Localism Bill

Memorandum submitted by the Building and Social Housing Foundation (L 10)

Executive Summary

BSHF welcomes the opportunity to submit evidence to the Public Bill Committee for the Localism Bill. General recommendations about the proposals addressing Affordable Rent, tenure reform and council housing finance reform are outlined in sections 1, 2 and 3 respectively. There is particular reference to some potential problems that may emerge if they are not coordinated with other areas of housing and welfare policy.

Some of the key recommendations from BSHF include:

· The government should ensure that the Introduction of Affordable Rent does not:

o Reduce access to low cost housing;

o Lead to major increases in Housing Benefit expenditure;

o Fail to deliver the expected number of new affordable homes.

· Social housing should continue to act as both a "springboard" and a safe haven;

· The government needs to ensure that Affordable Rent complements other areas of the financial system for social housing, particularly reform of the Housing Revenue Account and the Right to Buy.

There are also a number of more specific recommendations outlined in section 4:

· The government should clarify its rationale and evidence base for proposing two years as the minimum length for a tenancy;

· Lifetime tenancies should be continued for at least some groups within society, including older people and people with long term illnesses or disabilities; and

· The use of social housing waiting lists would benefit from review, although an approach that retains open waiting lists whilst modifying data reporting may be stronger than the proposal in the consultation. An alternative proposal is outlined in our submission.

About BSHF

The Building and Social Housing Foundation (BSHF) is an independent housing research charity committed to ensuring that everyone has access to decent and affordable housing, and holds Special Consultative Status with the United Nations Economic and Social Council. Since 1994 BSHF has organised an annual series of Consultations at St George’s House, Windsor Castle , on a range of housing issues, bringing together diverse groups of experts for in-depth discussion and consideration of an important housing issue. Notably, the consultation in June 2009 focused on The Future of Housing: Rethinking the UK housing system for the twenty-first century. [1] This submission is based on these consultations and on original research undertaken by BSHF.

1 Affordable Rent

1.1 BSHF suggests that Affordable Rent needs to be carefully considered to ensure that it fits with other aspects of housing and welfare policy. There are a number of potential problems with Affordable Rent, which have not been addressed in the proposals and require urgent attention. These potential problems are:

· Reduced access to low cost housing;

· Impact on Housing Benefit expenditure;

· Delivering sufficient new homes.

Each of these potential problems is discussed in more detail below.

1.2 Reduced access to low cost housing

· The government has argued that in a time of budget constraint, there are limited resources available to fund housing, and it is therefore better to fund more homes at a lesser subsidy (Affordable Rent) rather than fewer homes at a greater subsidy (social rent).

· Over time the proposed changes are likely to lead to increasing numbers of tenants moving into Affordable Rent rather than traditional social housing. The housing costs of this group of tenants in Affordable Rent will be greater than they would have been previously. The danger is that more tenants in Affordable Rent will struggle to meet their housing costs leading to higher levels of arrears, problems with indebtedness and long term reliance on Housing Benefit.

· The government needs to ensure that these difficulties for individual households can be justified in terms of the wider benefit of increased supply of affordable housing. However, modelling by BSHF suggests that this might be a false economy, due to the impact of Affordable Rent on Housing Benefit expenditure (see 1.3 below).

1.3 Impact on Housing Benefit expenditure

· Households who will gain access to the Affordable Rent tenure are likely to be those that might previously have been able to access social housing. Therefore it is reasonable to expect that a significant proportion of them will be in receipt of Housing Benefit. For these households, the amount of Housing Benefit needed to cover housing costs is likely to be higher than those in a traditional social tenancy, therefore placing a greater burden on Housing Benefit expenditure.

· In order to analyse the potential impact of Affordable Rent on Housing Benefit expenditure, BSHF made requests to DCLG, DWP and HMT for modelling they had undertaken on the impact of Affordable Rent on Housing Benefit expenditure. The departments declined to provide this information as the policy was still under development.

