Written evidence submitted by Chelmer Housing Partnership (CHP) Ltd [RTB 044]

 

I am pleased to attach for the information of your Committee a response to your request for information and an assessment of the effect of Right to Buy being extended to Registered Providers of housing.

 

Although our response will undoubtedly be the same as those submitted by other Registered Providers, we hope that it will assist the Committee to understand the impact upon our business, which is basically the provision of high-quality, sub-market homes, together with services to repair, maintain and improve existing homes.

 

The effects of the new Government’s policies in respect of rent reductions will be to remove the capacity for CHP to invest £10m less than it had planned for over the next four years (based on the Coalition Government’s formula of CPI+1%) and a reduction from about 1,300 new dwellings to 900 over the same period. CHP is neither against choice or aspiration and already provides active opportunities to enter the owner occupation.

 

The key issue for CHP regarding the extension of Right to Buy is the absolute requirement for the Government to recompense this private company for any discount entitlement of any tenant who exercises the Right to Buy under new legislation. This will enable CHP to replace at least on a 1:1 basis. This discount replacement needs to be at the time of sale to ensure proper Treasury management can take place and planning for replacement started.

 

Our secondary fear is that the planning system will not be capable of proving sufficient opportunities to assist replacement within reasonable times.

 

Our third concern is that the sale of high-value Local Authority stock to fund repayment of any discount will not be sufficient nor correspond with sales under new RTB legislation           

 

Should you or the Committee need any further information, or clarification on any point, please let me know.

 

Kind regards

 

 

 

Stuart Stackhouse

Chief Executive

 

Proposals on the Right to Buy

 

CHP is a stock transfer organisation which, since transfer in 2002, has grown the business and extended across Essex from our original base in Chelmsford.

Our estimate of our total of 8,943 properties potentially affected by the new Right to Buy (RTB) is 4,179 homes.

 

CHP owns properties throughout Essex; with the majority of the stock concentrated in Chelmsford. As we are not entirely sure what units will be subject to the new policy, we are only able to give rough estimates of units affected based on our current stock. Of the units that may be subject to RTB requests we estimate:

 

81% will be in Chelmsford

5% will be in Colchester

4% will be in Tendring

2.5% will be in Braintree

2% will be in Thurrock

1.5% will be in Uttlesford

1.5% will be in Brentwood

1% will be in Basildon

0.5% will be in Maldon

0.4% will be in Southend

0.4% will be in Castle Point

 

In addition to the above, there may also be some exposure to new properties recently developed or under development, as well as planned future development.  As we are a developing landlord with an active development pipeline, there could be a number of new homes subject to RTB sales.

 

If current RTB rules are extended, it is possible that the very first tenant in a newly built property would immediately have the RTB if they have previously been a tenant of a registered provider.  The current state of CHP’s development programme (year ending 31st March 2015) in Essex is shown in the graphic below and although some of these units may have already been earmarked for low cost home ownership, as things stand, the majority would be for rent and so could be subject to the RTB. The RTB policy may, therefore, affect our decisions about the tenure types of future developments. 

C:\Users\jjaco1\AppData\Local\Microsoft\Windows\Temporary Internet Files\Content.Outlook\7IRDMLLD\development_map_2015.jpg

 

 

 

 

 

Best published estimates of replacements are:

 

Original RTB policy                            1 in 10

Enhanced RTB                           1 to 1 additional properties projected by 2019/20

Entering Private Rental               40%

 

The timescale for replacement is unknown but is likely to be beyond three years, especially in rural areas where from concept to delivery can take eight years.

 

Loss of social housing either means people will be unable to afford to rent at all or only with a large amount of housing benefit.

It would also mean property being provided for rent by companies or private landlords who want a profit, with that profit reflected in market rents charged.

 

 

 

As the home sold under RTB is sold to the existing tenant, there would be no short term loss of housing provision. However demand for affordable housing continues to significantly outstrip supply/projected supply. In the long term RTB could exacerbate this issue by permanently removing affordable rented housing from the sector.  To address this, the Government proposes that housing associations must replace the homes sold. This will only be viable if housing associations are compensated for the loss of the property at full market value as well as for the costs of the sale, and planning decisions provide an increase in development opportunities.

 

To replace the units lost without being fully compensated would require a further leveraging of a declining asset base which could place the financial viability of some housing associations at serious risk. If the business is not fully compensated for the loss of stock due to RTB, it is likely to dramatically impact our development ambitions, meaning the business would not develop as many units as we would be able to otherwise. To avoid threatening some housing associations’ viability and/or future development, funds will need to be found to cover the cost of the discount being offered under the RTB rules.  The Government proposal for Local Authorities selling high-value properties seems wildly optimistic in values, speed and mismatch of sales location / investment locations.

 

 

No comment – CHP is not qualified to offer financial advice of any kind. Prospective purchasers will need to obtain their own financial advice. 

 

 

CHP do not get involved with offering financial advice of any kind. CHP already sells properties under the preserved Right to Buy and so are used to providing information to prospective leaseholders on how to obtain relevant advice. 

 

 

No comment.

