This submission has been prepared on behalf of the Board of Broadland Housing Association by Alison Inman JP BA (Hons) CIH (Hon) FRSA, Chair Designate and Dr. Michael Newey D.Sc. (Hon.) B.Sc. FRICS FCIH FRSA MAHI, Chief Executive.
In addition to her role at Broadland, Ms Inman is also the Vice Chair of TPAS (the tenant engagement organisation), a member of the Governing Board of the Chartered Institute of Housing, and a member of the Board of Colne Housing Society. She was previously the Chair of Colchester Borough Homes and the National Federation of ALMOs.
In addition to his role at Broadland, Dr. Newey is a past president of the Royal Institution of Chartered Surveyors and a Visiting Real Estate Fellow at the Royal Agricultural University in Cirencester. He is also a member of the UKTI Regeneration Investment Organisation Advisory Board.
We would highlight the following key points (and their page numbers) made in this submission: -
Background information on Broadland
Broadland is a predominantly rural traditional charitable housing association, established by the community 50 years ago, that exists to provide housing to people who cannot afford to buy or rent in the open market.
Broadland’s charitable purposes are tightly drawn and do not currently permit building homes for sale to people who are not in need.
Broadland recognises that we have a responsibility to help our tenants improve their opportunities by helping them gain new skills and also manage their tenancy effectively.
Broadland’s general conclusions on the Government’s Agenda
Helping those who aspire to home ownership, and can afford its costs, should be encouraged
The extension of right to buy to housing associations threatens affordable rented supply in the medium term at a time when demand is higher than ever.
It is important to understand and reflect the diverse history and heritage of individual housing associations
The introduction of a Portable Home Ownership discount for all social tenants would help more people access home ownership and better encourage new housing supply.
A Portable Home Ownership Discount on new build properties can be partly funded through the difference between the value of the new home and the cost of construction.
Government development loan guarantees would be more effective than grant at facilitating the construction of new starter homes.
The type and quality of housing stock covered by the extension
Right to buy should not apply to specialist, supported or sheltered housing
Right to buy should only apply on properties that have benefited from central Government capital grants
Right to buy should not apply on properties built on donated land
Right to buy should not apply on properties where the social landlord has a lease of less than 75 years
The geographical distribution of housing association properties covered by the scheme
Right to buy should not apply in communities with a population of less than 4,000 residents
What the effect on the availability of affordable homes will be, and whether any projections have been carried out.
Right to buy will result in reduced rented supply at least in the short to medium term
Right to buy will lead to the residualisation of the social rented housing stock
The steps that could be taken to minimize the effect on the availability of social housing
The introduction of a Portable Home Ownership discount would maintain the current social housing stock; would stimulate house building; and will help meet the aspiration of many to own a home
The ability of those eligible for the policy to buy their own homes and keep up mortgage repayments
Restrictions should apply to stop properties being sold to non tenants, including family members.
The availability of financial education for prospective buyers, including advice to prospective leaseholders about their responsibilities for paying for major works
All prospective purchasers must receive high quality professional financial advice ahead of exercising any right to buy
Proposals for the replacement of the homes sold, including the proposal for funding replacement through the sale of council homes in high value areas
The timely replacement of properties sold will be contingent on a streamlined planning process and assistance with land acquisition
Government backed development loan guarantees would facilitate greater new housing supply
The sale of high value properties is unlikely to generate sufficient receipts to fund the discounts and would be considered unfair by local residents
Lessons learned from the earlier experience of the Right to Buy, including the experience of Scotland.
There need to be restrictions to prevent purchased properties being let at higher rents in the private rented sector, pushing the Housing Benefit bill up even further.
Rural communities need to be excluded from an extension to right to buy as they are difficult and expensive to replace.
What the effects will be on housing associations of the cap on rents
The rent reduction of 1% over the next four years will reduce Broadland’s borrowing ability by £83 million and reduce our development capacity
The rent reduction of 1% per annum will mean that many schemes recently built or under construction are now not financially viable.
Some housing association surpluses are due to historically low interest rates and the creation of more capacity for further development loans
The 1% rent reduction threatens the ongoing viability of housing associations to manage and maintain their current housing stock to high standards.
What the effects will be on housing associations of changes in housing benefit for younger people
Young people, whose incomes make even social rents unaffordable and who have no family members willing or able to house them, will be excluded from decent accomodation
What the effects will be on housing associations of other proposals in the Budget.
The benefit cap will increase rent arrears, increase management costs and reduce financial capacity for new homes
There is built inequality in using an arbitary household income of £30,000 as a threshold for paying higher rent, as the distribution of this combined income between two earners can result in very different net incomes
The freezing of working age benefits will increase arrears
The reduction in income thresholds for tax credits will result in a punitive effective tax rate and therefore increase the likelihood of arrears
What the effects have been on housing associations of changes to the welfare system in the last Parliament
As a result of changes in the welfare system during the last Parliament ,our costs of tenancy support and income collection have increased
What the effects will be on housing associations of the proposed changes to the welfare system.
