Deregulation Bill

Written evidence submitted by the National Housing Federation (DB 11)

 

1. The National Housing Federation

1.1 The National Housing Federation is the voice of affordable housing in England. We believe that everyone should have the home they need at a price they can afford. That’s why we represent the work of housing associations and campaign for better housing. Our members provide two and a half million homes for more than five million people. Each year they invest in a diverse range of neighbourhood projects that help create strong, vibrant communities. We welcome the opportunity to submit our evidence to the Public Bill Committee on the Deregulation Bill.

2. Executive summary

2.1 The Deregulation Bill is designed to reduce the burden of legislation for businesses and individuals. The Bill as currently drafted would reduce the eligibility period for the Right to Buy from fiv e years to three years. The Right to Buy gives local authority tenants and some housing association tenants the opportunity to buy their home at a discounted price.

2.2 While we agree with the principle of Right to Buy, this change – along with numerous other changes made to the policy since 2012 - could have a serious impact on housing associations’ ability to provide new affordable housing. The Bill must be amended to ensure that the supply of affordable housing in England keeps pace with demand.

2.3 The Bill needs to be changed to make sure that effective systems are in place to:

· Replace affordable homes lost through the Preserved Right to Buy.

· Review the impact of current and proposed changes to the Preserved Right to Buy on the supply of affordable housing and on housing associations’ businesses.

· Put in place an effective system to monitor the impact of Preserved Right to Buy on the supply of affordable homes.

3. How the Preserved Right to Buy (PRtB) works

3.1 Right to B uy legislation provides local authority tenants and some housing association tenants (approx. 620,000) with the right to buy their home at a discounted price. In April 2012, the discount was increased to £75,000 or 70% for a flat (60% for a house) depending on which is lower. In March 2012, the discount in London was raised to £100,000. The higher discounts mean the receipt will often not be enough to finance a replacement home and in some cases will not cover the debt secured against the property.

3.2 A housing association tenant will have the PRtB if they were a local authority tenant when their home was transferred into housing association ownership. The PRtB gives tenants the same rights and discounts to buy their homes as local authority tenants. Yet, there are some key differences in how sales receipts are handled:

3.3 The receipt is shared according to the terms of the t ransfer agreement . W hen social housing is transferred from a local authority into a housing association, a transfer agreement is drawn up. Each agreement sets out how any sales receipts will be split. In m any cases, the agreement allocates the majority share of the receipt to the local authority with the housing association receiving a small er share to cover the ir foregone rental income.

3.4 PRtB sales receipts are unprotected . Once the local authority receives its share, they are under no legal obligation to spend the receipts on funding new homes. Government does not monitor the spending of these sales receipts.

4. Key issues with the changes to the Right to Buy proposed in the Bill

4.1 Changing the qualifying period will make it more difficult for housing associations to do business. The Prime Minister has stated that the Deregulation Bill will make it easier for businesses to "grow, to create jobs and to help give this country the long-term security we are working towards." [1] The changes to PRtB will have the opposite effect on housing associations, by reducing the number of homes they own (their asset base) and failing to return the full value of the property to them, making it harder for them to grow their business and deliver the new homes this country desperately needs.

4.2 The Government is not meeting its commitment to replace the homes sold through the Preserved Right to Buy. There is no plan to replace affordable homes lost through PRtB. Nor is the policy’s impact on affordable housing supply being monitored. The Government’s failure to fulfil its commitment to one-to-one replacement of homes sold through the PRtB means those in most need of a home to rent have to wait longer for one to become available and there are fewer homes for new tenants to access.

4.3 The Government has failed to consult or consider the impact of these changes. Despite the Government’s ambition to deliver 165,000 affordable homes over this Parliament, they have failed to carry out any impact assessment of the consequences of any of the changes they have made to the PRtB policy, including reducing the qualifying period. Though the Government claims it wants to "boost support" for small and medium business, they have also not consulted with housing associations on the impact this change will have on their businesses.

5. Impact of past changes to the PRtB on housing associations

5.1 T o give the full picture, t he changes to the Right to Buy set out in the Bill need to be looked at in the context of other changes to the policy which have been made since the Right to Buy was ‘reinvigorated’ in 2012.

5.2 The National Housing Federation has carried out two surveys of housing associations to understand the impact that higher discounts have on the sector and the supply of affordable homes . These were the key findings:

· Increased sales of affordable/social housing: the 2012 Right to Buy Impact Assessment estimated that sales would increase by 150% in three years. Surveyed housing associations believe that sales would far exceed this estimate. Since the national discount was raised in April 2012, sales of homes through the Right to Buy and the Preserved Right to Buy have doubled.

