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Memorandum from the Tenant Services Authority (TSA) (BDH 41)
Introduction
The Tenant Services Authority (TSA) is the new regulator for affordable housing. We launched on 1 December 2008. We are operating with the inherited regulatory powers of the Housing Corporation whilst we develop a new regulatory framework based on the functions and powers of the TSA set out in the Housing and Regeneration Act 2008.
We believe housing matters, and that access to good quality housing improves lives. Our goal is to raise the standard of services for tenants.
The TSA's new powers will be 'switched on' in Spring 2010. The TSA will also, subject to Parliamentary approval of secondary legislation, take on the responsibility for regulating local authority housing at the point when its new powers are commenced.
Summary
· The
RSL sector in · RSLs have largely achieved this without recourse to capital subsidy from the taxpayer, and the overall effect has been to raise the physical standard of homes and improve asset management practices in doing so · There will be some backlog of RSL homes at December 2010, but the largest proportion of this relates to recent stock transfers, and the timescale for achieving the standard is established through the stock transfer process · The Housing and Regeneration Act 2008 establishes the TSA as the regulator of social housing with the intention that it will regulate both RSL and local authority landlords - this statutory framework provides a more transparent and effective approach to future standard setting and regulation of the quality of accommodation provided by those landlords than the previous arrangements · The TSA standard at April 2010 will give effect to a direction from government - subject to the CLG consultation on this, we expect that it will not change the definition of DHS, but does make clear that it will continue to be an ongoing minimum requirement beyond December 2010 · The ability of LA landlords to comply with this standard depends on their funding position; the proposals for reform of council housing finance offer the prospect of local authorities being in a better position to manage the quality of their housing stock on a more stable and predictable basis, but realising this will depend on the specific outcome of the review · Many landlords have gone beyond the basic requirements of the DHS in agreeing with their tenants wider local standards for the quality of the local estate environment and offering them a degree of choice over the improvements to their home; our standards framework will require that landlords develop local standards with their tenants to cover a range of areas including quality of accommodation · Dealing with the environmental performance of homes as set out in the Low Carbon Transition Plan is a major challenge; setting new higher standards to succeed DHS are likely to be necessary to meet the goals in that plan, but they will not be sufficient on their own and the total costs of the necessary work and how it will be funded are not yet sufficiently clear
1) Lessons from the Decent Homes Programme
2) TSA, and previously the
Housing Corporation, are responsible for tracking the performance of Registered
Social Landlords (RSLs) in
3) Based on data from 2009 returns, the current proportion of RSL homes not meeting the standards is 8.3%% (182,455 homes out of a total stock of 2,195,195). At December 2010, we expect that the level of compliance will be approx 95%. The forecast level of compliance is an estimate based on extrapolation of trend data and information provided to us by RSLs either through returns or other regulatory activities.
4) It is our assessment that the following are the key changes that have been generated by the DHS programme a) stock condition in RSL sector has improved to a clear, consistent minimum standard b) asset management strategies and systems are significantly better than they were a decade ago, and the need for effective resourcing and management oversight of stock reinvestment is now widely recognised as a core organisational competence c) allocation of financial resources now follows the logic of asset management strategies so that RSL boards now adopt a more balanced approach to decisions about investment d) there has been innovation in procurement approaches such as the establishment of procurement consortia which reduce costs of purchasing materials by combining the purchasing power of a number of landlords usually on a regional or sub-regional basis - this developed from the approach first established with the Fusion 21 procurement consortium
5) RSLs have generated these outcomes predominantly without recourse to additional direct subsidy (so from their own balance sheet resources)
6) Forecast position at December 2010
7) In accordance with CLG policy, we established a time limited process in 2006/07 to consider applications for extensions to the deadline, for specified reasons, from existing RSLs. We considered a number of applications and granted extensions of varying length, in most cases of 3 years or less, to 18 landlords covering 10,264 properties (0.47% of stock in the RSL sector).
8) In addition to this, where local authorities have transferred their stock to new RSLs, the timetable for completion of improvement programmes that deliver DHS is agreed with tenants through the transfer process and that forms the basis for the regulatory requirement as to the time over which DHS compliance must be achieved. There are 18 such recent stock transfer associations that will not meet the 2010 deadline. These comprise the greatest proportion of the estimated 5% non-compliance with the 2010 deadline.
9) There are a further 39 associations where there is a significant possibility that they will not meet the 2010 target, and at least one potential new stock transfer association.
10) Taken together the homes owned by landlords in the categories in paragraphs 7-9 make up the estimated 5% of stock that will not meet the standard in December 2010 (para 3). The precise position will continue to change for individual associations within these categories. The total number of homes owned by RSLs also changes as new stock transfer associations are registered. We expect that some RSLs will outperform their current projections. However, we do not anticipate that there will be a material change in either direction from this estimated outturn between now and December 2010.
