Housing and Planning Bill Committee

Written evidence submitted by East London Housing Partnership (HPB 113)

1. Introduction

1.1 The East London Housing Partnership (ELHP) is an alliance of the housing functions of the eight East London authorities of Barking and Dagenham, City of London, Hackney, Havering, Newham, Redbridge, Tower Hamlets and Waltham Forest.

1.2 The ELHP have committed to work in partnership to tackle shared housing issues. Working closely with Registered Social Landlords (RSLs), statutory agencies and the private and voluntary sector, the ELHP aims to increase the quality and availability of housing in East London.

1.3 The ELHP welcomes the opportunity to respond on the Housing & Planning Bill, 2015-16 , although note s the short timescales for doing so, wh ich has limited the scope of this response . This document is intended to complement responses made by individual authorities within the Partnership.

2. Context

2.1 East London comprises some of the most deprived communities in England [1] , creating a specific sub-regional dimension to housing need and supply challenges.

2.2 East London has a serious shortage of housing. The sub-region's population is predicted to increase by 23 per cent by 2041 to 2.43 million, and the London Boroughs of Barking & Dagenham, Tower Hamlets, Newham and Redbridge are expected to see the highest growth rates in London [2] . Over 47,000 households are registered with a reasonable preference category on East London local authority housing waiting lists and East London's house building targets are some of the most ambitious in London, with a minimum of 120,600 new homes by 2025, or 28 per cent of the London total [3] .

2.3 As a result of the housing shortage in the sub-region, East London authorities are experiencing an increase in demand for homelessness services. 1,401 households were accepted as owed a main homelessness duty by East London local authorities in quarter 1, 2015/16, which constitutes a 23 per cent increase on the previous financial year. [4] This demand is increasing pressure on temporary accommodation; East London authorities had 14,155 households in such accommodation on 30/06/2015, which represents a 16 per cent increase on the same period in 2014.

2.4 A lack of availability of affordable self-contained accommodation is increasing East London authorities’ reliance on accommodation with shared facilities for the provision of temporary accommodation. On 30/06/2015, 1,184 East London households were in private-sector temporary accommodation with shared facilities, which is a 42% per cent increase on the same date in 2014. On the same date, 550 families in England had been in private temporary accommodation with shared facilities for longer than six weeks. 292 (53 per cent) of these were placed by East London authorities, demonstrating the extent of the challenge faced by the sub-region. [5]

2.5 Evidence suggests that the availability of longer-term leased temporary accommodation is increasingly limited across many areas of London. 4,836 households were in non-nightly private sector leased temporary accommodation in East London on 30/06/2015, which represents an 8.1 per cent decrease when compared with the same date in 2014. This has been coincident with a rise in the use of nightly-paid temporary accommodation, which can often be more expensive for local authorities. [6]

2.6 Measures outlined in the Bill also need to be taken in the context of those policies outlined in the July 2015 Summer Budget and the Welfare Reform and Work Bill (2015/16), the cumulative effect of which will increase pressure on local authority expenditure. As an example, the 1 per cent social rent reduction will result in an estimated cumulative £180m loss to local authority housing revenue accounts alone across the sub-region over the four year period, and considerably greater losses over the 30 year business planning period. These resources could have been spent on building new and improving existing homes and on improving service delivery.

3. Pay to stay

3.1 The ELHP notes the DCLG’s objective for the pay to stay policy is to ensure that housing at subsidised rents goes to those people who genuinely need it [7] . However, as outlined in our response to the recent DCLG consultation on this measure (see Appendix 1), the ELHP believes that the policy is a disproportionate response to achieving this objective and will be complex and overly-burdensome to administer. The lack of supply of affordable homes should be addressed through effective house-building programmes. Landlords also have a number of tools at their disposal to manage this increasingly-scare housing resource, including fixed-term tenancies. Priority for affordable home ownership opportunities, such as shared ownership, is given to social housing tenants.

3.2 The pay to stay policy risks penalising those who want to improve their circumstances and acts as a disincentive to career progression. It is also likely to adversely affect vulnerable and hard-working families. The £40,000 per year household income threshold in London is too low for the application of this policy, and partners contend that households with a combined income of £40,000 per year are not "high income social tenants" (as described in Bill): the combined income of two full-time employed individuals earning the current London Living Wage is just over £38,000 per year.

