House of Commons - Communities and Local Government Committee

Beyond Decent Homes - Communities and Local Government Committee Contents

Memorandum from the National Housing Federation (BDH 34)

INTRODUCTION AND SUMMARY

The National Housing Federation represents 1,200 not-for-profit housing associations. Collectively, our members provide 2.5 million affordable homes and services for more than five million people.

Our response concentrates on the lessons learnt as housing associations approach reaching the Decent Homes Standard across nearly all their properties in 2010. It also looks at the green retrofitting challenges ahead. We make recommendations for the policy framework and the support housing associations would like to see from government and its regulator to help them achieve long-term plans to maintain and improve their homes. In summary:

— The new regulatory standard on the quality of social housing should be about delivery against long-term home and estate improvement plans adopted at a local level in discussions with residents rather than nationally prescribed standards.

— In the absence of any planned capital injection from government, the level of future housing association investment in the existing stock comes down to balancing the competing demands on sector financial capacity, which includes building new homes, day to day management services and wider neighbourhood support. For this further reason the Government should not prescribe a national standard.

not

— In the event of deflation, the government should allow housing associations to freeze rents to minimise the impact of revenue loss on home and estate improvement plans.

— The government should establish a national strategy for greening existing properties setting out a clear vision for the energy rating level and carbon reduction targets it aspires too. The government should fund a £3 billion social housing green retrofit pilot to enable social landlords to work with residents to demonstrate what can work. This will enable the building supply chain, trades and professions to gear up and would also create nearly 100,000 jobs in the construction sectors, as well as reduce energy bills for tenants on low incomes.

— The Government should also work with energy suppliers, local authorities and housing associations to unblock the barriers to pay-as-you-save mechanisms, developing energy supply companies or a carbon fund/offset scheme to fund green retrofit improvements.

To sum up, 2010 should not be seen as the end of a focus on maintaining or improving the quality of existing homes, estates and neighbourhoods. Associations will remain motivated to keep improvement plans alive as social businesses who wish to meet the aspirations of their residents.

SELECT COMMITTEE QUESTIONS:

What lessons can be learned from the Decent Homes programme?

Are adequate arrangements in place for future regulation of minimum acceptable housing standards?

Do the management organisations councils, including via ALMOs, and housing associations need to change?

Quality of accommodation standard

1. The stress placed on social landlords meeting the Decent Homes Standard undoubtedly helped to raise the quality of homes benefiting millions of tenants. Judged on its own terms, the standard and funding mechanisms available have been successful with the CLG reporting that 95% of social housing will reach the Decent Homes Standard by 2010.

2. One of the lessons from the Decent Home Standard is that if tenants had been asked what they wanted they would have probably designed a different standard, or local variations. Many housing associations reflected tenants' aspirations and provided choice, of for example kitchen fittings, within their improvement work. But, associations and their tenants felt frustrated that sometimes the Standard led them to prioritise expenditure on some improvements, such as new bathrooms, over expenditure on external estate or environmental improvements, which would have been higher up residents' lists of priorities.

3. The Government should be mindful of this lesson when using its powers to direct the Tenants Service Authority on a regulatory standard for the quality of accommodation. Equally, the Tenant Services Authority should be mindful of this when drawing up the standard, any related guidance and when considering how it will assess social landlords' performance.

Recommendation 1:

4. We recommend this in the context of social landlords having brought their stock of existing properties up to the Decent Homes Standard and new social housing being built to the high standards set in the Code for Sustainable Homes. It is critical that the principles of tenant involvement, choice, empowerment and control, as advocated by the TSA and strongly supported by the sector, should inspire further long-term improvement plans.

Funding challenge

5. The ambition of home and estate improvement plans will be constrained by financial considerations in the future and not by the aspirations of tenants or the will of housing associations. Another lesson of the Decent Homes programme is the scale of investment that was required. We demonstrate below in our financial scenarios that government and its regulator should not make future policy and regulatory decisions on the assumption that housing associations could repeat the feat of meeting the stock improvement investment levels achieved over the 10 years of the Decent Homes programme.

6. In the seven years to 2007-08 (latest full year figures available) from the Decent Homes Standard being launched in 2001-02 housing associations invested £12.4 billion in planned and major repairs. On current projections, it is assumed that by the end of the Decent Homes period in 2010-11 association investment will reach £20 billion. The assumption that this expedite could be repeated is described as "scenario 1" in this paper. Farther on (see paragraph 21) we look at two further scenarios.

