Written evidence submitted by Oculus Real Estate [EXA 095]
Introduction
Oculus Real Estate is a UK-based real estate impact investment and management company focused on the development of high quality, specialist accommodation for higher dependency adults.
We deliver both extra care and specialised supported housing (SSH), with a mission to help increase provision, standards of management, and levels of support supplied to vulnerable residents in an appropriate and safe residential setting. The quality and benefits of our mission allow us to attract responsible institutional investment from pension funds and other institutional investors seeking to make positive impact through stable, long-term investments for the vulnerable and the surrounding communities.
Our submission relates primarily to the SSH sub-sector, a sub-category of supported housing with exempt accommodation.
At the core of our submission is a recognition that the sub-sector we operate in would benefit from further regulation and an approach that is led by commissioners and prioritises the needs of service users, standardised definitions, a transparent and collaborative approach, with certainty and permanency around exempt rent policy, and a clearer understanding among some local authorities of the costs and the linkage between rent levels and specification.
We are pleased to be submitting a response to this important call for evidence and would welcome further discussion and engagement on this vital area of housing provision.
1) What is the quality of exempt housing provision?
In its best form, exempt accommodation can provide top-quality, specialist accommodation to support some of the most vulnerable people in society. However, the number of poorly managed schemes has had an adverse effect on the people it houses and the wider community.
The quality of provision at present is extremely variable.
Lower quality schemes tend to be those that attempt to house as many people as possible while spending the least amount on renovation and the specialisms required for the vulnerable and the elderly. Lower quality schemes often provisioned by developers undertake light renovation conversions into HMOs and shared living spaces that were inappropriately dense. These developers had little, if any, experience or sensitivity to the specific and often complex accommodation needs of these user groups coupled with no desire to stay in the investments or the sector for the long haul.
The quality of recently built exempt housing that is stand-alone and self-contained units and built by Housing Associations and companies specifically focusing on this subsector – with the relevant experience and a vested interest in the long-term ownership of the properties - can be quite good - but there is not enough of it.
Additionally, there is currently a high proportion of specialist supported living with shared accommodation or Houses in Multiple Occupation (HMO). In many cases, we consider these to be suboptimal value for money and counterproductive to providing an adequate or appropriate level of specialist accommodation for most service users cohabitating under this housing arrangement.
It is our belief that standards for accommodation in specialist supported housing should be greatly improved for the benefit of the service users and those who serve them. At present, too many users are being under-served by under-investment and under-regulation at the potential expense of unsafe and inappropriate accommodation.
We are intentionally aiming for higher standards. We offer a range of new, high quality homes for our customers that meet and often exceed existing and expected future standards, including for size, lighting, safety, sound-dampening, assistive technologies, green-energy compliance, and the mutually agreed desires of our local authority partners, housing associations, and care providers.
This includes our ‘core and cluster’ model designed for people who like living in a community environment, with large amounts of communal amenity space, but with self-contained studio apartments. We also provide ‘step down’ units which are standalone apartments, that are larger at 1-bed and 2-bedroom units, with a smaller amount of shared communal amenity and carer space on site. Our approach is to put the needs of our service users into the design of our new residences and we build them to high specification for long-term investment, enhanced safety and well-being, and lower overall long-term costs.
2) Is the current model of exempt accommodation financially viable, and does it represent value for money?
Our views of financial viability and value for money are formed by a long-term view for each and a commitment to the benefit of the customers we serve. We hope that exempt rent policies and other regulatory standards can be improved and be made permanent. We believe that in order to attract the much-needed long-term, lower cost, institutional funding and private market financing for this sector, there needs to be long-term governmental policy commitment to the sector and improved standards. Clarity for the future would be helpful in solving the housing shortages and inadequacies of today.
From a provider point of view, the model in our sector has been made increasingly more viable in many areas with strong adult care commissioners and local authorities who can assist in getting economically viable projects approved. We are also seeing careful balance between planning and building for the future, whilst also keeping a reasonable lid on cost pressures that undoubtedly affect the value for money equation and ultimately the amount of new housing units provided.
As part of the value for money equation, we often see external investors and critics of the exempt rent model in our sector make misguided cost comparisons to LHA rent levels, which is not a like for like comparison and sometimes involves grant funding or local authority contributions that defray true cost (or value).
The future housing standard has rigorous demands. In addition, some local authorities include net zero requirements and both of these drive up the cost development significantly. Low carbon specifications come on top of expensive SSH-related specifications such as lighting, safety, sound-dampening and assistive technologies.
We would welcome a discussion with sector players, commissioners and HB officers around the exempt models, our approach, and the implications to the value for money equation.