3.3 The gap between social rents in East London and market rents is large, and is growing. Table 1 highlights this difference, and therefore the additional rent that local authority tenants affected by this policy may have to pay per week to remain in their homes. Partners maintain that such rent increases are untenable and unsustainable given that 20 per cent of residents in the sub-region live are income-deprived [8] and that average rents in East London increased by between 9 per cent and 12 per cent in the twelve months to July 2015 [9] .

East London authority

Difference between social and market median rent,

per week and by bedsize

1 bed

2 bed

3 bed

4 bed

Barking & Dagenham

£138

£191

£224

£279

City of London

£482

£583

£785

£867

Hackney

£262

£353

£482

£594

Havering

£120

£164

£203

£293

Newham

£177

£258

£277

£355

Redbridge

£137

£189

£229

£312

Tower Hamlets

£268

£351

£451

£556

Waltham Forest

£157

£198

£261

£381

Table 1: weekly difference between local authority social rent levels and market median rent (as extracted from Zoopla on 10/08/2015), by bedsize.

3.4 The ELHP does not consider the current policy equitable, with local authorities being required to return rental uplift to the Exchequer whilst housing associations are able to retain these funds. This is contrary to the principles of Housing Revenue Account (HRA) ring-fencing.

3.5 The ELHP ask that the Bill be amended to recognise these concerns, and the concerns outlined in Appendix 1, and specifically that:

a) A higher income threshold be implemented. The Mayor of London’s current income threshold for eligibility to intermediate housing is recommended (£71,000 per year for 1- and 2-bed properties, and £85,000 per year for larger properties). Tenants eligible for welfare benefits should be exempt from this policy

b) This threshold be uprated in line with CPI each year

c) A taper be introduced that recognises the high degree of variation in rental market between and within local authorities. Tenants should pay no more than 35 per cent of their net income on rent

d) Local authorities be permitted to retain any additional income generated through this policy for the benefit of local tenants and residents and to support their capital programmes

e) This policy be applied to new social housing tenancies only.

4. Forced sale of high value local authority stock

4.1 Partners note the intention of this policy measure is to encourage local authorities to utilise their assets in order to support an increase in home ownership and housing supply (as outlined in paragraph 147 of the Bill’s explanatory notes). The ELHP has serious concerns that this policy will adversely impact on housing supply and will increase the cost of homelessness.

4.2 The ELHP would welcome further clarity on the application of this policy. Based on the limited information available and a number of assumptions, research by Liverpool Economics on behalf of the ELHP estimates that 919 homes in East London could be sold in the first five years of the policy. These forced sales take place in an environment where the number of households in housing need and in temporary accommodation are increasing, as outlined above.

4.3 The forced sale of local authority stock will place increased pressure on local authorities’ temporary accommodation supply. It is broadly estimated that the cost of this policy in terms of the additional use of temporary accommodation could be £12m in East London in the first five years. This cost would be met both by the Department for Work and Pensions (through Housing Benefit) and local authorities.

4.4 The income stream and asset security provided by local authority ‘high value’ stock has allowed partners to develop ambitious capital investment programmes to deliver against the 120,600 new home target by 2025, as outlined for East London in the London Plan. The erosion of partners’ rental income streams and asset bases will expose existing capital delivery programmes to greater risk and adversely impact upon the delivery of new homes in the sub-region. The replacement of like-for-like homes sold through this policy measure (particularly with respect to size, affordability and location) will also be made challenging by limitations on land and local authority borrowing headroom.

4.5 Partners note an East London dimension to the forced sale of high value local authority stock. The gradual narrowing of the affordable housing pipeline in other areas of London is likely to increase pressure on homes, infrastructure, social care and other services in outer-East London boroughs, which have historically been London’s more affordable areas.

4.6 The forced sale of local authority stock could lead to increasingly-polarised communities in areas which are already regarded as some of the most deprived in England, as outlined above. The ELHP strongly believes that the social mix of East London’s estates should be protected.