Table 1[45]

7. In financial scenario 1, we assume a level of investment equalling the £20 billion spent on Decent Homes over the period 2001-02 to 2010-11. The additional interest rate cost of such an investment over ten years is estimated (assuming a steady draw down) at £1.4 billion. Set against the model of sector capacity, as set out in the box on the next page, it is clear that if associations are to keep the new social house building programme on track, maintain expenditure on day-to-day management and maintenance, as well as neighbourhood services, they could not match £20 billion investment in planned and major repairs seen over the 10 years of the Decent Homes programme without a substantial capital injection from government. This is as the result of the interplay of variety of factors:

— increased costs of borrowing private finance;

— the scale of the new build programme and unmet housing need;

— the drop in incomes from sales to cross subsidise improvements and new building;

— the drop in planning gain contributions to stretch grant to build new homes.

Financial capacity of sector

The Federation is already in the process of assessing the sector's sustainable investment capacity using reserves that it might generate in coming years derived from its operating activities. This capacity would be applied the part funding affordable new homes, greening the existing stock, neighbourhoods work, and any other calls the Government might seek to make. The early results from this work suggest that from 2011 to 2020, the sector will generate £50 million in investment capacity in 2011 rising to £81 million by 2020, cumulatively amounting to £671 million over the decade.

8. Housing association expenditure on planned improvements and other services has to be balanced against a desire to invest in new homes to meet the aspirations of people on housing waiting lists. So in the absence of any planned capital injection from government for a "daughter" of decent homes, the question of what can be invested in the existing stock comes down to balancing the competing demands on housing association sector financial capacity. Especially given that associations rent increases are constrained by the current government's rents policy which is set to continue through future rents directions to the regulator.

9. A further factor is the downward pressure on rental income if, in, the event of deflation, the government directs that the proposed rent floor is applied at -2%. This would result in housing associations losing £525m in rental income in the next two years. A number of associations have indicated to us that they will be forced to consider cessation of green improvements to their homes, or will have to re-profile or cancel long term stock investment programmes, to avoid breaching bank covenants and consequent repricing.

10. It should be remembered that since 2000, stock transfer associations have received £895.2 million of gap funding, which enhanced the sector's financial capacity to deliver Decent Homes. In addition, £4124.6 million of overhanging debt was paid off at the time of transfer. We estimate that in addition some £20 billion has been borrowed to fund stock transfer since 1988—£6billion for stock purchase and £14 billion for investment.[46] The debt profile of stock transfer associations would also make it difficult for them to fund additional improvements beyond Decent Homes in the short to medium term.

Table 2[47]

Recommendation 2:

Recommendation 3:

11. We make these recommendations on the basis that individual housing associations are best placed to balance the aspirations of their existing tenants and future tenants in the knowledge of their own financial capacity. Associations must be able to establish sustainable business plans which set out home and estate improvements that are deliverable.

12. It is also important to bear in mind that housing associations had asset management strategies, or improvement plans, in place ahead of the Decent Homes Standard coming in, as indicated by the level of investment in planned and major repairs of £1.0 billion in 2000-01 (the last year before the Decent Homes Standard). When the Decent Homes period is over, we should expect housing associations to continue to invest in planned improvements and in maintaining the standards reached by bringing properties up to the Decent Homes Standard and through building new properties to the Code for Sustainable Homes. Thus 2010 should not be seen as the end of a focus on maintaining or improving the quality of existing homes, estates and neighbourhoods. Associations will be motivated to keep improvement plans alive as social businesses who wish to meet the aspirations of their residents.

Stock transfer programme

13. As shown above, stock transfer associations have been able to meet the scale of the investment challenge they faced to bring homes up to the Decent Homes Standard through complementing their private financial capacity with gap funding from central government. Those still in receipt of gap funding wish to meet their commitments to their tenants and are concerned at the signals coming from the Homes and Communities Agency about re-profiling payments.

Recommendation 4:

SELECT COMMITTEE QUESTIONS:

Should minimum acceptable social housing standards be amended to take into account environmental standards, fuel poverty and the estate?

The environmental challenge

14. Housing association's homes, as a result of improvements, have an average SAP rating of 59.5 compared to 49.8 across al tenures[48]. The CLG also found that the vast majority of social landlords were carrying out works in excess of the thermal comfort standard set by Decent Homes[49]. There is a real hunger amongst housing associations to find a way to fund further environmental improvements to their existing homes with the twin aims of reducing the fuel bills of their tenants and reducing the impact of their homes on the environment.

15. With 5.2 million people in fuel poverty in England and existing homes said to emit 27% of our carbon dioxide there is clearly a compelling case for improving the environmental standards of housing across all sectors.