11) Homes that do not meet the DHS because of tenant refusals of work account for an estimated 1.1% of stock (from 2009 regulatory returns). Those homes will be capable of improvement at the point at which they are relet.
12) Future standards and regulation
13) The TSA was established in December 2008 as the Regulator of Social Housing. We are currently consulting on the development of a new regulatory framework. The statutory basis for this is the Housing and Regeneration Act 2008 (HRA08). A central element of the new approach to regulating social housing will be a new standards framework.
14) The Government has a power to direct TSA in relation to certain standards. This includes the quality of accommodation. CLG published a consultation on draft directions to TSA on 17 July 2009. This consultation includes a direction on a TSA standard for quality of accommodation.
15) The policy objective of CLG is set out in that draft direction. This is, in summary, a) restatement of the requirement for social housing to meet DHS requirements by December 2010 unless there is an agreed extension b) a formal indication that stock should continue to be maintained to the DHS level c) this direction applies both to RSLs and to local authority landlords d) recognises that the direction and standards cannot make provision for funding and that therefore requires TSA to take account of landlords' position in assessing how this standard will be met - our approach to dealing with LAs in particular will need to be handled in the context of their present and potential future funding arrangements
16) At present, the TSA is operating an inherited regulatory framework previously operated by the Housing Corporation in respect of RSLs only. The policy intention of Government is that TSA should be a regulator of all social landlords.
17) On 7 July, it published a draft order for consultation under s.114 of HRA08 which sets out the terms on which it proposes that TSA will regulate local authority landlords. Subject to the introduction and consideration of the order by Parliament, and when TSA's statutory consultation is concluded in early 2010, the TSA's regulatory framework will apply to LA landlords from April 2010.
18) Therefore, we expect that when TSA commences its statutory consultation on the new regulatory framework it will have a) received directions from CLG on standards including the quality of accommodation standard b) a clear view of the terms on which it will regulate local authority landlords as well as RSLs
19) Our statutory consultation on our regulatory framework on standards will set out how we will comply with the direction by proposing a standard for quality of accommodation. It will also set out how we will approach regulation of compliance with those requirements.
20) On 9 June 2009, TSA published its discussion document, "Building a new regulatory framework". The consultation period for this closes on 8 September 2008. It sets out some preliminary proposals for discussion which include how we propose to regulate across the full range of social landlords, and what we think a tenant focused approach to standards means in practice.
21) The key points for this committee are: a) the proposals for the quality of accommodation standard were based on our discussion with CLG of their policy intention b) newer stock developed with public funding has been designed to standards higher than that required by DHS, and the standard should ensure that such stock continues to meet the standards agreed at the point of funding c) recognition that social landlords' approach to improvement programmes has often gone beyond the minimum requirements of meeting the DHS standard to enable, for example, a more coherent approach to the improvement and regeneration of the wider social housing estate, including communal areas, and to deal with the safety and quality of the neighbourhoods in which tenants live; compliance with our requirements on quality of accommodation should not be limited to the bare requirements of the DHS, and will require that landlords establish local standards with their tenants which reflect their priorities and the needs of their neighbourhood d) for RSLs only, we expect that we will be directed by government on the standards we set for rents for 2010/11; the draft direction is that the current rent restructuring policy should continue based on convergence on target rents; therefore landlords cannot fund improvement and maintenance works to their homes by allowing rental costs to rise outside of the levels permitted by the rent restructuring regime. We expect that directions and standards for rents in subsequent years will apply to both RSLs and local authorities.
22) This approach to setting standards for quality of accommodation will be put on a clearer statutory footing than the current arrangements. There is a transparent mechanism for establishing and achieving policy objectives for the quality of social housing stock. The new regulatory system provides government and the taxpayer with a more robust regulatory framework within which social housing stock is not allowed in future to accumulate a new backlog of underinvestment.
23) However the effectiveness with which this can be secured in the local authority sector is linked to both the completion of the current funding commitments to the DHS programme and to the outcome of the council housing finance review.
24) Funding position of social landlords and proposals for change to council housing finance
25) RSLs have largely delivered DHS improvement programmes from their own balance sheet resources, including most Large Scale Voluntary Transfer RSLs that have been established to take transfer of LA stock.
26) This funding model is one that we expect to continue, and our approach to establishing viability standards and monitoring the financial position of RSLs, will take account of the requirement to invest in the condition of their social rented stock based on long term projections of stock condition and the consequent capital and revenue expenditure impacts.
27) Local authority landlords who have retained stock are not in an equivalent position. They have not been able to take on additional long term borrowing or expenditure commitments outside of the local government borrowing regime or the HRA subsidy system. Most have required a share of the £21bn of funding through the Decent Homes funding programme.