 

 

The proposed funding model for compensating housing associations for the loss and so allowing replacements to be built does not appear credible. Savills have estimated that the Government is only likely to raise £3.2bn a year from 5,500 council home sales, which falls well below the levels which would appear necessary to meet the funding commitments demanded by RTB. Many councils, including Chelmsford (where the majority of our stock is located) transferred their stock and do not have any ‘high-value’ council houses to sell to fund replacements. For these reasons, it is unlikely that councils, outside of the capital, will have large numbers of high-value properties to sell.

 

We also have concerns about the time lag between selling a property and receiving the funds to cover the discount and the bureaucracy that this could entail. This could lead to a significant time lag between homes being sold and new ones being developed. We are concerned that these proposals may lead to some developments being stalled while we make sure we have sufficient funds to build. We very much support the Government’s ambitions to release more land for development and if this is successful it may go some way to mitigating the impact on developments.

 

 

The published evidence that is available to the Select Committee is that homes sold under RTB are often not replaced, high numbers become privately rented at higher cost, and planning does not release land for new building.

 

In addition the future liabilities created for the Treasury by this RTB leakage into the private rented sector are very likely to exceed any revenue generated by sales receipts, regardless of how these receipts are distributed.

 

Proposals in the Budget

 

 

The most obvious impact is that it has a negative effect on the business plan and limits the cash that will be available for development. In real terms our modelling forecasts that this proposal removes £10m rent income, and the ability to fund 400 new homes from our business over the next four years.

 

It will increase the cost and potentially constrain the ability of housing associations to access private funding which will further reduce the ability of associations to develop new units. 

 

 

CHP houses very few people of this age group as invariably their support needs are not being addressed by other agencies to enable them to sustain a tenancy. We would expect to be housing even fewer if this policy goes ahead.

 

We are aware that when this policy was introduced before, it led to a steep rise in youth homelessness and rough sleeping and there is no reason to think that experience would not be repeated (as, if anything, market conditions have worsened for young people since the 1980s) unless significant protections are put in place for young people at risk of homelessness.

 

 

The combination of reduced  income from rents combined with reducing social security entitlements for many of our customers will put a real strain on a business model that seeks to invest in existing homes and both develop as many new units as possible (with minimal recourse to government funding).  The combination of proposals in the budget, combined with the reforms to social security enacted in 2012, mean that some difficult decisions will need to be taken about what the primary focus of registered housing providers should be.

 

The Government appear to be creating conditions in which, having an existing stock of homes and an active development programme targeted to housing low income people, is not valued or promoted.  When combined with the Government focus on homeownership, we are forced to conclude that the Government no longer intends to support the provision of sub- market rented housing as a final housing “destination” for anyone. 

 

CHP has no intention to ignore its Company Articles and Charitable Objectives which were created to assist those on lower income with good quality housing, and to use its resources to provide more homes.  CHP’s business model will need to change and we will look for opportunities outside our traditional business model, in order to respond to the Government’s housing policies.  We will look at ways to meet housing demand rather than housing need alone.

 

We can expect the proportion of our stock let at social rents to decline over time, as more of our focus shifts to low cost homeownership. This is likely to create an increased burden on local authority homelessness departments, as well as creating upward pressures on benefit expenditure in the medium to long term. The Government obviously hope to reduce Housing Benefit (HB) over time through RTB sales and reducing eligibility. To date their housing policies have seen an inexorable rise in HB cost nationally.

 

Welfare reform proposals

 

 

So far CHP has been able to refine our processes and ensure that our rental income is protected. Our review of our income collection process has resulted in a reduction in rent arrears, despite the challenges that some of the welfare reforms presented. We are however aware that the most significant of the 2012 reforms (for our business) – the direct payment of Universal Credit to residents – is only just starting to be rolled out in Essex. When Universal Credit is more fully rolled out, and the further reduction in benefits and amendments to ‘tapers’ outlined in the budget, start to ‘bite’, we would expect this to have a negative impact on our rental income, although we are confident we are able to absorb this.

 

Other issues

 

 

The sector has seen a number of different regulators, regulatory codes/ frameworks and approaches to regulation over the last six years. The approach to regulation has often been reactive – designing approaches on the ‘back foot’ in response to events. It is postulated that having a regulated sector allows access to funding at competitive rates. However government policy appears to be putting this at risk, according to key ratings agencies that (since recent government announcements) have placed the sector on a ‘negative outlook’. 

 

The key issue for Registered Providers is that there will be a policy time lag between what and how the HCA regulates and the speed of change that Registered Providers will need to respond to government policies.

 

A good example of this is the HCA reaction to increasing diversity e.g. downgrades in financial viability for a variety of RP’s that have business plans that rely increasingly on market sales to fund new development. The paranoia over the Cosmopolitan Group collapse is evidence of a highly irrational response in regulatory control which will stifle innovation.

 

If Government introduces additional reductions in government department spending up to 2020, then regulation has to change dramatically to prevent additional inertia in new homes provision.

 

 

Whether Registered Providers are or are not public bodies needs to be decided as quickly as possible.

 

 

August 2015