Memorandum by the Sunderland Housing Group
(SRH 20)
1. INTRODUCTION
1.1 Sunderland Housing Group welcomes the
opportunity to respond to the Housing, Planning, Local Government
and Regions Committee inquiry into the supply of rented housing.
The following response represents the views of Sunderland Housing
Group, which comprises the following companies:
Sunderland Housing Company Limited
Emperor Property Management Limited
Emperor Construction Services Limited
North Sunderland Housing Company limited
Central Sunderland Housing Company Limited
South Sunderland Housing Company Limited
Houghton and Hetton Housing Company Limited
Washington Housing Company Limited
2. GENERAL COMMENT
2.1 There is clearly a need to increase
housing supply across the board. This has been articulated in
the Barker Review of Housing Supply and more recently in the Joseph
Rowntree Foundation sponsored Housing and Neighbourhoods Monitor.
Recent housing policy has emphasised the prioritisation of home
ownership as the key aspiration for housing policy. This is based
on both aspiration, with the treasury claiming up to 90% of the
population aspire to home ownership, and on cost, with pressure
to reduce subsidy levels but increase housing supply concurrently.
The Group's main points of argument are:
— that there is a need for flexible
funding and tenure options within an increased rented housing
supply.
— that different tenures will suit
people who are at different stages of their housing life cycle
— that a variety of funding methods
are now available that can bring forward efficient delivery of
development programmes.
2.2 The Group's experience of housing supply
runs against the traditional view of a prevalence of low demand
for housing in the North. Housing market pressures have forced
home ownership out of the reach of many people on low incomes
which has created an increased demand pressure for good quality
affordable rented housing. Within Sunderland, average earnings
to average house price ratios are now at around 6 times average
income. Even lower quartile house price ratios are now at around
3.8 times average income. At the same time turnover within the
Group's affordable rented stock has reduced from 13.5% 5 years
ago, to just 8.7% currently. The net effect of this is that the
Group is now letting just 2,450 properties per annum compared
to 4,900 in 2001. The Group runs a choice-based allocations
system and now receives over 100 expressions of interest for every
property advertised. All the indications are that this trend will
continue for the foreseeable future. There is therefore very little
slack in the supply side and all the indications are that additional
affordable housing will be required.
2.3 The Group's development programme has
focused in recent year's on restructuring and renewal of estates
that were beyond economic repair. The replacement housing solutions
have provided mixed tenure estates drawing on cross subsidy funding
models. It is the Group's experience that pepper-potted mixed
tenure can provide sustainable housing solutions. However, it
is also the case that there remains a very high demand for good
quality affordable rented housing. The Group will argue that in
increasing net housing supply across the board from historically
low levels of 130,000 to 200,000 units per annum, there needs
to be a much stronger case for increased proportions of affordable
rented housing. The Group accepts that this needs to be achieved
in a cost effective manner and will demonstrate in the specific
comments how this can be delivered using combinations of cross
subsidy from rent to sale, developer's profit, grant and core
business.
3. SPECIFIC
COMMENTS
3.1 In relation to the specific discussion
questions the Group will respond as follows:
3.2 The level of public funding required
to meet social housing needs
There has been much publicity about the increasing
levels of expenditure being provided for social housing. The Housing
Corporation's current programme of £3.9 billion expenditure
over 2 years will deliver 84,000 affordable homes which will bring
affordable development up to levels not seen since the 1980s.
This is a welcome move. Indications are, however, that unit costs
for development continue to rise. Land costs are such that many
RSLs are no longer land banking and instead are using Section
106 agreements in conjunction with private developers to bring
forward schemes. Within the forthcoming Comprehensive Spending
Review we would argue that affordable housing expenditure will
need to increase if the level of affordable housing supply is
to increase as reports such as Barker indicate it should.
On a pro-rata basis on current Housing Corporation
funding levels, to get up to the 48,000 unit level per annum to
maintain supply at the level of demand (without addressing the
supply backlog of a further 9,000 units per annum) this would
require funding levels for the 2008-10 programme of around £4.5
billion or conversely would require the grant unit cost to come
down from the current £46.4k per unit down to £40.6k
per unit. Some degree of reduction in grant rate per unit may
be possible through efficiency savings, but funding of at least
a similar level to that currently will be required. If further
supply is then needed above the 48,000 per annum identified then
additional funding must be secured accordingly.
