model was the group home model with 3 tenants sharing a 4-bed house with 24 hr staff support.
The local housing department sent me packing when I asked for 5 x 4 bed houses, especially as I told them that I wanted to be picky about where they were, they said I could have 2. I got a similar response from the local housing associations who had nothing to offer. My program was effectively stalled. But then my attention was drawn the exemptions listed in the 1987 regulations which had just been published. Working with a local housing association, they purchased the housing from the open market and they carried out the adaptations, recovering the costs from the exempt rent. The first house came into operation in Oldham in 1988.
With the problem solved, exempt rent funded properties became the default provision for my Local Authority and I spread the word to other workers with the same problem. It pretty much liberated a resettlement program for more than a thousand hospital residents which had previously faced stalling because of lack of housing.
This experience was probably shared by anyone in a division of adult services that needed access to housing. The grant system in the 80s and 90s was not as responsive as the one that operates today and there is a lot of historic stock, developed in the years since, of varying standards much of which was originally not commissioned as we understand it today.
What is the quality of exempt housing provision?
Exempt housing refers to housing that qualifies for exemption from restrictions on the rent that may be charged as set out in reg 11 Housing benefit general regulations 1987 and which has been amended on several occasions. The exemption now falls into 2 categories
Specialist supported Housing. Housing either built for a specific use or adapted and provided to people with an assessed need. These are almost exclusively commissioned.
Supported Housing. Unadapted Housing provided with additional services, necessary for the provision of adequate accommodation. The services can be offered by the landlord but are often provided, on their behalf, by a provider of social care as part of a bigger care package. Those housing services must be more than de minimus and a figure of a minimum of 3 hrs of support per week is often quoted. Supported Housing is now mainly commissioned but there is a lot of historic stock which was not and some still emerge un commissioned.
In both cases the tenant must have an assessed need and the Landlord must be either
A RSL or housing Association
A local Authority
A charity or voluntary “not for profit” organisation either as an RSL or unregistered provider.
Exempt housing describes a range of accommodation which can range from an ordinary flat let from the open market which, when combined with a tenant with support needs, a support provider to supply the care and an RSL to manage the situation, suddenly becomes very expensive, poor quality special needs housing for no real good reason right through to a fully grant aided, purpose-built property with state-of-the-art assistive technology. There is no single type style or real benchmark to determine standards except the statutory minimums, conditions attached to grants and the active involvement of commissioners. The quality of provision is patchy and differs from area to area and indeed between client groups
Supported accommodation utilising the exempt model is available for
People with learning disabilities
People with mental health needs
People who are drink or drug dependant
People with chronic homeless history
Some accommodation for elders
The list covers every aspect of need except those under 16
Across the national portfolio of “exempt accommodation” you will find a range of accommodation styles and standards but with some trends noted and in particular that the standards of accommodation seem to vary from client group to client group. Also, that standards seem to be better in services that are directly commissioned or in local authority areas where there is a strong market management strategy in place. There is also some evidence that poor quality accommodation is presented as exempt accommodation for certain groups because the tenant’s impact on property, even with support, is such that landlords will not “over invest”
It is important to note that, just as the exempt rent asset class emerged as opposed to being created the same can be said of the finances that drive it. In its early days exempt accommodation was developed and funded by small “not for profits” backed by either by a private investor using borrowed funds or, less commonly, the housing provider borrows the funds themselves. In each case the terms for lending from high street banks and building societies were pretty much the same. Banks, concerned with the reputational risk attached to the foreclosure of such loans, insisted that the property be paid for in 10 years. This forced a very high rent.
As the sector matured major institutional investment bodies like FAH and CIVITAS (amongst many) became interested in the sector. This should have been a helpful move as the cost of funds from such bodies (around 6% ROI) is substantially below the cost from private investors and from the small “not for profits” own lending (typically 8-12%). However, initially it was not helpful.
The Institutional investors were very hungry for schemes to use the substantial sums that they had raised on the markets. To meet them were a group of individuals referred to as “Aggregators” who had spotted a market opportunity. They collected 25-year leasehold positions held by private investors at a yield of 8-10% and sold them to the major funds at a yield of 6% or better, achieving profit via yield compression. This resulted in a sale price at much more than the underlying capital value of the asset. Rather than benefiting society with a lower rent, initially the emergence of major funds actually locked in a high rent . This has been well publicised.
