Communities and Local Government CommitteeWritten submission from the National Federation of ALMOs
Summary
The NFA believes that ALMOs can play a key role in ensuring that the government make the best use of any public sector subsidy in delivering new homes.
ALMOs could help their local authorities fund development programmes through a more positive asset management programme if certain financial and bureaucratic restrictions were lifted.
The NFA believes that councils and their ALMOs need more flexible options in the future in order to be able to continue to meet the needs of their communities. We urge the government to support the development of the three “CoCo” options outlined in the NFA publication “Building on the potential of ALMOs to invest in local communities”. The three new types of ALMO could give them the opportunity they need to borrow private finance whilst keeping their strong links with their local authority. They would also be able to retain the tenant focus, which has often distinguished them from traditionally managed council housing.
The government should also consider changing the classification of borrowing for council housing investment, recognising that council housing is a trading activity and that, under European accounting conventions, its borrowing need no longer count towards the main measure of general government debt.
The recently announced changes to the Right to Buy regime look likely to threaten the viability of self-financed business plans and council housing as an on-going business and our members are very concerned about this.
The NFA is concerned about how the “Affordable Rent” programme can be sustained over the medium to long term. Many of our members have been keen to explore the “Affordable Rent” product, but would like to see it as one of the housing options available to the community, alongside social rent within a coherent and equitable local housing strategy.
How and where the more limited capital and revenue public subsidy can best be applied to provide the biggest return on the investment, in housing supply terms
In the current economic and fiscal environment it is imperative that the limited public subsidy available to support the development of new affordable homes is put to the best use it can to provide the right kind of new sustainable homes across the country. The NFA believes that ALMOs can play a key role in ensuring that the government makes the best use of any public sector subsidy in delivering new homes.
Recent ALMO developments have shown that ALMOs can provide much needed homes for communities on existing council land. ALMOs in many areas have built on land that no other developer was interested in, land that was deemed to have little or no value and to be a cost to the local authority in maintaining and managing it. ALMOs have offered local authorities an option to develop that means the council can retain control over the land and the asset as well as ensuring that local housing management is not fragmented.
For example, last year Stockport Homes developed 17 new homes on an existing council estate to meet housing need in the area. In this instance the development included larger family sized homes as well as wheelchair accessible homes for families and couples. The development has made fantastic use of an under used area of the estate, which tended to attract low level anti-social behaviour and has helped to meet clearly identified housing need in the area.
The NFA believes that it is critical that in the desire to maximise housing supply from a limited amount of public subsidy the government does not rush to build large numbers of homes in the wrong parts of the country and focus entirely on numbers, which could encourage the building of smaller homes rather than the family sized homes that are required in many parts of the country. The NFA believes that ALMOs, working closely with their parent local authorities can help to ensure that local housing need is met in a sustainable but cost effective way.
What the role is of state lending or investment, as opposed to grant funding, and the appropriate balance between them
Many of our members across the country are looking to see what they can deliver without the use of social housing grant, and a number of ALMOs are engaged in discussions with their local authorities regarding the possibility of funding development programmes through a more positive asset management programme, selling some properties under shared ownership, some on the open market and some land to private developers and using other council-owned sites to develop social housing with the proceeds. This model will allow some local authorities to make better use of existing council properties and assets and develop new homes to meet the specific housing needs of their tenants and people on the waiting list.
Some ALMOs and their councils would also like to make more of the rental income that they will be managing under self-financing from April 2012 to provide more new affordable homes. Even though the NFA along with other housing stakeholders argued very strongly that the existing safeguards in relation to new borrowing, such as the Prudential Code, the limits on rent increases and the HRA ring fence were all sufficient to ensure that local authorities did not increase borrowing at unsustainable levels, the government has felt it necessary to impose further limits on new borrowing in a self-financing regime.