· In the absence of the government’s modelling it is difficult to assess the likely impact of Affordable Rent on Housing Benefit expenditure. BSHF has only been able to perform basic modelling to estimate the impact; this has necessarily made significant assumptions and consequently should only be taken as a very broad guide of the scale of the impact. The modelling suggests that the introduction of Affordable Rent could add cumulatively £390 million to Housing Benefit expenditure each year. By the end of the Spending Review period that would amount to an increase of Housing Benefit expenditure of £1.56 billion per year. [2] If £1.56 billion was spent on building affordable housing it could provide over 25,000 new social rented homes. [3] The government needs to ensure that Affordable Rent does not simply transfer capital spending on housing to welfare budgets.

1.4 Delivering sufficient new homes

· It is not clear that extra income generated from Affordable Rent will deliver the number of new houses suggested by the government. An alternative estimate of the number of houses likely to be built through revenue raised from Affordable Rent has been produced by Chartered Institute of Housing (CIH). They suggest that only 15,000 homes will be built annually through the scheme. This produces a total of 60,000 over the spending review period, as opposed to the government’s prediction of 150,000. [4]

· Analysis of the proposals by L&Q suggests that whilst the target of 150,000 homes is possible, it is "daunting" and will require wider changes in the funding of social housing. They suggest that if the target is not achieved it will "run the risk of increased poverty, of immobile communities isolated by income, alienated from the mainstream of society". [5]

· The government will also need to ensure that these changes do not result in housing associations being less able to borrow and therefore develop. Affordable Rent could lead to housing associations having lower credit ratings and, therefore, higher borrowing costs. [6]

· In addition, there are important regional and local variations that require further attention. Spatial variation in rental markets mean that it is estimated that 60 per cent of these new affordable properties will be built in London and the South East, compared with less than 2 per cent in the North East. [7]

· In areas where private rents are low, social housing currently offers close to or greater than 80% of market rents: for these places, there will be little or no decrease in subsidy. Equally, in areas of low private rents, any percentage increase in rent is going to amount to a very small cash increase for social landlords. These factors mean that there will be very little additional money available with which to build new homes in some parts of the country.

· Conversely, in areas such as London with high private rental costs, although increasing rents to a higher percentage of market rates will create a significantly increased income stream, the cost to tenants may be far from affordable. This is likely to mean that more people will need support with housing costs, increasing the burden on the Housing Benefit bill.

1.5 The worst case scenario is that households on Affordable Rent struggle to meet their housing costs, Housing Benefit expenditure increases significantly, but the projected increase in new affordable homes is not delivered.

2 Tenure reform

2.1 The introduction of flexible tenancies for local authorities and increased use of fixed-term tenancies for housing associations are major changes to the tenure structure of the UK housing system. These will have a number of wider implications for social and economic policy that need to be fully considered in order to ensure that the changes do not create harmful unintended consequences.

2.2 The Ministerial Foreword to the consultation describes social housing as a "springboard". The implicit assumption is that remaining in social housing for the long term is not a desirable outcome. Whilst the "springboard" role can be an important one for social housing, failure to outline the other roles that social housing can play risks creating a view of it as a transitional tenure. Some tenants, for example older people and those with long term disabilities, require secure long term accommodation. Social housing plays a vital role in providing these people with decent and affordable accommodation.

2.3 If social housing acts only as a transitional tenure for the poorest in society, to be exited if a household’s circumstances have improved, there is a real danger that it will compound the "ghettoisation of poverty" that was rightly criticised by the Conservatives in opposition. [8] Concentrations of poverty have been identified by the government as a major issue in housing policy. Changes to social housing should reflect the different roles that it plays in society which include both a "springboard" and a safe haven.

2.4 As Grant Shapps correctly observes, social rented stock is a "scarce resource". It appears that the government has concluded that the best response to this scarcity is to further ration access to social housing. The alternative – of increasing the supply of social housing – is still worthy of consideration despite financial constraints. Government should consider the full range of tools at its disposal to ensure that there is sufficient supply of housing in general, and of social housing in particular, to meet need and demand, and to address affordability problems. Whilst investment in social rented stock is an important element in this range of mechanisms, it is not the only one. Government should ensure that other elements of the housing system, such as planning and taxation, are aligned with the goal of delivering sufficient decent and affordable housing in communities where people want to live.