The rent reduction of 1% over the next four years will reduce our borrowing ability by £83 million and reduce our development capacity
The rent reduction of 1% per annum will mean that many schemes recently built or under construction are now not financially viable.
The benefit cap will increase rent arrears, increase management costs and reduce financial capacity for new homes
The role of the Regulation Committee of the Homes and Communities Agency
The Regulation Committee should be independent and separated from the Homes and Communities Agency
The accounting consequences for the national debt of the Government’s proposals.
The current direction of Government policy makes it more likely that housing associations will be reclassified as public bodies, which will add to the national revenue deficit and restrict the delivery of future housing supply
Reclassification will make borrowing for new development more complicated
Many housing associations are charitable and reclassification will confuse and threaten this status
This submission has been structured in the following way.
The first section introduces Broadland Housing Association, so that the Committee is aware of the strategic and operational background to our comments.
The second section presents the Committee with our comments on the Government’s agenda and includes an alternative proposal, namely a portable home ownership discount.
Subsequent sections of our submission are aligned with the questions raised by the Select Committee, although some are difficult to respond to at this time, as much of the detail of the Government’s proposals is still unpublished.
Broadland Housing Association, a charitable, not-for-profit organisation, was established in 1963 in Norwich by a group of local professionals who were concerned about the lack of affordable housing for low-income families and individuals.
The mission and vision of the Association are: -
Mission (Why we exist)
Vision (What we want to achieve)
Today the Association operates across 11 local authority areas in Norfolk and North Suffolk and has 5,000 homes in mainly rural locations.
4,082 are general needs, 126 are shared ownership where the occupier has not staircased out yet and the remainder are a mix of housing for older people and supported housing.
The Association has two subsidiary companies, namely Broadland Meridian Ltd and Broadland St Benedicts Ltd.
Broadland Meridian was previously an independent charity called Meridian East, which specialised in providing support and skills training to people with mental health issues. Following changes to the operating environment affecting their financial viability, Meridian East became a subsidiary in 2008. Today it offers services primarily to Broadland tenants, focussing on financial inclusion, IT literacy and other fundamental skills, such as job applications and household budgeting.
Broadland St Benedicts Ltd was formed in 2006 as a vehicle to allow the Association to develop market sale housing in order to generate subsidies to support more social housing, as well as helping to create balanced sustainable communities. Due to the global financial crisis the company has been relatively dormant since 2010, but is now progressing a number of sites in partnership with Broadland Housing in North Norfolk.
In 2011 we brought property maintenance in-house, delivering savings of approximately £850,000 per annum on our asset management budgets through more efficient working practices and mitigating VAT on direct labour costs. We now have a workforce of 60 skilled operatives delivering the vast majority of repairs and planned maintenance; only using contractors when we need specialist skills, such as asbestos removal.
Value for money agenda
We have published in our accounts and on our web site considerable information on the Association’s approach to value for money. The more efficient we are in managing homes, supporting our tenants and maintaining our assets, the more we release capacity to build new homes. We would just draw out a few headlines within this submission to reassure the Committee that value for money is one of our highest priorities: -
Our purposes are detailed within our Rules and are: -
“The business of providing housing, accommodation, and assistance to help house people and associated facilities and amenities for people in necessitous circumstances or for the relief of aged, disabled, handicapped (whether physically or mentally) or chronically sick people.”
In February 2006 the Association took legal advice from Bates Wells & Braithwaite with regard to the meaning of our purposes within the context of market sales of residential property. Stephen Lloyd, a senior partner of BWB, advised the Association as follows: -
“The rules of BHA provide that it is established for the benefit of the community to provide housing for people in necessitous circumstances or for the relief of the aged, disabled, handicapped or chronically sick people.
This does not cover building houses for sale or shared ownership unless the co-owner is within the class of BHA’s beneficiaries.”
This is important to note, as our operational context is not primarily about home ownership, but about helping people that cannot afford home ownership. We need to be mindful of our charitable purposes and ensure that we are not acting ultra vires.
Whilst the use of the word “necessitous” is indicative of the era during which Broadland was established, its definition is still relevant to what the organisation does, namely provide homes to people who are destitute, impoverished, or needy. Fundamentally the Association was not established to provide housing to those who can afford to fend for themselves in the open market – either rented or in owner occupation.
House price inflation over the last 25 years has increased the number of families and individuals who cannot access housing in the open market and, as a result, housing associations have seen much increased demand from people who never imagined that they would one day be seeking help from charitable organisations.
