A Submission from the National Housing Federation
6 November 2013
Submission:
Autumn Statement 2013
A submission from the National Housing Federation
Building on the investment in affordable homes: a six point plan to add value
The National Housing Federation is the voice of affordable housing in England. We believe that everyone should have the home they need at a price they can afford. That’s why we represent the work of housing associations and campaign for better housing.
Our members provide two and a half million homes for more than five million people, representing around 11% of the population. And each year they invest in a diverse range of neighbourhood projects that help create strong, vibrant communities.
We welcome the certainty the Government has given housing associations around rents and the announcement of £3.3bn in affordable housing over the next three years. Although further investment over the longer term will be required, it is a move in the right direction to deliver more of the homes the country desperately needs.
In addition, for every £1 invested by the taxpayer, housing associations put in £6 of their own money. Not only do they deliver new homes, they also run a wide range of successful schemes to help their tenants find employment, reduce anti-social behaviour or help tenants with care needs to stay independent. Housing associations also continue to help their residents adjust to the new welfare system.
In this submission, we outline six measures the Government can take right now to help housing associations make the investment go even further and increase supply of affordable homes. The vast majority of these measures would need no further investment.
· Land: All levels of government engage fully in the Strategic Land and Property Review
· Capacity: Ensure the end of rent convergence doesn’t impact on the delivery of new homes, alter how housing association property is valued and extend the guarantees programme
· Existing homes: Help associations update existing properties to increase housing supply and ensure homes meet people’s needs
· Employment: Support housing associations to help their tenants find work
· Housing, health and care: Continue to link up housing, health and social care
· Maintain supply: Put in place a robust 1-1 replacement system for Right to Buy.
1. Help housing associations access the land they need
Recommendation That the Government ensures all levels of government engage with the Strategic Land and Property Review and the new Right to Contest. This land should then be quickly released and put to the best possible public use.
Limited capital investment in affordable housing means that public land which is either discounted, free or paid for at a later date, provides housing associations with a ‘game-changing’ opportunity to deliver the homes the country desperately needs. For this reason, we welcome the Government’s commitment to make more public land available for the building of new homes through the Strategic Land and Property Review. We also welcome the Right to Contest, which will enable communities across the country to call for the release of land which could be put to better use.
However, ministers must make sure that all levels of government – especially local authorities – engage fully with the Strategic Land Review in order to deliver new sites to build the affordable homes this country needs. On the Right to Contest, land owned by all of government - not just certain central government departments – should be up for challenge.
In addition, as part of the Review, public bodies releasing their land must avoid simply giving it to the highest bidder. Instead, they should not focus on the narrow definition of best value, but also look at how the land could be used to deliver wider social value. For example, a housing association like Family Mosaic could deliver affordable homes alongside their employment initiative, Pathways2Work. Or the housing association Curo could deliver affordable housing alongside their Independent Living Service, which helps older people to remain independent and stay out of hospital.
2. Increase the capacity of housing associations to deliver new homes
Recommendation That the Government enables housing associations to deliver more homes by giving them greater flexibility around the end of rent convergence, increasing their capacity to borrow and helping them to refinance their existing debts.
Give housing associations greater flexibility around the end of rent convergence
The Government’s confirmation of the 10-year rent settlement, announced in the 2013 Spending Review has given housing associations the confidence and resources they need to plan for future development. It has also given lenders and investors much more certainty.
However, the end of rent convergence in 2015 puts this new confidence at risk as it will significantly reduce the amount of rent that many housing associations can collect. For some, this will impact on loan agreements, risking the viability of their whole organisation, and for others it will severely constrain the number of new affordable homes they are able to build. We have several examples of housing associations where the loss exceeds £20m over the 10-year period.
We understand the Government’s long-term commitment to ending rent convergence. However, to ensure that housing associations can continue to develop new homes at scale, the Government should take a two pronged approach to the end of rent convergence:
· The relatively small number of housing associations whose viability is under threat should be able to agree a robust waiver with the Homes and Communities Agency, allowing them to extend the use of the £2 a week increase beyond 2015 and continue moving towards target rent. This should be available not only for those facing immediate viability issues, but those for whom the loss of rent convergence may lead to a breach of loan covenants, require a re-profiling of loan repayments or require additional borrowing.
· To help those housing associations whose capacity to develop new homes would be constrained or reduced by the current proposals to end rent convergence, a phased implementation system should be introduced. For example, the Government could allow associations to increase rents by more than £2 per week for a very limited period of time after 2015 to them meet target rents over a shorter period of time. One option would be to allow housing associations participating in the 2015-18 Affordable Homes Programme to agree with the HCA a time-limited extension to rent convergence in return for a commitment to use this income to develop additional new homes.
Enable associations to borrow more by changing the way they value their stock
Housing associations would be ready and willing to deliver more new homes if they had greater capacity to do so. Unfortunately, for many in the sector, the amount they can borrow to finance new development is limited by the value of the assets they hold.
Currently, housing associations who own stock transferred from a local authority (LSVTs) have to value those properties at the lower of two possible valuations for social housing due to restrictions in s.133 of the Housing Act 1988. If these limits on the valuation of LSVT stock were lifted, this could release significant additional borrowing capacity for these associations, which they could use to finance the building of new homes.