16. However, the multiplicity of different environmental measures can cause confusion. For example, Energy Performance Certificates require RdSAP ratings, whilst housing associations also have to meet Decent Homes standards, Building Regulations (Part L), and in some circumstances may be required to meet EcoHomes XB (a standard developed by the BRE in conjunction with the Housing Corporation). In addition CERT and CESP improvements use a benchmark approach. It would be very helpful if there were a coordinated standard to work towards.

17. The obligations being placed on energy providers through CERT have brought welcome improvements, particularly with regard to loft and cavity wall insulation to the homes of a number of people, including social housing tenants. The proposed focus of the efforts of energy suppliers and generators through CESP on whole house improvements in deprived areas will also help more people on low incomes keep a lid on their fuel bills. We have also been pleased to see capital funding this year, albeit small, directed at social housing, for example, the Homes and Communities Agency's Social Housing Energy Programme in 2009. However, all of this falls short of a national strategy, on the scale required, for greening our existing properties to meet the Government's carbon reduction targets of 80% by 2050.

Level of investment required

18. There is no comprehensive picture of the scale of investment required across social housing and other tenures to meet such a target. The costs involved depend to a large degree on the property type and also vary by the outcome sought through green improvements. Our members advise us that green retrofitting programmes aiming for 80% carbon reduction cost around £25,000 per property, with higher costs in difficult to treat properties such as high rise flats. Retrofitting to zero carbon standards often results in significantly higher costs.

19. In December 2008, BRE prepared a report for the Greater London Authority, looking at the cost implications of a successor standard to decent homes.[50] Whilst this report looks at the London context, many of its conclusions are equally applicable elsewhere. The cost of tackling summer over-heating is estimated at up to £8,000 per unit. This alone could amount to nearly £20 billion for England's housing association stock. BRE estimated the water use target could cost £2 billion for London's social rented stock,[51] meaning a total cost of £6.67 billion to cover the whole of England's housing association stock.

20. Drawing on new research we commissioned from Enviros[52] we have modelled environmental improvements to existing housing association properties of £6.5 billion. This is not to suggest that these would amount to a comprehensive carbon neutral retrofit programme, as they would not. However, our modelling is based on cost effective improvements that could produce large scale reductions in carbon emissions (nearly three million tonnes of carbon dioxide a year), because they are relatively easy to install in a large number of properties. The model is based on data on association property types, existing improvements, including high levels of loft and cavity wall installations and DEFRA assumptions on further take up of CERT in social housing. The modelling included some, but by no means comprehensive, level of micro-generation through community level combined heat and power installations and biomass projects. It should be noted that there are still significant barriers to making these financially viable in the context of retrofitting and these costs are quite uncertain. Overall, the costs are based on taking a whole house approach, as there are significant savings in carrying our all the measures at once.

Table 3[53]

21. Financial scenario 2 assumes the investment of £6.5 billion based on the Enviros report. Scenario 3 assumes the £25,000 per property advised by our members. These scenarios would involve additional interest costs over ten years of £455 million (scenario 2) or £3.5 billion (scenario 3). Set against the modelling of the sector's investment capacity (see the box on page 5), these figures show that if associations are to keep the new social house building programme on track, maintain expenditure on day-to-day management and maintenance, as well as neighbourhood services that they could not meet even conservative ambitions and assumptions about greening existing stock within the existing rent regime.

22. In addition, to the costs of greening existing properties, there is the, as yet un-quantified, financial challenge of maintaining properties over their lifetime where they have been built to level 3 or 6 of the Code for Sustainable Homes or improved to the Decent Homes Standard. Associations will need to factor these costs into their home and estate investment plans too. In addition, with Decent Home improvements having taken place in a relatively concentrated period, you might expect the replacement of component parts over their lifetime to be concentrated in the future.

23. If government is serious about meeting its climate change targets and tackling fuel poverty, it needs to work further with social landlords, owner occupiers and private landlords to look at how we can meet the scale of the green retrofit challenge. We make some recommendations below as to how it can extend its current approach to achieve this, with a particular focus on social housing.

24. Given housing association sector financial capacity, our recommendations above stating that no expectation or regulatory requirement, should be placed on the level of investment, or standard of future improvements to existing homes or estates, must stand. This is not to undervalue the desirability of environmental improvements, but to point out that in the absence of government targeting its own investment at this, associations need to arrive at business plans that are deliverable and recognise the other pulls on their financial capacity, as explored above.

Recommendation 5:

Recommendation 6:

Recommendation 7:

Recommendation 8:

Recommendation 9:

Recommendation 10:

Recommendation 11:

Recommendation 12:

Recommendation 13:

September 2009

55 We divided capital and installation costs by total carbon savings over the lifetime (did not apply a discount rate).

45 Source: HC/TSA Global Accounts of Housing Associations published annually. Back