APPENDIX B
REVENUE INCENTIVES FOR AFFORDABLE HOUSING
SUMMARY
Local authorities, particularly those in "high
demand" areas, could be encouraged to support housing association
(RSL) development of more affordable housing if they were to be
offered revenue funding on usable capital receipts.
KEYPOINTS
1. The output of social rented dwellings
from the Housing Corporation funded programme in London has not
increased to fully replace the supply (over 1,000 homes pa) of
new RSL dwellings formerly funded by London boroughs.
2. There are no specific financial incentives
for local authorities to use their capital resources such as usable
capital receipts to fund development by registered social landlords
(RSLs).
3. The consequent anticipated future shortfall
in investment due to the absence of revenue incentives wouldwill
reduce rehousing of homeless from temporary accommodation. This
will increase the (housing benefit) cost to Government.
4. The cost of temporary accommodation will
exceed the revenue incentive needed to encourage the use of capital
receipts to support housing investment.
5. It therefore makes financial sense for
the Government to provide a revenue financial incentive for local
authorities to apply capital resources (such as usable capital
receipts) to fund RSLs in "high demand" areas where
are substantial temporary accommodation costs.
1. INTRODUCTION
1.1 This report considers incentives for
local authorities to fund the development of social rented housing
by RSLs and so reduce usage of high-cost temporary accommodation.
2. BACKGROUND
2.1 With-debt local authorities wishing
to support new additional RSL development from 2004-05 through
use of their own capital resources will incur revenue costs, either
as a result of debt charges or foregone interest. Exceptions were
made for some schemes in London starting in 2003-04 which operated
under previous financial arrangements.
2.2 Previously local authorities were incentivised
to use their own capital investment resources to fund RSL developments
through the Local Authority Social Housing Grant (LASHG) arrangements.
3. IMPLICATIONS
3.1 From 2004-05 there is no revenue support
to local authorities considering funding RSL schemes. Inevitably
local authorities will be unlikely to use their capital resources
such as usable capital receipts to fund RSLs if there is no financial
incentive for them to do so.
3.2 In the late 1990s the output of rented
housing by RSLs in London was slightly over 6,000 per annum. This
included over 1,000 per annum funded through Local Authority Social
Housing Grant.
3.3 The London Housing Board redirected
£68.4 million of BCA funding to the ADP for 2004-06 to make
up for the loss of the facility to use BCA funding to fund RSLs
in London. However, this has not addressed the threatened redirection
of other funding sources, mainly capital receipts, away from funding
RSLs.
3.4 The output from the London ADP allocations
in 2004-05 and 2005-06 will only average just under 5,000 per
annum.
3.5 There are over 60,000 London households
in temporary accommodation, rising by 5,000 each year. Most London
social housing lettings rehouse the homeless. Hence losing access
to the investment resource of usable capital receipts will reduce
rehousing of homeless from temporary accommodation.
3.6 Higher numbers in temporary accommodation
will increase the Housing Benefit cost to Government. This increase
would exceed the revenue incentive needed to encourage the use
of capital receipts to support housing investment.
3.7 Every £100 million of capital resources
directed away from housing investment in London through RSLs means
about 800 fewer dwellings. An analysis by London Housing shows
that the long term net public expenditure cost would exceed £30
million.
3.8 The potential saving to central Government
through a revenue incentive scheme occurs in London largely as
a result of the high cost of temporary accommodation, and the
large (and growing) backlog of households in temporary accommodation.
The fact that the great bulk of existing available family-sized
lettings go to the priority homeless means that additional supply
is needed to reduce the numbers in temporary accommodation.
3.9 In addition, investment in RSL development
by local authorities traditionally brought added value to housing
association funding mechanisms by meeting local opportunities
and objectives that would not be otherwise supported through the
regional Approved Development programme ADP. For example:
— Estate regeneration schemes which
help meet Decent Homes targets but which do not produce a net
increase in social housing.
— Temporary to permanent accommodation
schemes.
— Support for BME RSLs (ensuring that
targets for local BME RSLs are met).
— Empty property initiatives.
— Bilateral cross borough initiatives.
— Investment in larger dwellings to
meet demand for larger units of social housing. Only 26% of the
social rented element of the 2004-06 ADP programme in London was
directed at three-bed plus units.
4. PROPOSALS
4.1 It makes financial sense for Government
to have a revenue financial incentive for "high demand"
local authorities to apply capital resources (such as usable capital
receipts) to fund RSLs where there is a clear saving in temporary
accommodation costs.
4.2 An alternative use for the capital receipts
would be to repay debt. The revenue saving here would be set by
the consolidated loans fund (CLF) rate of the authority. It would
therefore be reasonable for the revenue incentive to be set at
the CLF rate for the authority.
4.3 To secure the temporary accommodation
savings this incentive could only be for areas of "high demand"
ie a large temporary accommodation backlog and a high proportion
of net lettings going to the priority homeless. ODPM has already
used a definition of "high demand" areas for its recent
(February 2003) regulation on Right to Buy discounts. It covers
31 out of 33 London boroughs.
4.4 It is proposed that this revenue incentive
could apply to usable capital receipts from the disposal of local
authority assets. This would enable local authorities to commit
usable capital receipts and provide RSLs with some certainty when
planning affordable housing.
5. EQUALITIES
IMPLICATIONS
5.1 Socially excluded groups or local groups
or communities in need of particular types of accommodation would
benefit from additional social rented housing.
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