Mean house price in Norfolk in 2013 was £191,453. Average earnings were just £22,324. The ratio of house prices to incomes was 8.6 and the average household income required for an 80% mortgage was £43,761. Ignoring the difficulty of saving a 20% deposit whilst private rents are high, it is impossible for a single person on an average income to access home ownership. There is variation across the county, with North Norfolk being particularly unaffordable due to the proportion of second homes.
We know that at the point that the majority of our customers become tenants, they are on some form of benefits and are frequently unemployed or working part time. We would not be helping them meet their life aspirations, including eventual home ownership, if we only provided them with a basic housing management and maintenance service. We help our tenants to gain new skills that are appreciated in the employment market and help them sustain their tenancy by not getting into arrears and not causing any form of anti social behaviour in their community.
Examples of some of the initiatives we have undertaken recently include: -
Customer digital inclusion – A programme offering IT skills courses to customers through both group classes and one to one training, depending on IT literacy.
Digital by default – we are committed to fully move our services on to a digital platform so that many tenants can “self serve” as well as delivering greater operational efficiency
Tenancy support – we are currently working with over 180 households to help them with money management, tenancy sustainment, access to benefits and work preparation.
Moving on, moving up – A successor to a more traditional job club, this project works with both tenants and other individuals living in the local neighbourhood to help acquire work skills that make people more employable.
Jump Start – we are delivering employment skills training at our homeless hostel in Norwich to help our residents gain work and also to acquire the skills to sustain a tenancy in general needs housing.
Work placements – we are providing not only apprentice positions in the Group – both office based and within the maintenance business – but we also have a work placement programme for unemployed people who are over 24 years old, where there are limited Government funded programmes.
Tenant engagement – we are currently working with our tenants to ensure that they have good opportunities to engage with the Association and to influence our activities and priorities.
Fuel poverty – We are focussing our asset management activities to reduce the likelihood of our tenants experiencing fuel poverty. There is a clear relationship between the energy efficiency of our homes and rent arrears. By improving the energy efficiency of our homes to a position where our minimum EPC rating will be at “C” by 2018, we help our tenants sustain their tenancies and reduce the likelihood of loan sharks preying on them.
The Association agrees that those who can afford both the entry cost and on-going maintenance costs associated with home ownership should be able to live in a home they own, with affordable long-term mortgage finance. Many people – families and individuals – aspire to home ownership and it is right that the Government should help those for whom this is an affordable aim.
However, it is also right and fair that the Government ensure that families and individuals who cannot afford sustainable home ownership are also decently housed in either a good quality private rented sector or in the not for profit sector by registered housing associations and local Councils
Broadland’s organisational purpose
The Association was established back in 1963 to help those for whom the aspiration to own a home was an impossible dream, rather than to assist those who could afford to fend for themselves.
Over the last 52 years Broadland has developed or acquired almost 5,000 homes to help meet the needs of those excluded from ownership in our operating area. This has not been easy and the Association and our tenants have been assisted through capital grants from both central and local Government. We have also been assisted by local landowners and benefited from S.106 agreements with house builders.
Growing demand for affordable homes
Many families and individuals are now excluded from ownership due to spiralling house prices and the lack of supply and, as a result, are seeking housing solutions from registered providers and local authorities. This problem has grown over the last decade and many well-qualified young people earning a reasonable income now live in the private rented sector – often in below decent homes standard accommodation at very high rents. This was not the case thirty years ago, when a young couple in their mid twenties could reasonably expect to be able to buy a home with an affordable mortgage.
A property worth £31,000 in 1985 was worth £242,000 in 2013, using national house price inflation averages, according to the ONS. If house prices had risen in line with RPI, the value today would be just £89,117, according to thisismoney.co.uk.
We are of the view that the extension will seriously reduce affordable and social rented supply, at least in the short to medium term, at a time when waiting lists for affordable rented homes is growing.
The Government’s planed one for one replacement is laudable, but the reality of land acquisition and the planning system means that there will be a significant time lapse between sale and replacement – frequently as long as five years and often longer for rural housing.
Unless the Government makes arrangements to bring forward public land in every constituency and introduces compulsory acquisition of land, especially in market towns and rural communities, there is a considerable danger that insufficient land will be made available to facilitate one for one replacement. In addition, there needs to be a streamlined planning process allowing fast track approval of planning applications for affordable housing – overriding local opinion – if anything like one for one replacement is to be achieved.
This development timing issue will increase demand within the private rented sector, as prospective social tenants will have to find a home there, competing with higher earners who are also excluded from the housing market. Rents are higher in the private rented sector and therefore the cost in any welfare payments will be higher.
The 2015 Capital Economics Report,” Building Social Rent Homes”, concluded: -
“In almost all circumstances, taxpayers pay more to keep families in private rented accommodation than in social rent tenure. Indeed, on average, private sector tenants receive £110 per week in housing benefit in England compared with £89 per week for those renting from a social rent landlord. Payments to private sector tenants now make up more than a third of the housing benefit bill.”