To give more detail, currently LSVT stock can only be valued at ‘Existing Use Value – Social Housing’, which is equal to about 30-45% of market value. Removing this restriction and allowing them to value the stock at ‘Market Value Subject to Tenancy’, which equates to around 60% of market value, would significantly boost their borrowing capacity. This would enable them to access higher levels of finance to build more homes in the short-term. For example, for Spire Homes, a member of the Longhurst Group, allowing them to value their 4,700 LSVT properties at the higher valuation would provide an additional £50m of asset value which they could use to secure additional borrowing.
Enable associations to refinance by extending the guarantees programme
The Government’s affordable homes guarantee programme has given a much-needed boost for housing associations looking to access finance to deliver more homes.
However, the use of Government guarantees is currently restricted to housing associations accessing new finance. To deliver more homes, housing associations should be able to use the guarantees to refinance their existing debt. Allowing them to restructure their balance sheet would increase their capacity to build new homes.
Currently housing associations can only apply for guarantees for schemes which start in 2015 and are completed by 2017. If the scheme was extended to go beyond 2017, housing associations would have the confidence and certainty to commit to more projects which they could build out over a longer time period.
3. Enable housing associations to increase supply by remodelling their existing properties
Recommendation Enable housing associations to use some Recycled Capital Grant Fund (RCGF) to update and remodel existing properties, helping them to both increase housing supply and ensure homes are better able to meet people’s needs.
As well as building new homes, housing associations can also increase the supply of homes for rent by refurbishing or remodelling their existing stock. In certain areas some homes can be hard to let, particularly now the new welfare reforms targeting under-occupation have reduced demand for larger homes. If housing associations could refurbish or remodel these homes – for example by changing a four-bedroom home into two two-bedroom homes – they would be able to increase the supply of homes that people want to live in. This kind of refurbishment and remodelling work would have an added benefit of creating new jobs which would contribute to the country’s economic growth.
The Government should help housing associations to do this by lifting some of the restrictions on how RCGF can be used.
RCGF arises when an affordable home, part-funded with capital grant is sold or put to another use, such as market rent. The housing association has three years to re-invest the recycled grant in new development only.
This means that housing associations cannot invest the money in transforming properties which are either under-occupied, hard to let or empty. By allowing a proportion of RCGF to be used to update and regenerate existing properties, housing associations could improve and repurpose problematic housing, especially in areas of the country where a shortage of new homes is not always the problem, including low demand areas across the north.
A significant proportion of RCGF should continue to be spent on the new affordable homes we desperately need. However, we would recommend giving housing associations the flexibility to reinvest up to 25% of their RCGF receipts on the major remodelling or refurbishment work mentioned above.
4. Support housing associations to help their tenants find work
Recommendation Help housing associations to support their tenants into work by involving them in the Youth Contract and the next phase of the Work Programme
Housing associations fully support the Government’s aim of getting people off benefits and into work. Associations have a long track record of supporting people into work and investing their own resources in skills, training and creating employment opportunities.
However, the Government could do much more to support housing associations to increase employment. Housing associations have unrivalled links to their tenants – many of whom are the main focus for the Government’s various employment schemes.
Housing associations would be ready and willing to work much more closely with the Government to deliver these employment schemes. Much more could be made of the unused £1bn funding pot for the Youth Contract by redirecting it via housing associations. Associations would be ready and willing to work closely with the Department for Work and Pensions to devise a mechanism to redistribute some of the unspent Youth Contact money amongst the housing association sector. Housing associations could then use this money to get young people into work, both in their own workplaces and through their extensive supply chains and contracts. Housing associations would also be keen to work with Government on delivering the next phase of the Work Programme.
Similarly, the Federation supports the principal of Universal Credit and its aim to make work pay. However, the Government must work closely with housing associations to ensure the transition of two million social housing tenants onto the new system works as well as possible and arrears are kept to a minimum.
The cumulative impact of welfare changes – on claimants, councils and housing associations – is yet to be understood. Leaving aside the impact on families and communities, we urge that Government does not implement further cuts and ensures that Universal Credit is a partnership with social landlords, not a burden.
5. Continue to link up health, social care and housing
Recommendation That the Government continues to ensure that housing associations can engage with the new health and social care structures by continuing to fund the Department of Health Strategic Partnership programme for two more years.
Joining up health, care and housing services has been shown not only to produce better health outcomes for patients, but also to deliver significant savings for the public purse. Integrated housing, health and care services can deliver savings of up to £18,000 a year in each individual case[1].
With the changes to the health and care system bedding in and unprecedented pressure on the NHS, creating integrated housing, health and care pathways requires commitment to build and sustain links between all those involved in commissioning and providing services. We are pleased that the Government is trying to address this through the Care Bill, with recent amendments encouraging the integration of housing, health and care.
As a strategic partner to the Department of Health for 2013/14, the Federation is enabling housing associations, local authorities and the NHS to develop incredibly useful partnerships, allowing them to link up services across the board. Using these partnerships, housing associations can help save public money by using specialist housing, adaptations and housing-related support more effectively. These options also reduce demand on the NHS, avoid unnecessary hospital admissions and increase the capacity of local hospitals and social care services.