The funds have now wised up to this and now drive better value by achieving asset sale that are more in line with the capital value of the underlying asset but there is a lot of historic stock out there that represents very poor value for money. additionally, the major funds still purchase stock from developers with margins of 10-15% and this is reflected in rent levels
Most exempt accommodation of concern is provided by small RSLs (less than 1000 tenants) or by unregistered bodies. In the case of RSLs the regulator has raised concerns regarding the financial sustainability of the landlords. This asset class is driven by investors who favour a 25-year CPI linked lease at rent levels above LHA. The Regulators concerns are well founded and the same issue exists (unchecked) for non-registered providers.
The response to this concern from investors has had some very worrying consequences. RSLs utilising investment funded housing stock quite often do not have the balance sheet strength to sustain a 25-year lease, which is the point of concern for the regulator. RSLs who cannot satisfy the regulator that they have the financial strength to sustain their lease during rent void are now seeking financial guarantees from care providers, asking them to meet the cost of the void if there is a vacancy. Care providers are not funded for this activity and reliance upon them for this, places both the housing and the provision of care at financial risk. It works from the presumption, on the part of Landlords and investors, that care providers are the source of referrals and therefore control the duration and incidences of voids. This is not a safe assumption as the source of referrals is often the local authority, outside of the control of the care provider.
In the early days of exempt accommodation voids were routinely met by the local authority. This is no longer the case, particularly for Northern and North Western local authorities. The willingness of authorities to underwrite rent voids began to reduce about 15 years ago and it is now rare to see a local authority take on that undertaking, they just do not have the money. It is one of the main reasons for the current practice for commissioning supported housing whereby the commissioner for care services asks a care provider to select and bring a housing provider with them. The commissioner will wish to approve the housing but will not directly engage with the housing provider.
Rent voids feature prominently in any discussion about the sustainability of exempt accommodation. As stated previously, the Landlord is often on the hook for lease which requires payment irrespective of occupancy and even empty properties require maintenance and cost money. For certain types of accommodation, such as group homes, it can be very difficult to fill vacancies since compatibility has to exist in addition to meeting the housing need and sometimes a vacancy may signify that the bedspace is no longer required.
The sector does have tools to deal with voids without resorting to underwriting from 3rd parties. These include Void insurance which has been in existence since 2002, offered by AON and underwritten by AVIVA, which was updated in 2017 to reflect to markets development since the policy was written. Other policies are now available. Additionally, the housing benefit regulations allow for shifts in cost base bought about by permanently changed occupancy levels, so long as this is controlled and monitored. However, the institutional funds have all raised money on the basis that the rent will be underwritten by a 3rd party and so do have a rather tunnel visioned view.
The challenges to the financial viability of exempt accommodation does not mean that it represents poor value for money. It is undeniable that vulnerable people need access to accommodation and that the accommodation needs to be supported with services and staff. The cost of making no provision is unthinkable and as has been said earlier in this statement the arrival of exempt accommodation as an option for professionals seeking housing for people in their care provided them with an opportunity to deliver services that would not otherwise have existed. There is no doubt that compared with an “institutional approach” which would have been the alternative exempt accommodation is substantially cheaper and a better option. However, it could be done better, if the state took proper responsibility for it and it could also be cheaper if the Government removed the excessive revenue costs by providing the correct level of grant to correct the historic situation. This would also allow it to finally close the HB scheme following the rents alignment with universal credit levels.
That is a very easy answer for the government to arrive at itself. RSLs maintain a register of properties in their portfolio and separate it into classifications. The information is held by the regulator of Social Housing. Her Majesties Auditors will be able to inform you of the total claimant count for exempt rents as this information is routinely gathered by the district auditor. It is only a matter of subtracting one amount from the other.
In the early stages of exempt accommodation there was no real active commissioning principally because it was barely understood and the expertise was held by certain providers, of which Partners Foundation was one. During 1994- 2002 we spent much of our time explaining the role of exempt accommodation to NHS trusts, Local Authorities as well as the NHS executive and setting up schemes to help provide the properties to support hospital closures nationally. It is only more recently that the market has been properly managed.