But for many families, benefit caps will mean that they will not be able to find decent accommodation in the private rented sector at a price that their benefits will allow. This will especially be the case for larger families.
The supply of affordable rented homes in rural communities is a particular concern. Nationally there are considerably fewer rural low cost rented homes – roughly a third fewer than in urban locations as a proportion of total households. Often social housing is in villages and small towns will be three bedroom properties, where benefit claimant tenants have already been hit by the “spare room subsidy”, and there are no suitable smaller properties available. Households in villages are often living there because of family connections and local employment. There is frequently limited public transport.
We are very worried that further right to buy sales in rural communities will leave many places without any low cost rented housing.
In Norfolk we have already seen a growth in the number of second homes, with resultant house price inflation and increased unaffordability for local people. There is a need to preserve and increase the number of homes let by housing associations and any policy that reduces, even in the short term, the number of properties available will have negative effects on rural sustainability and community cohesion.
We are seriously concerned about the extension of right to buy to housing associations and especially to traditional and charitable housing associations, which were never in the public sector as part of local authority housing departments.
One argument in favour of the extension of right to buy to housing associations is that previously tenants of local authorities had a right to buy their home, but once a local authority transferred their properties to a new LSVT association, any new tenants lost that right. However, that argument assumes that all housing associations were once part of a local authority and therefore once part of the public sector.
Many housing associations were never part of the public sector. Indeed, one of the great community achievements over the past century has been the birth of community-based housing associations through the commitment and, frequently, the philanthropy of local people. Policies that do not recognise this different heritage are unfair to local communities and the volunteers who established and sustained housing associations.
The Government’s ambition, as outlined in its manifesto, is to help housing association tenants who can afford it, buy a home. The manifesto promised to extend the right to buy to all housing association tenants and to fund the discounts through the disposal of high value properties by local authorities. The reality is that this is a difficult equation to balance, both in financial terms and also in equity to local people living in the authorities funding discounts in different regions.
In 2012/13 the Royal Institution of Chartered Surveyors convened an independent commission of senior professionals working across the residential market to investigate housing supply. Their report was published in June 2013.
The report can be found by following this link: -
http://www.rics.org/Global/RICS%20Housing%20Commission%20Report%20-%20June%202013.pdf
One key conclusion of the Commission was that: -
“Governments should begin to replace Right to Buy, which frequently reduces the supply of affordable rented homes in a locality, with a portable home ownership discount for tenants that display a capacity to save, avoid rent arrears and to manage their homes effectively. Tenants would accrue a discount during the course of their tenancy, which they could access after three years in order to purchase a different property. The portable discount would be funded by the UK Government and devolved administrations, integrated with their Help to Buy schemes, and national equivalent schemes, routed through either the local authority or a registered provider. This recommendation would keep low-income homes in the rented market and make more available for the most vulnerable. It would also give those who aspire to own their home, and who display a capacity to save, some choice over where they buy.”
The benefit of a portable home ownership discount is that it can be granted to all qualifying tenants, rather than excluding any because of the way their home was originally funded or by its location. There could, however, be further requirements that mean that qualifying tenants do not compete in an already over heated housing market, but instead incentivise new housing supply.
If qualifying tenants are granted a portable home ownership discount which they could only use to purchase a new build home, developers would have the confidence to build starter homes, rather than being concerned about the take up rate and restricting supply to what can easily be sold on any individual site in an ordinary market.
The discount could still be at the current right to buy discount rates, but could be partly financed through the difference between cost and value, especially where a housing association is building the home in partnership with Government.
For example, if a property cost £120,000 to build, depending on land cost, and was then valued at £150,000, potentially £30,000 of any discount could be financed through this difference.
We understand that the Government’s current priority is to use its financial strength to ensure the construction of starter homes. Whilst we believe that there is a strong and compelling case for further investment in rented housing supply, we recognise that this is a lower priority for the Government.
Given that the Government wish to deliver right to buy with fiscal neutrality, this type of initiative will increase the number of families able to access home ownership at no greater cost to the public purse.
We believe that the Government should consider using development loan guarantees to housing associations and SME developers rather than grant to fund starter homes. In effect the Government would guarantee a “roll up” development loan to fund the construction of new homes – the loans would be secured from the current funders to the sector with interest rolling up until the sale of the completed starter home to an eligible purchaser. This arrangement will allow housing associations and SMEs to bring forward schemes and would help meet the Government’s target for new build homes.
There is obviously an issue relating to how either a right to buy discount or a portable home ownership discount is going to be financed. The equity of requiring housing stock owning local authorities to sell their most valuable homes and see the surpluses used in other local authority areas seems debateable, especially under the spirit of localism. This challenge is reinforced when local authorities have sold their housing stock to a new housing association.