· Less money back to the housing association: the vast majority of housing associations entered into agreements whereby they retain a small portion of the receipt to cover foregone rental income. The lion’s share goes to the local authority.

· Inability to replace homes sold: 92% of respondents declared that they would not be able to replace any homes sold via the PRtB.

· Reduced development capacity: 60% of housing associations declared that an increase in discounts would affect their long-term financing arrangements and ultimately build fewer affordable homes.

6. CASE STUDY: Phoenix Housing Association, Lewisham, London

6.1 This case study of Phoenix housing association in Lewisham demonstrates the negative impact that recent changes to the PRtB are having on their business. Recent changes have increased demand to buy Phoenix’s homes which reduces their asset base and, subsequently, their capacity to build new homes for people who need them.

6.2 Background

Phoenix Housing Association is a medium-sized resident-led housing association. They currently own and manage 5,488 general needs homes and 825 leasehold homes. It has a very strong community focus, with all of its stock located in the London Borough of Lewisham.

Phoenix is a stock transfer housing association. As the transfer agreement was drawn up in 2007, when the right to buy discounts and sales were significantly lower, the agreement allocates the lion’s share of money received from any sales to the local authority. Furthermore, as they are a recent stock transfer, nearly 4,000 out of around 5,500 tenants still have the PRtB.

6.2 Demand to buy through the PRtB is increasing

Since the discount has been increased, Phoenix has seen a growing level of applications and right to buy sales:

· Completed sales: In 2011/12, there were four right to buy completions, which rose to nine in 2012/13. Phoenix expects 33 sales during 2013/14.

· Applications have risen from less than 20 in 2011/12 to 75 in 2012/13. During 2013/14, Phoenix already have 71 live applications with over half the financial year still remaining.

6.3 It’s difficult for Phoenix to replace the homes sold through the PRtB

Although it wants to develop more of the affordable and social homes London desperately needs, the PRtB is using up Phoenix’s capacity to do this .

For example, a Phoenix tenant could buy a one bed flat with a market value of £120,000 for £36,000 under the PRtB. This money would then be split between Lewisham council, who’d receive £20,241 from the sale, and Pho en ix who’d receive the rest - £15,759.

This £15,759 will only cover the rental income that Phoenix has lost– it may not even be enough to cover the debt secured against the property. It certainly doesn’t provide Phoenix with any money to build a new social or affordable home to replace the one sold through the PRtB.

Likewise, Lewisham Council, under the terms of the transfer and HRA regulations, must use the £20,241 they received from the sale to pay off historic debt rather than invest in new homes.

6.4 PRtB is having a negative impact on Phoenix’s business over the long-term

The PRtB is having a huge impact on Phoenix’s asset base, which impacts on the amount of money they can borrow to maintain their existing stock and invest in both building new homes and growing their business.

Over the course of 2013/14, Phoenix expect 33 of their tenants to buy their own home through the PRtB. In this scenario, Phoenix would lose around £5.25m in the value of their asset base in a single year of operation. Moreover, Phoenix will only retain around £750,000 in sales receipts.

If they continue to lose their assets at this pace, their asset base will be significantly eroded within a few years, making it harder for them to re-finance existing debts and take on additional borrowing. If that becomes a reality, they could be forced stop developing new homes as their viability will be put at stake.

7. Conclusion

7.1 The Deregulation Bill as currently drafted would reduce the eligibility period for the PRtB from five years to three years. This change to the policy, as one in a long line of changes, would have a negative impact on housing associations’ businesses and would reduce their ability to build new homes.

7.2 The Government will fall short of its ambition to deliver 165,000 affordable homes over this Parliament if housing associations are not given the support they need to manage the risks posed by the policy.

7.3 We recommend that the Bill is changed to make sure that effective systems are in place to:

· Replace affordable homes lost through the Preserved Right to Buy.

· Review the impact to date of the Right to Buy policy and the changes proposed in the Bill on the supply of affordable housing and on housing associations’ businesses.

· Put in place an effective system to monitor the impact of Preserved Right to Buy on the supply of affordable housing and on housing associations’ businesses.

7.4 Thank you for taking the time to read our evidence. Please do contact the Federation if you wish to understand more about our concerns.

March 2014


[1] David Cameron’s speech to the Federation of Small Businesses, 27 January 2014. Link: https://www.gov.uk/government/news/supporting-business-david-cameron-announces-new-plans

Prepared 13th March 2014