Commissioning is an interesting use of words because the experience in the North and North West is that the commissioning particularly for housing for people with Learning disabilities tends to be ”indirect”. I.e. the commissioner will support the schemes housing benefit applications but will not enter into a contractual relationship with the housing provider as they do not wish to fund voids. Very often and particularly in circumstances when exempt accommodation is provided with care and support the housing is “commissioned” by a commissioner of care with no real skills and knowledge of housing. They will ask the care provider to source the housing provider and merely “sign off” the provision. In some authorities there is a greater involvement from the Local Authority Housing depts and some care commissioners have taken steps to increase expertise in housing within their team in order to ensure quality of provision and value for money. This should be encouraged
I retired as CEO of a Supported Housing provider which I founded about 2 years ago. During its 28 year life (and still counting) it provided housing as a non-registered voluntary organisation from 1995-2011 and as a registered provider from 2012 to now. During all of that time it has provided housing that has been commissioned by Local Authorities and the NHS and also commissioned our own homes as we took referrals direct from the public. I can tell you that there has been no discernible difference in provision in all of this time. The difference, I think, is down to the provider.
Exempt accommodation, even based on poor quality housing is more expensive to deliver than general needs tenancies. They require a higher management input, additional services and often a higher cost allowance for repairs and maintenance.
The actual provision of the asset itself can also be very high especially where the exempt accommodation is provided as specialist supported housing or for special purpose but sometimes the asset valuation or return on investment required has been seriously exaggerated.
The combination of these factors results in rents that cannot be sustained within the normal Universal credit limits (LHA) and is the reason why the original 1987 Hb scheme (as amended) still applies to exempt stock
This position has been confirmed by at least 4 reviews of the housing benefit exempt rent since the regulations were enacted in 1987 and the answer arrived at is always the same. Supported housing costs more and without grant to bring that cost down then there is no option but to continue with the high revenue consequences.
That answer has proved to be unpalatable for governments not just because of the cost implications going forward but because there is a lot of historic stock which has not been grant funded and most of this was not formally commissioned. Additionally with many providers not being RSLs and even those who are RSLs, not being investment partners with Homes England, no route for grant existed. Failure to grasp the nettle on this has not just resulted in the continuation of a costly revenue scheme via housing benefit but also missed an opportunity to audit the quantity of exempt stock.
What the government should do now is what they should have done then and carry out a national audit of all exempt rental stock held by RSL and non RSL bodies. Determine those that meet the qualitative standards required and are consistent with local strategy and take them into the national portfolio by providing sufficient grant funding to reduce the rent to LHA levels.
The grant funding should be on different terms to those currently offered by Homes England. The terms offered by other grant awarding bodies whereby the state takes a equity position in return for some of its grant would better protect the states investment as follows
Grant funding should fall into two categories
The” over costs “ i.e. those costs that are additional to the cost of providing a home to the able bodied should be identified and form part of a grant which can be written off.
The “value cost” the underlying value of the asset arrived at via open market valuation which should be identified as an investment and treated as such. The level of grant should be sufficient to reduce the rent to LHA levels. The grant should be expressed as the proportion of the house value and keep track of capital appreciation.
This approach is already used by other public grant funding bodies e.g NHS England and so does not need to be “reinvented”
This, however, only deals with the “property” part of the cost. Exempt rents also have allowances for housing related support via “intensive housing management” which forms part of the rent charge and is one of the the other factors that takes the rent cost substantially above LHA levels, along with additional repair and operating costs. This should be treated very carefully and we should keep history in mind.
When the 1987 regulations were first enacted Schedule 1 which deals with exempt services was interpretated very liberally and enterprising local authority officers, as I was at that time, took the opportunity to counter the reductions in our budgets by funding the entirety of all care and support services provided to the tenants via housing benefit. The government became concerned with this “uncontrolled expenditure” and implemented the “transitional housing benefit scheme” to determine the actual cost of support to exempt accommodation. Once the scheme reported, it led to the creation of the “supporting people” grant which was a ring-fenced grant from central government to the local authorities for housing related support. The regulations were then changed to reduce the eligible services in schedule 1. We were assured that this grant would be ring fenced but as is often the case the ring fence got taken off, the budget merged with social services expenditure. You will be aware that budgets to social services have been savaged over the last decade or so and the supporting people grant expenditure has disappeared as part of this process.