The Government aspire to offer the right to buy to 1.3 million tenants, but it does seem logical that they align this ambition with an identified financial capacity to pay appropriate discounts. Even if the Government only rely on local authorities funding discounts through a sales programme, it is very unlikely that the programme would match the demand for right to buy. There would at least be a need for some gap funding in the short to medium term, unless either the discounts are too low or the compensation provided to landlords is too low to be either equitable or to fund new development.
Our comments within this section are based on the premise that the Government intends to extend right to buy to housing association properties on broadly the same terms as right to buy currently exists on local association housing stock. Obviously much of the detail is currently unavailable and we may therefore wish to amend or add to our submission once the details are in the public domain.
Specialist housing should be exempted from the right buy. This would include all supported and sheltered housing, as well as housing with care schemes and schemes built for particular disabled and vulnerable client groups. We would particularly exclude properties currently used to cater for the needs of people with mental health conditions and also housing with care. We would also exclude properties designed and built for the use of the gypsy and traveller community. There is a huge national under supply of pitches with day rooms and we cannot afford to lose any of them if we are to meet the needs of these communities’ long term
Properties that have not received capital grants from the HCA, Housing Corporation or any other central Government grants should be excluded from the extension. It can be argued that historic grant given by central Government to fund schemes is a form of equity investment and therefore the Government, as part owners of the housing, can exercise some rights of disposal on the properties.
Properties funded by third party grants, including local authority social housing grant, should be excluded as the grant was given on the understanding that the properties will be retained for the long term in the social sector.
Properties where there was no grant from central Government or or any QUANGO should also be excluded, as these were funded through the housing association’s own resources, including debt.
Properties built on land donated to the registered provider should also be excluded. Frequently local landowners donate land in rural communities to housing associations in order to provide long-term rented housing in a local community. Forcing the sale of these properties to the tenant would be in breach of the agreement originally entered into with the landowner.
Many housing associations have leasehold interests on properties they manage. Shorter leaseholds should obviously be excluded as the tenant purchaser would have an unviable interest with limited resale potential, due to the need to surrender the property at the end of the lease. Equally, due to the difficulty of raising long term personal finance in the mortgage market, leases of less than 75 years should be excluded.
We understand that the scheme would apply to housing association properties located in England, as housing is a devolved issue in Scotland, Wales and Northern Ireland.
We are of the view that the exemptions that currently apply to “right to acquire” stock with regard to rural housing should extend to all rural housing association stock. Rural housing stock is incredibly difficult to replace. One massive disbenefit from the original introduction of right to buy in the 1980s was that many rural communities frequently saw the loss of all their affordable rented homes. Exception sites are difficult to secure and frequently reply on the goodwill of local landowners. The reality must be that many landowners, whilst keen to help house local people, will be reluctant if social landlords cannot guarantee their long-term retention as affordable rent homes.
Currently under right to acquire housing in communities with a population of less than 3,000 are excluded and we would recommend at least maintaining this exclusion. We, however, believe that this figure is relatively low and there should be consideration of increasing this threshold to 4,000, due to the difficulty in finding replacement sites. In fact, it is possible to argue a higher figure, as many small market towns serve very rural areas and it is almost as difficult to find sites in these places as it is in villages. There is a huge danger to local rural economies if potentially low paid employees cannot find suitable affordable housing locally.
Inevitably if housing associations sell their housing stock to current tenants there will be serious consequences.
In the short to medium term there will be reduced supply. New homes are not something that can be instantly created. It takes time to acquire land and secure planning consent – frequently as long as five years, even assuming that the land is available at the right price in the market.
A medium term reduction in the number of homes available to let within the housing association sector will inevitably lead to longer waiting lists of families unable to access the open market and unsurprisingly many will end up living in temporary bed and breakfast accommodation. This is vastly more expensive housing option with very negative consequences for children, including poor academic achievement.
Assuming that tenants who can either exercise a right to buy or access a portable home ownership discount do so, the remaining properties owned by social landlords are likely to be occupied by a vastly higher percentage of vulnerable families living on benefits. There is therefore a huge risk of residualisation within the retained housing stock with higher concentrations of poor families with complex needs. This will drive up housing management costs, as well as resulting in less balanced communities.
As mentioned above, we believe that the introduction of a portable home ownership discount for qualifying tenants that can be used to purchase a new build starter home would be better than the extension of the right to buy. Extending the right to buy will reduce the number of homes available for letting to low income and vulnerable households significantly. Whilst the intention is that there will be one for one replacement this will take time – maybe as long as five years to secure land and planning consent. The nation cannot afford to lose social rented supply over this period. A portable home ownership discount will help people meet their aspiration to own a home, whilst not reducing the number of affordable and social rented homes.
Another strength of the portable home ownership discount is that the social landlord would be able to immediately relet the property to a new family on the waiting list, rather than waiting potentially some years for a replacement home.