We understand the commitment that the government has made to reducing the public sector deficit, but feel that borrowing for investment in new affordable housing should be considered separately to borrowing for other purposes. Any borrowing for new affordable housing with the self-financed business plan would be subject to a clear business case based on rental income and costs over a 30 year period. The NFA and others have already proposed a borrowing ratio of income to debt, which could be agreed with and set by central government. This would allow some local flexibility around the timing of new borrowing and allow central government some on-going control, whilst allowing local councils and their ALMOs to make the most of their assets and deliver some of the new housing that the country so desperately needs.
Some of our members are also interested in the idea of “build now—pay later” and believe it could help them unlock key development sites with their parent local authorities for a mix of private and social homes or be used entirely to help kick start private development on some local authority land which, in time, would help fund new affordable homes in the area.
What the role is of the public sector in providing support in kind—for example land or guarantees—as opposed to cash, and what the barriers are to this happening
For ALMOs to help their parent local authorities make the best use of public assets, local authorities should be able to more easily dispose of land or empty properties their ALMOs. This would assist local authorities in managing their self-financed business plans and encourage them to make the best use of all of their assets. It is important that there are a number of options for local authorities to make use of in order to encourage them to be more innovative in their approach to asset management, but at the moment the government is proposing to exclude disposals to an ALMO from a general loosening of controls on such disposals.
The NFA believes that this is a missed opportunity because whilst there will be occasions when a local authority could sell land or vacant dwellings on the open market or offer discounted land to housing associations, there will always be some pieces of land or property that are not suitable for such disposals. A transfer to an ALMO offers a local authority another option for difficult to dispose of or strategic land and property, enabling it to make better use of an asset whilst retaining control of it. ALMOs can then use their expertise and resources to help the local authority provide the right kind of sustainable homes in their area.
How long-term private finance, especially from large financial institutions, could be brought into the private and social rented sectors, and what the barriers are to that happening
From discussions that ALMOs and the NFA have had with the financial sector there does seem to be some investor interest in both local authority and ALMO housing projects at the moment. Some members have been talking to both the banking sector and institutional investors such as private pension schemes and there is potential for them to invest in the ALMO sector, especially whilst the returns from the stock market are so risky. However, for this to be possible either ALMOs would need to move out of the public sector or government would have to remove the current restrictions and allow ALMOs to attract private sector investment for new housing supply. It appears to be a catch 22 situation where potential investors are attracted to the low risk but steady returns of a local authority backed sector, but government does not want local authorities or their subsidiaries to make use of private sector finance, even for housing projects delivered by well-managed organisations with solid business plans based on the rental income.
How housing associations and, potentially, ALMOs might be enabled to increase the amount of private finance going into housing supply
In the current economic climate and the corresponding cuts to public sector spending the ALMO sector is less able to deliver new affordable homes for their communities under the traditional models. As council-owned bodies any borrowing an ALMO undertakes is counted against the public sector borrowing requirement set by government. Changes to the way in which the HCA now assess public sector spending in their value for money assessment mean that ALMOs have been less successful in gaining access to HCA grant than they had been in the previous allocation rounds. In light of this and the need for further investment in their existing stock, ALMOs are now looking at different ways to attract funding and a number are looking to diversify and change their operational model in order to break away from public sector borrowing limitations.
The NFA commissioned a report to consider proposals which would build on the current, successful ALMO model, creating a new form of organisation with strengthened accountability to tenants and to the community, and which could raise new resources independently from government finances. The report entitled “Building on the potential of ALMOs to invest in local communities” has been sent alongside this submission for the committee’s information.
The work recognises the important priority which the government is giving to reducing the public sector deficit and the implications for future spending on housing after the Comprehensive Spending Review. The aim has been to find ways to generate the extra investment needed in council housing, taking account of these financial constraints, and at the same time address the government’s agenda of decentralising services and strengthening accountability to customers.
To meet all of these challenges, ALMOs will need more flexibility. If they want to bring in extra funding, they cannot stay as they are. Three new types of ALMO could give them the opportunity they need to borrow private finance. But—unlike stock transfer to a housing association—the new options would all allow ALMOs to keep their strong links with their local authority. They would also be able to retain the tenant focus, which has often distinguished them from traditionally-managed council housing.