With all that said, we do need to remove service charges for support from the rent and place the budget with social services. This makes sense because social services also fund the other care services with which support services work. It also provides another route to ensure that we have quality of service and prevents non-commissioned housing being created.
The question is, can we trust the government to retain the ring fencing on support charges if the responsibility is transferred to social services?
The current regulatory oversight provision is fragmented and not fit for purpose. It is fragmented because it falls into the cusp between housing and care. The support services are monitored by the Care Quality commission (CQC) and the housing services monitored and inspected by the regulator of social housing, for those that are registered as RSLs. Additionally, most supported housing providers, especially those providing HMOs are registered with the local authority. However, there seems little evidence of “joined up thinking”. This is because Exempt accommodation never went through a conscious process of creation, it emerged and evolved and the framework attempting to regulate it evolved accordingly.
Once again, the answer to this is to do that which should have been done in the first place. we should audit all exempt housing stock to determine that which meets the nations needs, properly grant fund it and take responsibility for it. This means that we have a quality assurance point before a property is accepted for supported housing and since the grant awarding body will have a equity interest in the stock, stock condition monitoring will be required.
Regulation should then be via the most appropriate agency and this is complicated. While we are talking essentially about the quality of housing provision, with supported housing the “support element” is vital. If not delivered properly it can substantially impact on the property. Assessing the quality of that support is complex and may be beyond the skills held be the regulator of social housing. Additionally, the design, layout and operation of the accommodation is directly linked to the needs of the tenants, Inspectors must be familiar with these factors and I am not sure that this skill set is held with the regulator of social housing.
There is an additional complexity with exempt accommodation, of great importance but outside of the scope of this enquiry except in respect of regulation. Exempt accommodation is much more likely to be subjected to restrictions on tenants’ rights. These “deprivations of liberty” are put in place by the court of protection. In some cases, the level of deprivation of liberty, put in place by the court, are such that the tenancy is meaningless. Some accommodation provided under tenancy is forensic in nature with the tenant enjoying little or no peaceful enjoyment and to such an extent that it really cannot be said to be a tenancy.
However, it is important for the tenant that they are still considered a tenant for the purposes of their benefit entitlement and also from the operator’s point of view as they need the housing benefit income to drive the scheme. It would be helpful if such settings could be registered as care provision without effecting benefit entitlement, which is beyond the scope of this enquiry, but from a regulatory point of view adds weight to the view that CQC should have oversight.
It is also true that many exempt landlords are not registered as RSls and fall outside of the regulatory framework and they would not qualify for registration, for reasons other than those being looked at here. It would seem undesirable to close participation in this sector to those landlords who are not registered with the regulator of social housing as there are many niche landlords that provide specialised services who add diversity to the market and I think that such a move would be a mistake.
On Balance it would seem most appropriate to register and inspect supported housing via the Care Quality Commission. They have the skills to properly assess the quality of support services and already regulate the quality and condition of buildings as part of their regulatory oversight of registered care homes. Together with a proper asset management approach by a grant awarding body the two sides of the quality coin should be under structured management.
It is the high rent associated with supported housing that has been the main focus of attention in previous revues. Quality has never been a matter of focus. It is good that the quality of the housing provided and its appropriateness that is of greatest importance. The high rent associated with the sector is a response to the way it evolved, as highlighted earlier in this statement.
Earlier in this statement I identified the steps that should be taken to deal with the structural issues and to address quality, by the state taking responsibility for the stock, grant aiding the stock that exists and that that we wish to retain. All new supported housing stock should be grant assisted to the extent required. By providing the right grant level we achieve 2 things
Additionally I have suggested that the “service element” of the exempt rent, consisting of Intensive Housing Management and other enhancements should be taken out of the rent system altogether and paid via a specific grant to Local Authorities, although reservations exist about the ability to ring fence this measure.
This removes the need to regulate the rent, placing it properly within the Universal credit benefit system with no further special measure and we can focus on regulating the provision itself, which is what we should be doing. As Suggested earlier, the attachment of care and support services to supported housing does suggest that this should be carried out by CQC.
January 2022