4.7 The impacts of this policy would be exacerbated by other policy measures, and notably the extension of right to buy to housing association tenants. Based on National Housing Federation modelling of the number of households who would be eligible for and could afford to exercise the right to buy [10] , 14,000 private register provider homes in the sub-region could be transferred into the private sector. The delivery of replacement homes will take time, and these may not be affordable for all households in housing need. As the supply of genuinely-affordable council and registered provider accommodation declines, local authorities will find the discharge of their homelessness duties increasingly challenging. This could lead to an increase in the number of households in temporary accommodation and further inflate the cost of delivering the homelessness function.

4.8 Clauses 62 to 68 of the Bill outline a requirement for local authorities to make an annual payment to the Secretary of State by reference to the market value of high value vacant housing owned by the authority. Partners note that this constitutes a tax on assets. Given the implications that this has for capital delivery programmes, partners are keen to engage further with the DCLG on the process for establishing an accurate determination. For example, authorities which have been embarking on estate regeneration activities over the past three years may show artificially-high void rates and so could be adversely affected by the determination.

4.9 Clause 67 of the Bill provides the Secretary of State with the power to reduce by arrangement the amount that a local authority is required to pay under this policy, for example in order that the authority can deliver new housing. Whilst this flexibility is welcomed, partners note with concern paragraph 357 of the Bill’s explanatory notes, which states that the Government expects "fiscal neutrality" between the forced sale of local authority assets and the right to buy extension. The effect of coupling these policies would significantly limit the flexibility outlined in Clause 67 of the Bill.

4.10 The ELHP proposes amendment to the Bill in recognition of the concerns raised above, and specifically that:

a) The implementation of this policy be postponed until the Government has engaged further with the local authority sector on how to deliver its objective of additional housing supply whilst minimising the risk of adverse impacts on development and homelessness

b) Local authorities be exempted from raising income from the forced sale of assets where it can demonstrate that the level of housing need exceeds housing supply (e.g. where the number of households in temporary accommodation exceeds the number of lettings available to that authority each year)

c) This policy should be financially decoupled from the right to buy extension measure such that fiscal neutrality between the two policies is not required.

d) Government issue a public consultation on the parameters for determining the annual high value asset payment to the Secretary of State

e) Government engage with the sector to identify the range of properties that should be exempted from the high value asset payment in order to minimise adverse impacts on housing delivery. Exemptions should include:

i. Homes delivered within the last 15 years, to reduce the disincentive to invest in new supply

ii. Current and future voids on designated and proposed regeneration estates

iii. Section 106 units, which have been delivered on the grounds of remaining affordable in perpetuity

iv. Specific properties that are difficult to replace or where it can be demonstrated that the need for that type of accommodation exceeds supply

v. Sheltered, supported and adapted housing, the loss of which could have adverse impacts for care and support budgets

vi. Properties that allow better use of stock to meet housing need, such as transfers, or that do not technically become available for letting, such as in the cases of succession or mutual exchange.

5. Starter homes

5.1 Partners note that the Government intends to ensure that Starter Homes become a common feature of new residential developments across England (Clause 4 of the Bill). The ELHP recognises that a range of tenure types are required to meet housing need, and supports access to home ownership. However, Starter Homes will not be an alternative to affordable homes in the sub-region and should not reduce the provision of genuinely-affordable homes.

5.2 House prices in the sub-region increased by between 7 and 18 per cent in the twelve months to October 2015, and East London local authorities had some of the highest house price increases in the country [11] . As a broad indication of affordability, Table 2 evaluates 80 per cent of current market property values in East London and the indicative household income required to support mortgage payments on these amounts. This raises concerns about the affordability of Starter Homes in East London unless homes are offered at significantly less than 80 per cent of market rates. This is supported by other research that highlights that Starter Homes would not be affordable for National Living Wage households anywhere in the sub-region, and would only be affordable for average-earning families in two of the eight East London authorities [12] .

