Written evidence submitted by Resonance [EXA 092]

Resonance is an Impact Property Fund Manager with c £300m of AUM and over 1,000 properties across the country, which have provided homes for over 2,500 individuals and children. Predominantly we raise large amounts of institutional capital which enables us to acquire properties and lease them to housing providers serving a variety of different markets.  Most of the homes are let on Local Housing Allowance, but as we increasingly serve a growing cohort of more vulnerable individuals our housing provider partners have had to rely more on exempt housing benefit. We have been operational in this space for 20 years and have witnessed significant changes in how housing rent and support is funded over that time.

We utilise a variety of different models in our leases where we charge a rent to the housing provider based on:

80-85% of LHA

100% of LHA

5% of the total capital spent on a property to acquire and refurbish it

In some instances the housing provider will be themselves charging rent at LHA levels and earning an income from the 15-20% difference between the rent we charge and the LHA . This is a tight economic model but still only delivers a 2-3% yield to investors, most of which are looking to recycle their investment in the future to create greater social impact.  In other cases our partner housing providers charge exempt housing benefit as a percentage premium to LHA and in others it is a flat cash sum.

We have experienced some housing providers (irrespective of their regulatory status) operating with high levels of transparency and others very opaquely.  Some have used a clear formula to charge a premium above our rent, others charge exempt rents that bear no resemblance to the property costs.  Sometimes this is done because it is a simpler way of being legitimately paid for the support aspects they provide to tenants eg one drug and alcohol rehab home charges £300pw against an LHA of £70pw.  Whilst seemingly high, the total fee is still a third of the cost of the commissioning alternative for rehab – a model that is well liked by Local Authorities because they are able to reclaim at least some of the cost of the service from central government without dipping into their drug and alcohol budgets.  Another charges a £250pw against an LHA rate of £70pw but uses the premium to fund a support worker for former rough sleepers entering low support accommodation.

Other models, for instance when supporting people with learning disability, have agreed with Local Authorities an exempt housing benefit rate equivalent to £50pw premium to LHA as a proxy for additional housing support required for the more hands on approach to housing.

This approach feels like a fair way to pay for services delivered but the complication comes when considering how a Local Authority is re-imbursed.  Many of these providers are not registered housing providers and so the LA is unable to fully recover the cost from central government.  Ironically this has led to an unofficial requirement for some organisations to register as regulated housing providers or risk losing the commission.  We have seen at least one otherwise good housing provider go into liquidation following such a stance being taken by one Local Authority.

Occasionally we have been told informally that some housing providers may overcharge on exempt housing benefit because they need this surplus to compensate for other loss making areas where the state have less flexibility.  This is as a consequence of underfunding in other services are facing and often LA officers have been supportive of organisations they trust doing this as long as it is not excessive.

Such practice was meant to have been replaced with ‘Supporting People’ but the volatility and variability of how this funding was allocated across different Local Authorities and over time has led to organisations seeking settlements with the housing benefit departments simply so they can plan.

We are acutely conscious of occasions where landlords not providing support are charging support providers much higher rents than they would otherwise simply because they can.  This leakage of exempt housing benefit out of support organisations and into the hands of investors able to generate in some cases yields of 9% +.  This begins to feel like a genuine abuse that needs curbing but is absolutely not limited to unregulated housing providers.  However the overriding tension regarding rent setting and commission appears to be driven by the tension between what Local Government can claim back from central government.  Whilst registered provider status should give some regulatory control, this is a clumsy and ineffective tool that remains open to abuse and largely leads to driving up cost rather than delivering value.

The increased use (and in some cases abuse) of exempt housing benefit does need to be taken within the context of central government’s mishandling of LHA policy. LHA has been used a political football to balance the budgets of recent years leading vulnerable individuals and struggling housing providers (especially those that are not registered) to face significant uncertainty.   LHA was designed and implemented as a quasi market measure that had a level of predictability that could enable efficient claims through LAs but also confidence amongst landlords who would otherwise not be prepared to allow people on benefits to apply for their properties.  Transparency is a worthy compensation for the significantly lower return available on the open market.  However central government policy reducing LHA from 50th to 30th percentile followed by numerous cuts and caps, combined with further cuts through the introduction of Universal Credit and then the Benefit cap has eroded the confidence in LHA.  Whilst one might argue this is a separate policy question, the clear undermining of confidence in LHA has led to many organisations seeking to pursue mechanisms to access exempt housing benefit for the same work they were funding through LHA.

January 2022