3) Are there significant geographical and regional differences in the provision and the problems of exempt accommodation?
Yes, there are regional differences around individual commissioners and the level of housing benefit. We see a number of excellent commissioners and others who want a ‘bare minimum’ of provision.
This is where we see an opportunity to introduce generally accepted minimum standards. We see part of our role as building confidence among local authorities in private developers in this space, based on an open-book and collaborative approach.
The biggest problem that we see is housing benefit levels. In some areas, there are arbitrary caps on what councils are prepared to pay for exempt rent, regardless of what the specification is.
We believe that artificial ceilings being applied in parts of the country mean accommodation cannot be delivered to an appropriate standard. There needs to be greater recognition in some places, that in order to provide the sort of accommodation that is necessary, the sector needs a sufficient amount of housing benefit behind it, and recognising that specialist supported accommodation usually needs to be in more expensive parts of town, for example, so it is near public amenities and transport links.
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?
The sort of exempt accommodation that we operate within is largely RP-based with larger high quality RPs. We feel it is important to work with housing associations that are sector experienced and financially stable with strong governance.
We have come up with a new commercial structure that better shares risk between investors and housing associations in exchange for stronger performance criteria that should provide a better service for our users.
5) What is the proportion of exempt accommodation provided by commissioned compared to non-commissioned providers, and is an appropriate balance being struck?
N/A
6) How does whether a provider is registered or non-registered, or commissioned or non-commissioned, impact the quality of provision?
Our view is that delivery of SSH and extra care requires the right care provider, registered provider and specification.
We believe this market has to be commissioner-led, and we would not do anything that wasn’t commissioned. It is often non-commissioned schemes in which people are housed in HMOs with poor quality services. We believe this is a result of participants prioritising profits over residents’ safety.
Some local authorities have not tackled poorly managed, non-commissioned schemes as they are not subject to the same regulatory framework.
Our ideal partners are larger, asset-backed housing associations, preferably with top ratings from the Regulator of Social Housing, and who would welcome a delivery partner to help them grow in the extra care and supported housing markets.
7) How should exempt accommodation be provided and what should the service cost?
We operate an ‘open-book’ policy. We agree a yield-on-cost with the local authority, linking specification to core rent, which makes the process more transparent. We make sure we have these conversations at the beginning of the process. Acknowledging the direct link between property specification and rent levels is a much healthier way of running exempt accommodation.
We are commission and care provider led, which means service user led. Costs will vary depending on geographic areas, population density, land values and the specification required by our partners, including future housing costs in relation to Net Zero.
We would welcome a campaign to raise awareness around the true cost of specialist living, as there is a natural tendency to compare the cost of specialist accommodation and extra care with general needs or standard residential housing. The cost comparison needs to be with institutions and residential care homes.
We would be happy to discuss specific pricing in more detail.
8) How should the regulatory oversight of exempt accommodation be organised?
A key challenge is that there is no single regulator of supported housing, with the RSH’s statutory remit limited to RPs and its focus on larger organisations, of at least 1,000 homes. The industry has, to a certain extent, been self-regulatory over the past few years but this has failed to stop abuse of the system.
In the SSH sub-sector, there have been a number of operators signing leases with smaller housing associations that are not subject to regular regulatory engagement by the RSH due to their size. We believe this invites the potential to go against the spirit of regulation and we believe there should be some kind of annual check that the service users are getting a good service.
There needs to be an effort to get back to a user-focused system. Many of the organisations in the exempt accommodation space are smaller providers. We believe that all RPs that draw exempt rents should be subject to an annual check by the RSH, which would in turn promote clarity and transparency.
Our view is service users should be front and centre. There should be certain minimum levels of infrastructure quality or maintenance that they need to be getting.
9) What should be the regulations governing exempt accommodation and how should those regulations be enforced?
It is our belief that any housing association drawing exempt rents should be actively regulated due to this being a specialist area in which providers interact with vulnerable people.
The actions taken by the RSH in the lease-based provider sub-sector, in the interests of tenants and the wider social housing sector, demonstrate the impact of strong regulatory intervention. The social housing sector’s co-regulatory framework for larger RPs provides a clear set of expectations around viability and governance.
Regulation is important from the investor side as they take comfort when investing in a well-regulated sector. Therefore, stronger and more efficient regulation would attract greater investment and provide greater capital in which to invest in quality accommodation.
10) Is there sufficient publicly available information about exempt accommodation?
We do not think so. When the cost of specialised supported housing is compared to normal accommodation it is perceived as expensive. This perception of high costs, mixed with negative reputation linked to some providers, has caused some damage to the sector.
The sector could benefit from some kind of informal trade body to communicate the aims of providers and also come up with its own standards.
January 2022