East London authority

80% average

house price [1]

Household income required

Barking & Dagenham

£233,995

£60,170

Hackney

£503,857

£129,563

Havering

£263,880

£67,855

Newham

£253,589

£65,209

Redbridge

£301,894

£77,630

Tower Hamlets

£399,248

£102,664

Waltham Forest

£314,193

£80,792

Table 2: 80 per cent of average house prices in East London authorities, and household incomes required to support a mortgage on these amounts (assuming an income to mortgage ratio of 3.5 and a deposit of 10% of this value). House price data for City of London is not available

5.3 The ELHP notes inconsistency in Government definition such that "high income" social housing tenants (defined in Clause 75 of the Bill as households with an income of £40,000 or more in London) could not afford a "low-cost" Starter Home in East London (as described in the Bill’s Impact Assessment, and based on homes being offered at 80 per cent of market rate).

5.4 Current guidance allows for Starter Homes to be sold at their open market value after five years [13] . The ELHP believes that this will compound pressures on affordable housing and amounts to poor use of subsidy.

5.5 As local authorities may not seek section 106 affordable housing contributions from Starter Home developments [14] , the ELHP has significant concerns that this measure will reduce the number of affordable homes for rent or shared ownership that can be secured by authorities. Homes delivered through such negotiations make a significant contribution to the sub-region’s affordable housing pipeline; 5,800 homes have been delivered through section 106 negotiations by just four of the eight East London authorities in the last five years. Assuming that these boroughs could negotiate similar affordable provision over the next five years, and based on the findings of initial research by one East London local authority, the Starter Homes policy could lead to 580 genuinely-affordable homes not being delivered in these four boroughs alone over the next five years.

5.6 The ELHP has serious concerns that the reduction in the supply of affordable homes as a result of this policy will exacerbate issues of affordability, impact on homelessness and increase pressure on temporary accommodation and the Housing Benefit bill.

5.7 The ELHP proposes amendment to the Bill in recognition of the concerns raised above, and specifically that:

a) Local affordable housing priorities be devolved to local authorities in order that the right mix of tenures are attained and the cost of homelessness does not increase.

b) Starter Homes not be provided at the expense of genuinely affordable housing and, if unaffordable to low or intermediate income groups, should not be exempt from section 106 payments.

c) Starter Homes remain discounted in-perpetuity.

6. Other comments on the Housing & Planning Bill

6.1 As outlined in Section 2, East London is facing a perfect storm of homelessness pressures: increasing demand, decreasing supply of affordable self-contained properties and increasing temporary accommodation costs. This is taking place in the context of considerable pressures on local authority spending. East London local authorities forecast that the cost of meeting their statutory duty to homeless households will continue to escalate in spite of significant work being undertaken to manage these costs. Partners ask that Government respond to these pressures and work with London authorities to ensure that statutory duties can continue to be met.

6.2 The Homelessness Prevention Grant is vital to local authorities’ efforts to prevent and mitigate homelessness. However, the formula for allocating this grant is not transparent and, the ELHP contend, inequitable. East London accepted 4,850 households as owed a main homelessness duty in 2014/15, which equates to 9 per cent of acceptances in England or 28 per cent of acceptances in London. However, the sub-region received only 7 per cent of the HPG awarded in England in 2015/16, or 16 per cent of the London award. Partners believe that, if this vital grant was awarded fairly, East London would have received an additional £4.5m in 2015/16.

6.3 In the five years to April 2015, East London local authorities sold 2,601 properties through right to buy. Whilst the ELHP supports access to home ownership, partners are finding viable replacement programmes challenging given that a significant percentage of the sale value must be returned to the Treasury and that only a maximum of 30 percent of the cost of replacement may be met from the receipt. Replacing homes sold through the high-value forced sale policy may be similarly challenging if the same constraints are applied.

6.4 The ELHP proposes that the scope of the Bill be expanded such that:

a) The Government commit to a review of temporary accommodation subsidy levels to ensure that authorities can continue to meet their statutory homelessness duties

b) The Government commit to a public review of the HPG allocation formula

c) Local authorities be allowed to fully retain and flexibly use council right to buy receipts, and that constraints around the reinvestment of receipts be removed to allow for the delivery of more homes.

