Written evidence submitted by Phoenix Community Housing [RTB 109]
About Phoenix
We are a community gateway housing association, created in 2007 as part of a stock transfer by Lewisham Council. We manage and own around 6,300 homes, almost all of which are concentrated in the wards of Downham, Bellingham and Whitefoot in the London Borough of Lewisham.
Our community gateway model places residents at the heart of both decision making and scrutiny. We are led by our residents – residents are the largest group on our Board and our Chair and Vice Chair are both tenants. We encourage tenants and leaseholders to get involved in a wide range of consultative groups that play a key role in steering our future direction and how we allocate our resources. We also offer shareholding membership to residents, giving them a stake in the organisation.
We were named as the UK’s 3rd best landlord in a 24housing poll in 2014 and are among the Sunday Times’ Top 100 Not for Profit Organisations to Work For in 2015. Earlier this year we received planning permission for our first residential development – a 60-home extra care scheme in south Lewisham.
In 2013 we opened a new community building at the heart of our area – The Green Man – including a café, training kitchen, credit union branch and venue space as well as offices for Phoenix staff. The Green Man won the Community Achievement award at the national 24housing Awards in 2014 and received more than 20,000 visitors in its first 12 months.
We are committed to playing a leading role in the regeneration of our area, perhaps best exemplified by our restoration of the Fellowship Inn in Bellingham. We plan to bring a cinema, live music venue and restaurant to this semi-derelict pub, along with around 70 jobs, following a successful £3.8million bid to the Heritage Lottery Fund.
Our overall view on the effect of the emergency budget
There is a severe housing shortage in Lewisham, where we work. We support the aspiration of people to own their own home but above all believe there should be choice for everyone as to where they live, their tenure and type of home.
Our experience shows there will always be those unable to own their home or afford market rents, whether permanently or for a short time in their lives. To deliver real choice and opportunity we need to continue to provide secure rented homes and support. We are concerned that the combined effect of the proposals to extend the right to buy, reduce social rents, ‘pay to stay’ and welfare reforms present a significant challenge to the future of social housing.
We are seriously concerned about the impact on existing and future individuals and families in housing need and believe these proposals would lead to a major increase in homelessness. The long-term financial costs resulting from these measures need to be assessed as these could greatly outweigh the short-term savings to the welfare budget.
Right to Buy
The detail of the proposed extension of the right to buy to housing association tenants is awaited but we have provided comments below based on our understanding of the proposals.
We support home ownership and support our residents into it. We also remain firm in our conviction that this should not be at the expense of current and future social housing supply. There is substantial housing need in the borough of Lewisham, as there is across England, and we believe there will always be a need for low rent housing options through the social housing model for people unable to access homes for rent or purchase through the market.
There is also the point of principle that we are an independent organisation with charitable status. We feel strongly that Government should not be directing us to sell an asset we are using for our charitable purposes.
For these reasons, we would advocate an alternative to right to buy, whereby existing social housing tenants would be eligible to apply for a grant from government towards the purchase of a private property, based on local property values. As the Housing Minister has acknowledged, the housing sector is extremely complex and there are major geographical disparities in property value, housing demand and housing need. We believe this model would be a fairer system that would acknowledge this complexity whilst protecting existing social housing supply.
Lessons learned from the earlier experience of the Right to Buy
As we are a stock transfer organisation, tenants who transferred from the Council have the preserved right to buy (PRTB). We only receive a small share of the PRTB sale proceeds net of the discount as there is a sharing agreement with the Council in place. We are not reimbursed for the right to buy discount at present.
Our business plan, approved by DCLG at the time of the stock transfer in 2007, was based on a right to buy discount figure of £16,000 and assumed relatively low take-up of the preserved right to buy.
The increase in the London discount to more than £100,000 has led to a significant increase in take-up and there is no possibility whatsoever of replacing properties on a 1:1 basis based on our receipts, once the local authority has taken its share.
Our receipts averaged £27,000 per sale in 2014-15. Based on likely construction and land costs, this means we will only ever be able to replace one in seven or one in eight of homes sold through PRTB.
Following the increased discount levels introduced in 2012 and again in 2013, we have seen a 900% increase in sales. Sales have increased from a maximum of four per year between 2009/10 and 2011/12, to an average of 38 per year between 2013/14 and 2014/15.
We are anticipating a further 42 sales to take place in the current financial year and can assume the number of sales will increase should the right to buy be extended to housing association tenants.
Based on the current discounts and the lowered qualifying period (three years) we have already calculated that for each £1 paid in rent our tenants could potentially earn £6.94 in right to buy discount. (This assumes £96 per week rent over a three year period, resulting in a £103.9k discount at the equivalent of £660 per week). That equates to a gross income of approximately £30,000 a year over the period.