Our primary concern is that some tenants will purchase their homes either through third parties, whose agenda might be to return the property to the rented market at higher rents, or through wealthier children, who might see the opportunity to increase their eventual inheritance. There needs to be some restrictions to ensure that both these scenarios do not happen. Past experience of right to buy shows that too many of the properties are now in the buy to let market and many of these are in poor physical condition.
From our census data of our tenants, we are of the view that as long as strict affordability tests are applied by mortgage providers on the potential purchasers applying for loans, we do not envisage that those tenants who meet such criteria would necessarily fail to maintain their mortgage payments.
We recommend that it should be a requirement of the right to buy sale that the only names on the title deeds should be the tenants
We suggest that onward sales of the property should be limited in the first 10 years to just local people.
We recommend that there should be a list of approved mortgage providers for right to buy sales, to prevent tenants being taken advantage of by unscrupulous lenders and property investor.
We believe that the Government must ensure that all tenants contemplating a right to buy either their current property or a starter home using and portable home ownership discount receive appropriate professional financial advice to reduce the possibility of home ownership being unsustainable and the property being repossessed.
Broadland would be happy to work with Citizens Advice and other agencies and organisations to ensure that our tenants have access to such advice and we would be happy for other agencies to use our office facilities for advice sessions.
In order to replace each property sold under right to buy within a reasonable time frame it will be necessary to streamline the planning and land acquisition process. It is not unusual to take up to five years to acquire land in the private market and to secure planning consent. Objections from local communities and often elected politicians representing the views of their electorate frequently makes the planning process fraught, expensive and time consuming. There is a need to take a regional and national strategic view on housing supply rather than rely on local decision making.
SME developers and a much broader range housing associations will be able to better assist in the provision of new starter homes if the Government utilize development loan guarantees with rolled up interest arrangements with repayment upon the sale of the new homes.
We have serious doubts that any receipts from the sale of high value properties in stock owning local authority areas will either match the demand for funding or be regarded as fair by local residents. Sales will only be possible when properties become vacant and there is no guarantee that voids will match the demand for funding.
There will therefore be a need for central Government to fund any discounts in the meantime. This is very difficult to assess at this stage, as without more detail on eligibility and exclusions, it is almost impossible to assess potential demand.
We are aware that the Mayor of London and many London Council Leaders are concerned that receipts from selling high value stock in the capital will be used to fund discounts in the regions. Their argument is that such an approach is unfair to London tax payers and also those people, frequently members of Generation Rent, who need more affordable homes in the City. If, however London receipts are ring fenced for discounts and reinvestment in just London, it is even more unlikely that sufficient funds will be generated to meet the demand for discounts elsewhere.
Large Scale stock transfer housing associations have previous experience of right to buy, although obviously older stock transfers will have a limited number of tenants with retained rights, but traditional housing associations do not have a track record in gauging demand demand and find it difficult to model at this stage. However, for example, if 10% of Broadland’s tenants exercised a right to buy, assuming that they would be eligible for the current maximum discount of £77,900, there would be a need to fund a cumulative discount of almost £40 million. We are just one housing association in a rural part of the country. The cumulative demand would be potential billions.
About 36% of properties previously sold under right to buy in London are now in the buy to let sector – frequently let to families and individuals claiming benefits to help with their housing costs. The cost to the public purse has often been disproportionately high.
For example, in the first instance a tenant purchaser benefitted from a frequently significant discount from the open market value vacant possession of the property. Once the property has been sold on into the PRS, the welfare system has paid significantly higher housing benefits than would have been the case if the property had remained in the social sector.
We would recommend that if the purchaser of a right to buy property wishes to sell their home within 10 years, the original social landlord should first be offered the property at the then current open market vacant possession value of the property less the original discount given to the tenant.
Many rural communities saw their entire social housing stock sold under right to buy. This meant that low income families struggled to find rent homes locally in proximity to family, friends and rural employment. Many of these homes have never been replaced due to the lack of available land and the higher costs associated with building new homes in rural locations.
The rent reduction announced in the budget removes borrowing capacity from our business plan. Assuming that we could have borrowed at a cost of funds at 4%, the reduction removes £83 million of borrowing capacity from our business plan. Assuming that we would have matched this funding against even minimal grants rates, this has removed our ability to build almost 900 rented homes.
The negative impact on housing associations and particularly development ambitions is considerable.
In 2013 the Coalition Government announced a rent formula for social rents of CPI plus 1% for the following 10 years.
Many housing associations appreciated this clarity and as a result borrowed substantial amounts of money and entered into development contracts. The reality is that many of the schemes committed to by housing associations are now not viable – in other words they will not pay back within 30 years.
In addition, we have rerun the appraisal models for many of the schemes built over the last decade with the rent reduction in the model and the majority of schemes do not now pay back within the next 30 years. The rent reduction does not just reduce the income in any one year, but compounds across the whole business plan.