2.5 Removing or restricting security of tenure may also be at odds with the government’s efforts to incentivise work. If people know that they are likely to lose their social tenancy if their household income increases sufficiently – not only causing them to lose their home, but also forcing them to pay substantially higher rents in the private rented sector – they are much less likely to take on work.

2.6 An alternative model would be to maintain security of tenure, but allow some variation in rent depending on the ability of a tenant to pay. Such a policy occurs in Hong Kong, where social tenants who have lived in the social rented sector for ten years or more are required to report their household income every two years. Those that have an income above a certain threshold then pay an additional proportion on top of social rent. [9]

2.7 A system that grants lifetime security of tenure, but allows rents to increase for tenants whose incomes increase, would have many of the benefits of a shorter tenancy whilst avoiding many of the pitfalls. The reduction of the rental subsidy would provide additional income to the landlord, which could potentially be borrowed against, allowing the provider to build more housing for occupation by new tenants.

3 Coherent finance system for social housing

3.1 The government needs to ensure that Affordable Rent complements other areas of the financial system for social housing, particularly reform of the Housing Revenue Account and the Right to Buy.

3.2 We support the government’s intention to "devolve power and sufficient resources to councils to enable them to offer a better service to their tenants". [10] The government has stated its intention to provide further details of the reforms to council housing finance in the coming months. The government needs to be careful that local authorities are not burdened with excessive debt from the council housing finance settlement that would hinder their ability to take on the type of reforms envisaged in this consultation.

3.3 In addition to the reform of the Housing Revenue Account, it is important to consider the distribution of capital receipts from Right to Buy. The current proposal is that 75 per cent of receipts from Right to Buy sales will be returned to the Exchequer. BSHF is concerned that this will not offer local authorities the flexibility that they need to mange their housing stock and finances to meet local needs. Grant Shapps has rightly commented that where Right to Buy "falls down is if we do not build more homes with the cash". [11] The government should ensure that Right to Buy receipts support the development of new affordable housing.

4 Specific Recommendations

4.1 The government has not yet provided any justification for the choice of two years as a minimum tenancy. Without the rationale and evidence for this proposal it is very difficult to comment on whether is a suitable length for a minimum fixed term.

4.2 Choosing a suitable length of time for a minimum fixed term is necessarily a balance between competing priorities. At present the lifetime tenure prioritises the security of tenants within social housing over the needs of people who are unable to access this support. Competing priorities include:

· Increasing the supply of new social housing;

· Efficient management of stock in social housing;

· Benefit to individual households and communities derived from stable tenancies;

· Potential work disincentives from variable rents or shorter tenancies;

4.3 It is not clear from the government’s proposals how they wish to balance the competing priorities outlined above. For example:

· What is the rationale for choosing two years as a minimum fixed term?

· Is there a significant financial or social cost/benefit in choosing this length of time over other plausible options (ranging from six months to match Assured Shorthold Tenancies up to the current lifetime tenancy)?

· To what extent will the government prescribe which households will be offered tenancies of different lengths?

· How will the government safeguard the needs of vulnerable households?

There is an urgent need for the government to clarify its rationale and evidence base in this area.

4.4 Given that trade-offs are inevitably made in designing the policy framework for social rented housing, it is plausible that a case could be made for creating a new tenure in the sector that does not necessarily offer lifetime security of tenure. However, the case for this change needs to be made as part of a coherent strategy for social housing.

4.5 If the proposal to create new tenancies with less than lifetime security is pursued, BSHF would note that the needs of those taking up a social tenancy vary greatly. Whilst two years may be an acceptable length for some tenants it will be far too short for many vulnerable households. Inappropriately short tenancies could lead to increased costs in other areas of public expenditure (e.g. social care and healthcare) if it fails to provide a stable base for vulnerable households.