The report gives more detail on the three options, but they range from a long-term management contract of 35 years with the ALMO no longer a local authority controlled organisation, but the housing stock still under local authority ownership, to a stock transfer, to a new type of organisation that is both Community and Council owned but not controlled by the council, the “CoCo”.
How the reform of the council Housing Revenue Account system might enable more funding to be made available for housing supply
Critically, in the first instance, the government should consider changing the classification of borrowing for council housing investment, recognising that council housing is a trading activity and that, under European accounting conventions, its borrowing need no longer count towards the main measure of general government debt. This would offer the government the opportunity to give council tenants, councils and their ALMOs real freedom to maintain, regenerate and build new homes for their communities, whilst helping to kick start economic growth in their areas.
In terms of the detail of the current settlement the recently announced changes to the Right to Buy regime look likely to threaten the viability of self-financing and council housing as an on-going business and our members are very concerned about the possible implications.
We are aware that government has made assurances that an allowance from the capital receipt will be made to repay the debt associated with that property, but our members are concerned about other impacts on the business plan and the likelihood that the remaining receipt will not be retained locally to replace the lost social home but given to the HCA to redistribute through the Affordable Rent programme nationally.
If the government significantly changes the discounts to encourage another wave of council house sales to tenants our members are fundamentally worried about the future sustainability of the Housing Revenue Account in terms of the management of a dwindling and residual stock. Without being able to retain all of the receipts locally to be able to replace the sold dwelling in the most appropriate way, the whole idea that self-financing would enable better asset management and a long-term future for council housing is put into question.
Any changes to the Right to Buy regime will also play out very differently in different parts of the country. In some areas of England there are such low values for some council housing that the current discounted value would not cover the debt repayment for those homes and the receipt could never help re-provide a new home even at affordable rents. At the other extreme, in very high value areas you could easily repay the debt and re-provide a social home on council land, but the high cost of the homes will probably mean that there will be little take up unless the new discount is extremely large.
It should also be noted that the best properties have already been sold under the Right to Buy policy and that combined with the residualisation of council housing with the concentration of low income families in the less attractive (to lenders) dwellings means that even with an enhanced discount a revived Right to Buy policy is unlikely to deliver the level of receipts that it did in previous years and so the anticipated number of new units that the receipts could finance are unlikely to be realised.
How effective the Government’s “Affordable Rent” proposals are likely to be in increasing the funds available for new housing supply, and how sustainable this might be over the medium to long term
The NFA can understand why the government has chosen to deliver the “Affordable Rent” programme with its limited funds in order to increase the number of homes it can help build at this difficult financial time. However, the NFA is concerned about how this can be sustained over the medium to long term. Our members have been keen to explore the “Affordable Rent” product, but would like to see it as one of the housing options available to the community within a coherent and equitable local housing strategy. Many of our members are very clear that in their areas there will continue to be the need for social rented homes as “Affordable Rent” is just not affordable for many in high value areas or for larger families in some areas. In other areas “Affordable Rent” levels are roughly at the same level as social rents so will not bring in any additional income to help fund new building. In high value areas it also looks like it will counteract much of the work being done by the Department of Work and Pensions to make the transition to work for unemployed households easier by making the benefit trap steeper for those families already on housing benefit being housed in “Affordable Rent” properties.
ALMOs are also at a disadvantage under the “Affordable Rent” programme as they have very small numbers of homes to convert to “Affordable Rent” within their own stock. The NFA would like to see the HCA being able to agree stock disposals from councils to their ALMOs specifically in order to make use of this programme, where appropriate and allow ALMOs to deliver new “Affordable Rented” homes for their communities. If these types of stock disposals were allowed and any borrowing by the ALMO or local authority was not counted again in the HCA value for money test, it could really help councils and their ALMOs make better use of their assets and develop more new housing in a much more sustainable way than the current proposals on the Right to Buy do.
October 2011