For example, we built 30 flats at Lilburne Avenue, Norwich in 2012. Our Board’s development criteria are that schemes should pay back within 30 years and that we must maintain covenant compliance in our business plan throughout that period. This scheme, when constructed paid back in thirty years. That repayment period has now moved out to 40 years.
Another example would be six sites in North Norfolk which are currently in the planning process and, once built out, will deliver 47 affordable rented homes, as well as 18 shared ownership properties and 42 homes for market sale. The original repayment year was 30 prior to our commitment to build. That date has now moved out to year 40 – which again reduces our future development capacity. To bring this project back to a year 30 repayment point we would need to strip out £900,000 of construction cost on a total current budget of £13 million. Obviously projected building cost inflation over the next 24 months will generate an even larger funding gap.
The Government have incorrectly interpreted surpluses from some housing associations as being an indicator of additional capacity and a sign that the sector lacks a driver for better efficiency. This would be an incorrect assumption for many, but especially in Broadland’s case.
In 2014/15 we generated a surplus of £1,500,000. Much of this surplus was because interest rates did not increase in the financial year. If we had not budgeted for an increase and one had happened, we would have experienced financial challenges and potentially breaching our loan covenants.
Another key driver for increased surpluses over recent years has been a desire to increase our annual surplus to £1 million. This was primarily driven by our need to borrow more money to meet our development ambitions. Our funding consultants advised us that we needed to be able to demonstrate an annual surplus in the region of £1 million to be attractive to potential lenders. We had therefore driven a major programme of efficiency and value for money initiatives over the past four years to make this possible.
Our initial modelling of the rent reductions in our current business plan, taking account of new build commitments we had made prior to 8th July 2015, is that the Association will go into deficit in 2019/20 unless we strip out £750,000 per annum from our operating costs.
We will continue to prioritise servicing of our current debt of £145 million. We will also fulfil our ongoing commitment that our properties must continue to meet the decent homes standard and that our maintenance service is “fit for purpose”. We must ensure that we continue to help our tenants to sustain their tenancies, through training and appropriate support. We also need to ensure that we are effectively staffed to deal with anti social behaviour and rent arrears.
Tenancy support might not appear to be core housing management, as frequently it involves soft skills, as opposed to simple housing and property management. However, it frequently makes the difference between successful tenancies and expensive failures; between tenants accessing work or remaining on benefits; between successful sustainable communities or the residualisation of neighbourhoods.
The Association is well advanced on a programme of efficiencies based on the digitalisation of services. Such a programme requires investment in e-business and web based services in order to deliver long term savings needed to further reduce our operating costs. We are currently remodelling our ICT investment plans, together with our development ambitions, in line with the HCA’s requirement to resubmit our 30-year business plans in October. We will understand the knock on consequences to our investment plans better once this process has been completed.
However, we, of course, will not be able to model the effect of right to buy on our development aspirations and our business plan more generally until the Housing Bill is published and we understand more of the detail of the Government’s ambitions.
Broadland currently houses 162 tenants who are under the age of 21. Of these 72 are claiming housing benefit. We have 243 tenants who are aged between 22 and 25. Of these 138 are claiming housing benefit.
The direct effect on housing associations will make it more difficult for us to cater for the housing needs of young people who lack secure safe alternative accommodation. It is a fallacy to believe that all young people have access to a safe parental home – many do not. In Norfolk there are few hostel type options for young people living in rural areas and limited options in Norwich and the market towns.
There is clearly a danger of more homeless young people – both hidden and public. Hidden homeless will including sofa surfers and youngsters constantly moving around their friends. The public face of homelessness may well include more street sleepers.
Just because people are young does not mean that they should not have the right to a safe, secure and affordable place to live.
It is not possible to disconnect the effect on housing associations from the effect on our tenants and people that need to be our tenants.
Broadland Housing was established as a charitable organisation to help meet the housing needs of people who are excluded from the open market by providing them with safe, secure decent housing. Any proposals that affect the “beneficiaries” of our charitable purposes and especially their ability to pay a rent that covers the management, maintenance and financing of their home threatens the viability of the Association and our ability to fulfil our charitable purposes.
If Government policies make it more difficult for our tenants to pay their rents, by limiting their financial support, inevitably our management costs go up, as we will need to use more intensive management approaches to ensure payment of rent and compliance with tenancy agreements.
We could be in a perfect storm where our costs increase just when our tenants’ ability to pay their rent reduces.
The Introduction of benefit caps of £20,000 per household outside of London does not appear to have been anything other than arbitrary. It does not reflect local market conditions and neither does it reflect household composition. As it ignores the number of children already in a family, it can only increase child poverty and the number of children growing up in disadvantaged circumstances.
The impact will be felt for decades and not just over the next five years, as poverty leaves an indelible stain on childhoods. There is clear evidence that mental health problems in adult life frequently have their genesis in childhood. Children growing up in poverty are more likely to have poor educational achievement and poor employment opportunities as adults.