3.3 The relative funding priority being
given to social rented housing as opposed to shared ownership
and other forms of below market housing.
It is the Group's experience that there is a
high demand for good quality affordable rented housing. The Group
also believes, however, that there is scope to provide additional
tenure flexibility building on the shared ownership and low cost
home ownership models already available. As part of its submission
to the Northern Housing Challenge, the Group is keen to advocate
a model whereby residents can move between tenures as well as
looking at new affordable supply. This is shown simply as follows:
Increased flexibility would enable tenants to
purchase shares in their existing property where they cannot afford
a full purchase under the right to buy or right to acquire models.
There may also be options in this model to allow funders a share
in the equity either through private finance or through grant
funding. This would therefore enable public funders to benefit
from potential housing market uplift over the medium to long term.
In terms of relative funding priority, there
is still a need to maintain a large stock of good quality affordable
housing and to add to this stock simply to maintain affordable
rented levels. Supply by tenure has shifted significantly over
the last 20 years as illustrated below:
| Year | Owner occupied
| Private rented | Affordable rented
| Total Stock |
| 1981 | 12,442 | 2,378
| 6,778 | 21,595 |
| 2004 | 18,306 | 2,663
| 4,984 | 25,953 |
| Change+/- | +5,864 | +285
| -1,794 | +4,358 |
| % Change +/- | +47.1% | +12.0%
| -26.5% | +20.2% |
Source: DCLG Live Tables
Major factors in tenure change have been the increase in
new build for sale but also the right to buy which has seen a
significant shift of property from affordable rent into owner
occupation. In the Group's view, this shift combined with the
significant recent uplift in house prices has now created a shortfall
in affordable rented housing hence the recent demand pressures
we have seen on the affordable rented stock. Affordability remains
a key factor in determining the level of affordable rented housing
that should be targeted in the future. There should therefore
be a combination of low cost home ownership options for those
who can afford it together with a continuing and increased supply
of rented housing for those who either can't afford to buy or
whose circumstances are better suited to renting.
The need to replace as well as add to the stock also needs
to be considered. Demolition and new build to remove out-dated
and stock in poor condition requires investment but does not necessarily
add to the overall housing supply.
The Group would also argue that future affordable rented
supply is not just a factor of historical extrapolation. As the
Group's demand figures show, it is becoming the Group's experience
that affordable rent, if done well can become an option of choice
not just of last resort.
In summary there is scope within the housing stock both for
low cost home ownership for those who can afford it and for a
high quality affordable rented stock for those who either cannot
afford to purchase or whose circumstances are better suited to
renting.
3.4 The geographical distribution of subsidies for
affordable housing
Affordable housing subsidy is currently distributed unevenly
in absolute terms between geographical regions. Equally, grant
per unit delivered shows significant variations across the country.
The proportion of grant against population distribution is also
uneven. For example, in the Housing Corporation's 2006-08 ADP
round, the three northern regions were allocated 10.3% of the
nationally available grant despite being home to 28.6% of the
population. Conversely, London and the South East were allocated
64.1% of the ADP round whilst being home to just 31% of the population.
The Group accepts that demand pressures are much higher in some
areas of the South, however, it also feels that the funding distribution
is still too heavily skewed away from the North.
This is not just an issue over direct subsidy. however.
The North East is the most deprived of the English regions and
housing investment brings with it much needed local economic multipliers.
For the North East to receive proportionately the lowest allocation
per head of population misses the wider economic benefits that
housing can bring. The Group is keen to demonstrate that targeted
housing investment can bring with it job creation, training, skills
retention and genuine neighbourhood renewal rather than just seeing
housing investment as a simple solution to housing demand. The
Group has demonstrated to the Housing Corporation that it can
deliver more units at lower grant rates than the majority of its
regional counterparts. The Group would therefore wish to see some
additional geographical flexibility, where it can be demonstrated
that value for money can be achieved against public investment.
English Partnerships, for example, operate very effectively yet
are not as geographically restricted and we would welcome similar
approaches being adopted by all public funding vehicles.
3.5 The future for local authorities as builders and
managers of social housing
The Group does not see any reason why local authorities should
not enter into the building of social housing or continuing to
manage social housing. The Group's experience has been that transfer
released the ability not just to invest in the housing stock but
to step out into much broader neighbourhood renewal initiatives.