We have also identified over the past two years that only 35% of all applications received proceed to completion. The average application incurs costs in excess of £1,150 before it is withdrawn and these costs cannot be recovered. We are committed to taking all steps possible to counter any right to buy fraud, and some further suggestions for tightening this are outlined later in this submission. Around 20% of withdrawals are due to our anti-fraud measures, with the remainder due to emerging affordability concerns.
The type and quality of housing stock covered by the extension.
We estimate that an additional 1,800 tenanted households would be able to make an application under the right to buy who are not currently able to do so. These comprise both houses and flats and all the stock is in good condition following the major works programme that we have carried out following the stock transfer.
The geographical distribution of housing association properties covered by the scheme.
Our stock is almost exclusively sited in the wards of Downham, Bellingham and Whitefoot in Lewisham, London. These are among some of the most deprived wards in the UK (the 2010 Indices of Multiple Deprivation record them as among the five highest deprivation wards in Lewisham, which is itself is the 7th most deprived local authority area in London).
We believe the concentration of our stock within a specific area has been key to the success of our community gateway model and ongoing community-based regeneration. We would want homes sold through right to buy to be replaced by additional stock in our area.
What the effect on the availability of affordable homes will be, and whether any projections have been carried out.
The impact of the preserved right to buy is a strategic risk on our risk register. The detail of the proposed extension of the right to buy to housing association tenants is awaited so it is difficult to model the impact. However, we have completed scenario testing on the impact to our business.
We are extremely concerned about the loss of more social rented homes given that housing needs in Lewisham far outstrip the existing supply of social housing. There were 8,591 applicants on Lewisham’s housing register as of December 2014 and they could expect an average of 88.5 weeks to move. Those in the greatest need (Band 1) waited an average of 67.9 weeks. There are currently 1,731 households in temporary accommodation in Lewisham (a 68% increase since 2011-12).
In our current operating environment it is likely that we will only be able to develop future homes using affordable rents rather than social rents. The difference between the two rents could impact on who we rehouse, as larger properties at 80% of market rents are not affordable to people affected by the planned reduction in the benefit cap. For example, our average 4-bed social rent is £524pcm, compared to £2,000pcm average affordable rent in Lewisham.
The steps that could be taken to minimise the effect on the availability of social housing.
As outlined earlier in the submission, we believe social housing is an invaluable resource and we believe that measures to promote home ownership should certainly not involve reducing social housing supply.
We also feel RTB1, and the proposals for RTB2, do not account sufficiently for differing housing markets across London and England as a whole. For example, the full London RTB1 discount of £103.9k covers more than half the market value of many homes in our area of Lewisham but would barely cover 1/7th or 1/8th of the cost for equivalent homes in, for example, Kensington and Chelsea or Westminster.
We would wholeheartedly support a private starter home grant scheme for social housing tenants, based on local private property values, in place of the proposals to extend the right to buy discount.
An alternative option would be the introduction of local determination over right to buy. Local authorities would be granted the power to determine the level of discount based on local property values, housing demand and housing need, in line with the current Welsh model.
We would also like consideration to be given to RTB2 entirely superseding RTB1, removing the requirement for stock transfer housing associations to repay a proportion of right to buy proceeds to local authorities, and increasing their capacity to replace homes sold.
If the RTB2 proposals proceed it is important that eligibility criteria are set that prevent fraudulent applications being approved. Steps could include:
Fraud checks – mandatory
We believe that it should be a mandatory part of the application process for every application to go through rigorous anti-fraud checks to ensure that only the rightful applicants can proceed. As a result, the initial period to accept/deny the application should be extended from 4 weeks to 10 weeks to allow reasonable time to ensure all anti-fraud checks have been carried out. The average time for completion of an investigation is 7 weeks.
Applications from one member of a joint tenancy
All named tenants, including those not joining the right to buy, should be subject to the anti-fraud checks to ensure that all tenants have been rigorously checked and we are certain that no fraudulent activity has been committed by any tenant.
Family members sharing the right to buy
Ensure that family members who wish to share the right to buy have also been an occupant of the property as their only and principal home for the duration of the tenancy or, as a minimum, during the qualifying period of the tenancy. Include a requirement that they cannot own nor have an interest in any other property.
Successions and assignments
Successions or assignments to a tenancy should not contain the preserved right to buy under RTB2. Qualifying periods should be earned by the named tenant and not the ‘successor’ or ‘assigned’ tenant.