28) Reliance on these funding streams poses risks for some local authority landlords who are at the back of the queue for these resources. There are extensive outstanding commitments through to 2016/17 that depend on the Decent Homes funding programme, and those ALMOs that have not yet secured the required inspection rating of 2 stars have not secured agreed funding programmes to enable them to commit to contracts for improvement works.
29) Even for those LAs/ALMOs that will achieve the 2010 target, stock condition is not static. As components age, stock will progressively become 'non-decent' again. The ability of those landlords to maintain that stock is reliant on the year to year determination of levels of rent and allowances in the HRA subsidy system. This is a continuing base cost to maintaining stock condition before any consideration of establishing higher standards for social housing.
30) The current proposals for reform of council housing finance offer the prospect, at least in part, of putting local authority landlords on a similar footing to RSLs.
31) We do not make any particular comment here about the specific proposals under consultation by CLG, other than to note that the question of how historic debt is treated and allocated is a matter of considerable tension. It is vital that council housing finance is reformed so that it generates more equitable outcomes and operates in a more transparent way. Local authority landlords must be able to demonstrate clear connections between the rent they collect and how that is spent on delivering housing services and maintaining the quality of their tenants' homes.
32) The settlement and implementation of the outcomes of this review will take longer than the commencement of the new TSA regulatory framework. As the CLG consultation document recognises, this will require:
a) a review and further direction to TSA from government, in respect of rents for LAs as well as RSLs and the interaction of the rent setting framework with the quality of accommodation standard.
b) local authority landlords to be able to establish robust longer term business plans that are developed with tenants' involvement, and which ensure that there is the ability to fund improvement and repairs to stock from within available and secure funding resources. This will require a settlement on historic debt that enables a self-funding system for LA landlords, and the ability to access sufficient long term public sector borrowing (to put them in an equivalent position with RSLs).
33) We welcome the recognition of the TSA's role described within that consultation on ensuring that value for money is secured through the eventual arrangements. Given the skills and experience that we have developed in scrutinising the performance of RSLs in this area, we believe that we are best placed to undertake the equivalent role in respect of local authority landlords under a reformed council housing finance system.
34) Amending minimum standards
35) The current definition of DHS is a minimum requirement - many landlords have gone beyond this requirement often in terms of the scope of the works they have undertaken, or in offering more choice to tenants about how their homes are improved.
36) The DHS standard should not remain unchanged in perpetuity. It is not set at a high level. The commitment to ensure that social housing does not again fall below that standard is a welcome policy decision.
37) The UK Low Carbon Transition Plan published by DECC in July identifies the need to substantially reduce the carbon emissions from our housing stock. The clear implication of this plan is that existing social housing will need large amounts of further capital expenditure to achieve the target for zero or near zero CO2 emissions to be achieved.
38) We welcome the broad thrust of the Low Carbon Transition Plan and the Heat and Energy Saving Strategy as they relate to the TSA's work.
39) This evidence does not deal in detail with these challenges but we see the following as the primary issues:
40) There needs to be a more detailed and robust assessment of the range of costs of delivering the necessary physical works to social housing stock. There needs to be a coordinated and coherent view of how that cost is built up and what the cost drivers are likely to be.
41) This cost modelling is a necessary to establish the likely funding requirement, how these costs will be funded and by whom. This will be necessary to enable evidence-based decisions on the most effective market interventions, whether or not they should be made by the TSA, to achieve the policy objectives.
42) There is a daunting technical and procurement task implicit in the target to reduce and eliminate carbon emissions from homes. However, the achievement of emission reductions in social housing and elimination of fuel poverty in households living in social housing are also contingent on choices made by tenants in lifestyle and energy consumption, and information and support is necessary to enable them to make informed choices.
43) Fuel poverty is a clear risk to tenants in social housing, and eliminating this requires not only the work necessary to make homes energy efficient, and adapting them for the wider effects of climate change. It also requires effective interventions to deal with fuel costs and the level of household income.
44) These require a wider consideration both of how benefits operate to support tenants with all the costs of living in a home, rather than just the rent, and of the operation of social tariffs by energy suppliers.
45) We are committed to working with government to identify aspirational standards and benchmarks for energy savings and emissions reductions in refurbishment, for different property types. However the use of a quality of accommodation standard to secure wider objectives for environmental sustainability and carbon emission reduction is not the only, or necessarily the primary lever by which the objectives might be secured.
46) There needs to be a stronger evidence base for the cost of meeting given targets, and which part of society should bear those costs.
47) This will mean selection from a range of levers by which those targets might be secured.
48) A higher TSA standard for quality of accommodation dealing with environmental performance would be one part of a wider approach which could include use of carbon tax or trading obligations, enabling and encouraging tenants themselves to adopt more energy efficient lifestyles, a more coherent benefit system and the use of pay as you save mechanisms which take account of housing costs as a whole and not just rental charges.
September 2009
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