Inevitably hard pressed parents given the choice of feeding and clothing their children or paying their rents, will understandably chose the immediate need rather than a payment to their landlord. We therefore expect an increase in arrears as a result of the benefit cap, which will reduce funds available for new homes and increased costs of management.
The introduction of higher rents for households earning more than £30,000 with potentially criminal charges for tenants that do not declare their earnings will be divisive – damaging the relationship between tenants and landlords.
If a couple are both earning the living wage at £7.85 per hour, the combined wage will total more than £30,000 but they will be far from well off, especially if they have children with associated child care costs. The result might be that they would reduce their hours to bring their shared income below £30,000, especially if the increase in rent is a disproportionate “tax” on working harder.
There is a built in inequality in this arrangement, as the marginal tax rate paid by a couple will depend upon how their incomes are distributed. For example, if one person earns £30,000 they will pay £3,087 more tax and national insurance than if two people are earning £15,000 each. The one higher earner will therefore struggle much more to pay a higher rent, unless this inequality is resolved.
Whilst social housing rents will go down, other households cost including food and clothing will move broadly in line with inflation. In real terms a benefit freeze will reduce real incomes and as families struggle to pay for basics, they will inevitably prioritise food and warmth over rent, resulting in higher arrears.
As the income threshold for tax credits is reduced from £123.46 per week to £74.04 per week, for every extra £1 that a claimant earns they will lose 48 pence. Previously they lost 41 pence for every £1 earned over £123.46.
Changes introduced or initiated in the last Parliament, including Universal Credit and the Spare Room Subsidy, also known as the Bedroom Tax, meant that we had to increase capacity in both our income collection and tenancy support teams. Whilst we have yet to see Universal Credit actually being fully implemented in our areas, we did see a number of working age families on benefits being subject to reduced income. Their choice was either to find a new home or to struggle with their weekly bills on a reduced net income after rent. There was not sufficient supply of alternative accommodation in the social sector and limitations on possible homes in the private rented sector, as many landlords did not want to let properties to benefit claimants. Where a smaller home in the PRS was available, it was frequently more expensive and therefore increased the tenant’s benefit claim.
The direct effects on housing associations have already been discussed in this submission. The key effects are: -
Over the past five years’ changes in the regulatory regime has meant that the Regulator has moved from being a consumer champion to primarily an economic regulator. Whilst there remain tenancy and engagement standards and home standards, the Regulator’s primary role appears to be to ensure that no regulated housing association gets into financial difficulty.
There is tension in this role, as the primary aim is to prevent loss, as opposed to optimising the delivery of new homes or protecting the interests of the tenants living in housing association homes.
Whilst we understand that the Government does not want to recreate the short-lived Tenant Services Authority, it does remain logical that the regulator should either be fully independent as an executive non departmental public body or directly within either the Department of Communities and Local Government or The Treasury
By instructing housing associations to sell their properties and to reduce their rents, the Government is acting as shadow directors of each housing association. We therefore believe that there is greater likelihood of the ONS designating housing associations as part of the public sector.
The main implication of this change, ignoring the fact that it will add over £60 billion to the Government’s revenue deficit, will be future complications around borrowing money for development of new homes. There will obviously have to be a discussion on any constraints that the government would wish to apply to individual housing association’s borrowing capacity in order to control the level of aggregate public borrowing. This will introduce a counter productive level of complexity.
It should be remembered that one of the key policy drivers behind large scale voluntary transfer housing associations was that the new body could borrow money for catch up repairs and the construction of new homes without affecting public sector borrowing.
It is worth noting the following extracts from a Cabinet Office Publication in 2006 entitled “Public Bodies – a guide for departments”
“A body established in order to implement the policies and directions of ministers or departments, for example, is unlikely to be a charity. If charitable status is sought for a Public Body, it will be necessary to make substantial compromises in terms of the control which the department or minister can exercise over its activities.” (Para 2.8.3)
It is also worth noting the following extract from the Charity Commission’s publication called “Independence of charities from the state” published in 2009
“However, for a body to be a charity, it must be independent. By this we mean that it must exist in order to carry out its charitable purposes, and not
for the purpose of implementing the policies of a governmental authority, or of carrying out the directions of a governmental authority. A body set up to carry out the policies or directions of a governmental authority might engage in much the same sort of activities that a charity might undertake. But it would be carrying out those activities in order to further the purposes of a non-charitable body, not to further a charitable purpose.” (Para 5)
We are of the opinion that there are inherent problems with charities being designated as public bodies whilst retaining their independence as required by Charity Law.
Reclassification might potentially remove charitable status from individual housing associations. Just as important it will cut across the original vision that meant that local communities came together to create the housing association in the first place. Government will, in effect, be overruling the heritage and values that established many of today’s traditional housing associations.