Main or principal home
Ensure legislation prevents applicants from obtaining the right to buy if they own or have an interest in any other property that could be used as a permanent home, with the exception of a holiday home where they cannot reside for more than 11 months of the year. This is important as there are many applications being received for residents who own property elsewhere through inheritance or their own purchase and rent it out but continue to hold on to a social tenancy which they no longer need.
Property size
Applicants should only be able to purchase a property that meets their housing need. The legislation should contain a requirement to downsize if their home is more than 1 bedroom above their housing need. We have received previous applications from single elderly adults in a 3 or 4 bedroom home.
Valuation
Housing associations should have the ability to update the valuation to current values if the applicant hasn’t completed the sale (without good reason) within 12 months of making the application. Currently, applicants can legally delay the purchase for almost 30 months from application but the valuation is frozen at the date of application. This means that the purchaser not only benefits from the RTB discount but also directly receives any increase in valuation as additional equity at the time of sale.
Housing benefit
Any year in which an applicant has successfully claimed full or partial housing benefit should not be eligible for discount calculation. Alternatively RPs should be able to reduce the overall discount by the amount of housing benefit received by the applicant towards their rent on the property. The tenant should not be able to further benefit from the public purse if the public purse has already supported them through payment of their rent.
Compensation
RPs will need to receive 100% compensation for each sale (at build or market costs, whichever is higher) to ensure that the homes sold can be replaced. Any conditions attached to the compensation that require it to be used for new affordable housing need to be flexible, recognising the constraints in terms of availability of land for development and obtaining planning in the areas in which the RP works.
The Government should confirm that the proceeds of sale for stock transfer associations will not also be shared with the local authority as is the case for former council tenants with the PRTB. Not all transfer agreements are the same and without clarity on this point there is a risk that some local authorities will expect to receive up to 80% of sale proceeds on new stock too. That would clearly make it impossible for affected housing associations to replace sold homes.
There is also the opportunity to enclose PRTB in the legislation so that stock transfer associations are able to replace the homes sold under PRTB.
Occupation and use of property
Legislation should be amended to require the purchasers to remain in occupation for the lifetime of their ownership of the property or for a defined period. There should also be a defined period before purchasers can sub-let the property in full following the sale. The discount repayment period should be extended to 20 years.
The ability of those eligible for the policy to buy their own homes and keep up mortgage repayments.
The increase in the discount and relatively low property values in our area has resulted in a significant increase in successful applications under the PRTB and most of these tenants have been able to arrange mortgage finance. We have bought back one property previously sold under the right to buy and have not seen more than 1 home repossessed by mortgage providers every year, since 2007.
The availability of financial education for prospective buyers, including advice to prospective leaseholders about their responsibilities for paying for major works.
We offer meetings with all right to buy applicants to advise them of their responsibilities as a homeowner, including their contribution to future major works if they become a leaseholder. We also signpost all prospective buyers to financial advice. We recommend that it is mandatory for tenants to receive legal advice on the implications of becoming a leaseholder.
The approach of mortgage lenders to the scheme.
N/A
Proposals for the replacement of the homes sold, including the proposal for funding replacement through the sale of council homes in high value areas.
We understand the Government wants replacement homes to come from new supply. We would support this but are concerned that availability of land and the planning process will severely undermine our ability to replace homes in the area in which we operate.
We would suggest that individual housing associations and local authorities could come to local agreements for replacement homes to be purchased, to support agreed local asset management strategies and comply with any fixed replacement timescale.
We are also concerned that the proposed extension does not result in additional property supply to address housing need. We take seriously our responsibilities to maximise returns on our assets and we support the sale of properties that do not provide adequate return on investment.
However, the sale of council homes in higher value areas will further residualise social housing and reduce the choice of people in housing need. Furthermore, there is the potential for a net loss of homes let at “social rents”. We would request assurance that housing at social rents can replace sold social rent units, and that replacement properties should not have to be converted to “affordable” rented homes or housing for sale or shared ownership unless this is what the association and local authority partner deem most appropriate given the local housing market.
Proposals in the Budget
What the effects will be on housing associations of the cap on rents.
We recognise the need for the Government to manage public finances effectively and in particular the welfare benefit bill. Housing associations are long-term businesses and reinvest their surpluses into new homes and services to their residents. The previous Government agreed a ten-year rent framework commencing in April 2015, providing certainty over future revenue streams and enabling housing associations to plan ahead and agree future development programmes and additional added-value services.
There is a serious shortage of affordable housing, particularly acute in London, and we were finalising plans for an expanded programme of development of new homes which would help to address this. The new requirement to reduce rents by 1% for each of the next four years, announced in the 8 July Budget, has compelled us to review those plans.