To that end, any initiative which allows other local authorities
the same freedoms is to be welcomed. Difficulties may arise, however,
in addressing the longer term investment planning and renewal
issues that inevitably accompany restricted revenues. PFI may
be one route to enabling Local Authorities to continue to bring
investment into the housing stock.
A further issue that should be addressed, however, is the
requirements for ballots before LSVTs can proceed. An NHS Trust
or a schools PFI scheme has no requirement to ballot before it
can proceed yet the anomaly of the LSVT ballot remains, despite
the demonstrable benefits that private finance can bring. If the
PSBR rules could be relaxed in some way such that local authorities
could borrow against income streams, this would bring a tremendous
benefit in investment terms to local authorities which the Group
would fully support.
3.6 The effectiveness of different social housing
models including traditional local authority housing, ALMOs, housing
co-operatives and housing associations
From the Group's perspective there are two issues to highlight
here, investment and freedom to innovate.
In terms of investment, the transfer of stock allowed a £600
million investment programme to proceed directly into the City's
housing stock. This includes bringing the transferred stock up
to the Group's Amenity A standard (in excess of the Decent Home
Standard) and to address some of the most entrenched housing renewal
issues in the City. The borrowing that can be secured from transfer
can release housing investment that will maintain the housing
stock in perpetuity, something that ALMOs and stock retaining
local authorities will still have to address. The level of investment
released also generates significant local economic benefits that
can be captured to improve localities. This is especially the
case when there are large concentrations of stock such that there
is a local critical mass in an area from which wider initiatives
such as Local Area Agreements can develop. This is something that
is not always achievable for more traditional housing associations
whose geography will make it difficult to have significant community
impacts in an area even if they can access significant levels
of development grant funding. The Group is particularly keen to
explore how a large and positive local presence can be harnessed
to improve service a across a range of areas including crime and
anti social behaviour, education, health, training and job creation.
The Group is also exploring how the general aspiration of an area
can be uplifted through tenure mix and combining quality housing
services with wider public services and will be shortly commencing
some work on impact assessment of long term investment into the
housing and social infrastructure of an area.
Secondly, the Group's experience is that the governance freedom
that has come from transfer has allowed it to move into much wider
areas of business than simply the original investment plan to
meet the decent homes standard. The Group is now active in City
Centre refurbishment, build for sale and rent, sponsoring an Academy,
investing in over 100 apprenticeships, involved in schools citizenship
programmes, contracting across the north east for construction
and modernisation works and attempting to secure development partner
status in its own right. These things are possible because of
the innovation and freedom that came out of transfer. There is
no reason why large housing organisations shouldn't have similarly
varied programmes given the freedoms that they enjoy.
3.7 The role and effectiveness of private rented housing
in meeting housing needs
It is the Group's view that private rented housing plays
an important role in housing markets. It often acts as a buffer
where housing demand is otherwise high and can often provide temporary
and flexible housing solutions outwith statutory housing provision.
Proportionately, private rented housing accounts for around 10%
of the national housing stock and has shown a slight increase
in recent years. There are concerns, however, over some of the
roles of the private rented sector. A niche has emerged for private
landlords providing temporary accommodation at premium housing
benefit rates. Property provided can be of poor quality with insecure
tenure and poor management. The Group therefore welcomes initiatives
such as the temp-to-perm initiative whereby private funders can
work in partnership with local authorities and registered social
landlords to provide much higher quality accommodation and services
to vulnerable people.
The Group is additionally keen to pursue the wider role that
Housing Associations can play in providing high quality accommodation
at market rent levels such that a broad portfolio of housing provision
can be provided alongside home ownership and affordable rented
provision. A number of Housing Associations have entered into
the quality private rented market as well as providing intermediate
market rent, student and nursing accommodation. This should be
seen as an opportunity for housing associations to bring quality
property and management solutions to this essential sector of
the housing market.
3.8 The priorities and effectiveness of the Housing
Corporation, English Partnerships and the Regional Housing Boards
in responding to housing needs
It is interesting to note that only three bodies are mentioned
in terms of the effectiveness of the response to housing need.
The reality is that several other bodies need to be included in
understanding how the Housing Corporation, English Partnerships
and the Regional Housing Boards can operate. At a regional level
these include the Regional Assembly, Government Office and the
Regional Development Agency. At a local level this also includes
the crucial relationship with local authorities and the role that
housing associations can play within what becomes a complicated
picture of housing supply.