4.6 There are a number of groups for whom the stability of a longer tenancy is important. These might include:

· Those formerly homeless;

· Care leavers;

· Families with young children;

· People who are retired;

· People with serious physical or mental illness.

4.7 These diverse groups highlight the variety of people who would benefit from the security of longer tenures in social housing. More importantly, however, individual circumstances of tenants must be considered. A robust system will be needed to ensure that decisions are based on what is best for individuals and communities.

4.8 There is also a clear need to review the use of waiting lists for social housing, and new flexibilities may be beneficial. There are several issues with the current system of waiting lists:

· It provides a false impression of availability by allowing people with little chance of getting housing onto the waiting list;

· The quality of data on waiting lists is variable and they may include people who have died, moved away or no longer wish to access social housing

· The current system tends to confuse measures of stock and flow. A waiting list of 1.8 million households would not be an issue if there were 2 million lettings per month. The real issues relate to how long people are waiting for social housing and their housing situation during that wait. The problem arises if people in real housing need (such as overcrowded families) are living in unsuitable accommodation for extended periods whilst waiting for social housing.

4.9 An alternative to the current system could retain the benefits of open waiting lists, which encourage broad access to social housing, but change the reporting of data. Local authorities could report the average waiting times for people in different preference categories. A local authority might have a relatively short waiting time for those in high need but very long waiting lists for those in low need.

4.10 Such a reporting system would give more useful information to all stakeholders. It would provide a more meaningful indication of how long people will have to wait for social housing. It could also act as a discouragement to join the list to those who are not likely to get housed, as they would see that people in their category have to wait indefinitely. It would also provide both central and local government with a clearer indication of housing need in different locations.

January 2011

[1] Diacon, D., Pattison, B., and Vine, J. (2009) The Future of Housing: Rethinking the UK housing system for the twenty-first century, http://www.bshf.org/published-information/publication.cfm?lang=00&thePubID=4FF3F1F7-15C5-F4C0-99959BAD3ED44A50

[2] Calculations available from BSHF on request.

[3] Assuming a subsidy of £62,000 per unit, which was the average grant rate for social housing funded by the Housing Corporation between 2006 and 2008. See p31 of Housing Corporation (2007) National Affordable Housing Programme 2008-11 Prospectus, http://www.homesandcommunities.co.uk/public/documents/NAHP-2008-11-Prospectus.pdf

[4] Inside Housing (2010) ‘Affordable rent’ to derail development, http://www.insidehousing.co.uk/news/development/%E2%80%98affordable-rent%E2%80%99-to-derail-development/6512352.article

[5] L&Q (2011) Hard Times, More Choices: A new framework to deliver 150,000 affordable homes, http://www.lqgroup.org.uk/_assets/files/Hard-times-more-choices.pdf

[6] Moody’s (2010) English Housing Associations: No immediate rating impact from changes, http://v3.moodys.com/viewresearchdoc.aspx?docid=PBC_129017 (paywall). Quoted in: Inside Housing (2010) Rent review could lower credit rating , http://www.insidehousing.co.uk/news/finance/rent-review-could-lower-credit-rating/6512783.article

[7] Inside Housing (2010) ‘Affordable rent’ to derail development, http://www.insidehousing.co.uk/news/development/%E2%80%98affordable-rent%E2%80%99-to-derail-development/6512352.article

[8] Duncan Smith, I. (2008) Housing Poverty: From social breakdown to social mobility, http://www.centreforsocialjustice.org.uk/client/downloads/housingpoverty2.pdf

[9] Gibson and Nicholson (2010) Safe as houses? Security of tenure for social housing tenants in England , http://www.centreforum.org/files/safe-as-houses.pdf

[10] Shapps, G. (2010) Council Housing Finance, Written Ministerial Statements: 13 December 2010, http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm101213/wmstext/101213m0001.htm#10121320000014

[11] Inside Housing (2009) Conservatives seek to extend Right to Buy, http://www.insidehousing.co.uk/conservatives-seek-to-extend-right-to-buy/6506817.article