The required 1% rent reduction each year over the next four years means our rental income will be £4million lower by 2019/20, a reduction of 13%, compared to the level we had previously assumed, based on the current formula (CPI +1%). Over the longer term, we estimate a total loss of some £150million in rent over 30 years.
While we remain viable, we will clearly have to make significant savings and we are already looking at ways of attracting additional income to Phoenix, building on existing partnerships with other housing associations and service providers. Whilst the reduction is good news for existing tenants, our ability to borrow additional finance to develop new homes will be significantly reduced. This frustrates our desire to address housing need, which in turn will potentially add to the welfare benefit bill as people remain in more expensive private rented accommodation or bed and breakfast.
We would call on the government to commit through primary legislation to a rent settlement after the four-year period at CPI plus 1%, in order to provide housing associations and their lenders assurance over their long-term viability.
It is also critical that an exemption to the policy is provided in respect of rents for supported housing. Typically the majority of the costs on these schemes comprise staffing costs that cannot be reduced as they are specified in detail as part of contracts agreed with local authorities. These costs will increase with the proposals for the ‘living wage’, so the financial viability of such provision will be threatened if they are not exempt from rent reductions.
What the effects will be on housing associations of changes in housing benefit for younger people.
We have 125 Phoenix households affected by this. We offer a wide range of training and employment support to Phoenix residents and we will be particularly targeting these opportunities at this group.
What the effects will be on housing associations of other proposals in the Budget.
The proposals for ‘pay to stay’ have not been published but we are concerned that this policy will be costly and difficult to administer, particularly if information regarding tenant households’ income cannot be shared by HM Revenue and Customs.
We are also concerned that the prospect of a substantial rent increase for households on £40k+ will prompt more right to buy applications and lead to a further reduction in social housing supply. This highlights the perverse situation where one policy objective (social housing should only be available to people in need) encourages the same individual to access a £100k ‘gift’ from Government.
We have previously suggested to the Government that an alternative way of addressing the policy objective would be make to make the difference between the social rent and market rent a taxable benefit for people whose income is above the higher tax rate threshold. We believe this would be easier to administer.
Welfare reform proposals
What the effects have been on housing associations of changes to the welfare system in the last Parliament.
As of April 2015 we had 432 households affected by the reduction in housing benefit for under-occupiers. This has reduced from 594 in April 2013 due to the support we have offered in signposting disabled residents to Discretionary Housing Payments, downsizing and moving off benefits.
As a result of the reduction in Housing Benefit for under-occupiers we need to collect an additional £443k directly from tenants. Average arrears are £723 for this group. Nine of our households have been affected by the benefit cap.
To support our tenants through the welfare reforms and protect our primary source of income we have invested in additional resources directly and through others (for example, Citizens Advice). This investment has enabled our tenants to access training, work, advice and support to maximise their incomes.
In 2014-15 tenants were supported so they could obtain an additional £209K of income and 411 referrals were made for financial inclusion support. 248 residents accessed training and more than 60 have found employment (directly through our support or through our contractors). We have also supported food banks in our area which are increasingly used by our residents.
We invest in an annual £100,000 Community Chest fund to support community based projects which directly benefit residents in our area. This investment in our community supports our aims and is vital at this time. We will work hard to ensure we can continue to invest our VFM savings in these initiatives, despite the reduction in rents over the next four years, but we are concerned that this will become increasingly difficult as needs increase.
What the effects will be on housing associations of the proposed changes to the welfare system.
We expect the number of households affected by the benefit cap to rise from 9 to 81 once the cap has been reduced.
Universal credit will be introduced in Lewisham in the last quarter of 2015-16 for new claimants. We expect the impact to be much more significant in 2016-17. We support measures that give tenants greater control and responsibility over their affairs. We are currently carrying out a number of digital inclusion and budgeting advice projects and will offer specific support to individuals “at risk” of not being able to manage ahead of the roll-out of universal credit.
We remain concerned that we may potentially be unable to recover some rent arrears, as well as by the movement from weekly to monthly payments for some claimants, and the process to switch to direct payment to the landlord where tenants fall into arrears.
Other issues
The role of the Regulation Committee of the Homes and Communities Agency.
We welcome the ongoing approach of co-regulation for the consumer standards which complements our approach as a Community Gateway Housing Association where resident scrutiny focuses on the way we do things. This also allows the regulator to focus its resources on the governance and viability standards.
The accounting consequences for the national debt of the government’s proposals.
We are not in a position to comment in detail on this matter. However, the accepted independence of housing associations to date has avoided over £60bn of debt being included as part of the public sector borrowing requirement. The combined impact of the budget proposals and the proposed extension of the right to buy clearly undermines this position.