Essentially, the relationship of the three bodies mentioned
is that of funding provider. The additional bodies then provide
various frameworks within which investment can be delivered effectively.
It is the Group's experience that English Partnerships have been
more flexible, more responsive to opportunity and more commercially
minded. The Housing Corporation is driven by delivery of housing
units which it must achieve against allocated expenditure according
to very prescriptive criteria. There is perhaps more room for
flexibility and risk when it comes to investment. The regional
housing boards essentially gather intelligence on the regional
housing position then make their strategic priorities and funding
recommendations. The reality is, however, that regional boundaries
are not necessarily housing market boundaries. The City Region
concept is perhaps a more realistic assessment of how local economies
function and the housing markets that operate within them.
In terms of the way forward we would wish to see some clarity
of decision over the future funding roles of English Partnerships
and the Housing Corporation and whatever the outcome of that,
greater flexibility to result in bringing forward and funding
developments. In addition, the Regional Housing Boards should
take more note of the City Region concepts and not be afraid to
take risks in moving away from the traditional "cake slicing"
approach to funding allocation.
3.9 The role and effectiveness of the planning system,
including section 106 agreements in the provision of rented housing
and securing mixed tenure housing developments
It is the case in the North East that very little use to
date has been made of Section 106 planning agreements in new development.
There is perhaps scope for funding bodies to insist on greater
application of mixed tenure solutions and to require developers
and local authorities to demonstrate that full use of planning
tools available has been made as part of the funding criteria.
It is interesting to note that other Government's have introduced
more specific legislation to ensure there is adequate social housing
provision in new developments. In Ireland for instance local authorities
have the power to require that up to 20% of land approved for
residential developments can be set aside for social and affordable
housing and perhaps the Section 106 provision needs to be more
specific and linked to funding criteria.
Section 106 is not the sole solution, however. In the Group's
case, new mixed tenure developments are being built that are genuinely
pepper-potted in a ratio of around 35% owner occupied to 65% affordable
rent. This model can operate at lower than average grant rates
due to the levels of cross subsidy from sale to rent involved.
This also operates without a section 106 agreement. The Group
feels that this model can be developed further and can overcome
some of the nervousness private developers may have around pepper-potting
sale and rented units in the same development.
3.10 The effectiveness of housing benefit as a means
of providing access to rented housing to those in need
The Government has set in place a long term programme whereby
it can create a level playing field through rent restructuring
in the affordable housing market. Ultimately it seems the alternative
to housing benefit would be a Local Housing Allowance which could
then be applied across providers on the basis of choice. The reality
is, however, that in affordable rented housing there are several
currencies in use at any one time, not just financial. The primary
currency continues to be need, followed by secondary criteria
such as personal circumstances, family connection, length of time
on waiting list etc, followed by ability to pay. Whichever payment
method is used, need will continue to take the highest priority
such is the demand for affordable rented housing. The reality
is that rent has to be paid by people who otherwise cannot afford
to pay unless given some form of subsidy. In that regard, housing
benefit is a steady income stream and in most cases it works,
giving vulnerable people the means to live in affordable accommodation
and giving landlords the income security to provide and maintain
it.
There are real concerns over the potential introduction of
a Local Housing Allowance principally because it has the potential
to make rent much more difficult to collect as early pilot schemes
have shown. Also there is no evidence that the choice provided
would be any greater than that which is achieved by functional
choice based lettings schemes. The Group would therefore support
the continuation of housing benefit as the principal means through
which individual housing subsidy is paid.
3.11 The impact of the operation of Council Tax Benefit
for the affordability of rented housing
Where housing benefit is payable it is usually the case that
Council Tax benefit is also payable. For many tenants on benefit,
Council Tax is therefore a neutral issue. There are concerns,
especially for people who are on lower incomes, over the continued
inflationary real terms rises in Council Tax. For people who are
close to the poverty line, this can be a real issue especially
as incomes rarely increase at the same level. For elderly people
in particular this can lead to issues of payment for fuel and
heating which they are more likely to go without than risk non-payment
of Council Tax. Furthermore, low take up rates of Council Tax
benefit among the elderly compound the problem for low income
residents. Rent levels in contrast, are restricted to RPI +0.5%
and a similar restriction, if possible, combined with higher take
up of benefit entitlement would benefit low income tenants.
| 