December 2015

Appendix 1

Pay to Stay: Fairer Rents in Social Housing

DCLG consultation, October 2015

1. Introduction

1.1 The East London Housing Partnership (ELHP) is an alliance of the eight East London authorities of Barking and Dagenham, City of London, Hackney, Havering, Newham, Redbridge, Tower Hamlets and Waltham Forest.

1.2 The ELHP have committed to work in partnership to tackle shared housing issues. Working closely with Registered Social Landlords (RSLs), statutory agencies and the private and voluntary sector, the ELHP aims to increase the quality and availability of housing in East London.

1.3 The ELHP welcomes the opportunity to respond to the DCLG’s ‘Pay to Stay’ consultation. This document constitutes the sub-regional response on these proposals, and is intended to complement responses made by individual authorities within the Partnership.

2. General comments on the policy measure

2.1 The ELHP notes the DCLG’s objective (as outlined in the consultation) to ensure that housing at subsidised rents goes to those people who genuinely need it. However, the ELHP believes that the policy is a disproportionate response to achieving this objective and will be complex and overly-burdensome to administer. The lack of supply of affordable homes should be addressed through effective house-building programmes. Landlords also have a number of tools at their disposal to manage this increasingly-scare resource, including fixed-term tenancies.

2.2 Aside from those potential consequences listed below, this policy is likely to act as a further incentive for social housing tenants to exercise their right to buy. Whilst Partners support access to home ownership, they note the challenge of replacing these units and the implications that the loss of income will have for council services and delivering additional supply. The actual subsidy provided to tenants through right to buy would, in the vast majority of cases, far exceed the notional subsidy provided by offering sub-market rents.

2.3 Partners are concerned that this policy will destabilise local communities as households move to ensure their housing costs remain affordable or exercise their right to buy. This will negatively affect aspirations and the social mix on housing estates, which the ELHP believes should be protected. The wider London economy may also suffer as households are forced to move outside of London to find cheaper accommodation.

2.4 This policy should be applied to new social housing tenants only. This will ensure that social landlords can incorporate the requirements of the policy into tenancy agreements, and ensure tenants are fully aware of their obligations at the point of allocation.

2.5 The consultation, and the subsequent Housing and Planning Bill (2015), provide little clarity on how this policy would be operated in practice. This makes responding to the consultation questions challenging. The scope of the consultation is also limited. The ELHP would welcome further engagement on the policy and alternative approaches to ensure Government’s objectives are met. The ELHP are also keen to work with the DCLG to identify exclusions to this policy.

3. Supporting work incentives

3.1 Partners do not believe that this policy is compatible with supporting work incentives. The policy risks penalising those who want to improve their circumstances and acts as a disincentive to career progression. Tenants may chose to work fewer hours or not accept promotion in order to remain under the pay to stay threshold. The policy will therefore have tangible economic impacts.

3.2 The ELHP are extremely concerned that the £40,000 per year household income threshold in London is too low for the application of this policy. Households with a combined income of £40,000 per year are not "high income social tenants" (as described in the Housing and Planning Bill, 2015): the combined income of two full-time employed individuals earning the current London Living Wage is just over £38,000 per year. The objectives of this policy therefore appear inconsistent with the original pay to stay policy, which local authorities could apply on a voluntary basis. The ELHP also notes inconsistencies in the definition of household income between the Housing and Planning Bill (2015) and the associated Impact Assessment.

3.3 This policy will be difficult and expensive to administer in cases where households have insecure employment, or whose income varies weekly. HMRC information (where it is made available for the previous financial year) would lead to local authorities assessing household circumstances incorrectly, and failure to respond to these changes promptly could lead to households encountering financial difficulties and increasing their reliance on Housing Benefit.

3.4 The Partnership is concerned that the proposed policy will adversely affect vulnerable and hard-working families, and urges the Government to consider a higher income threshold. The Mayor’s income threshold for eligibility to intermediate housing is recommended (£71,000 per year for 1- and 2-bed properties, and £85,000 per year for larger properties). Tenants eligible for welfare benefits should be exempt from this policy.

3.5 The Housing and Planning Bill Impact Assessment does not suggest that the pay to stay threshold will be uprated through time. The ELHP would argue that the threshold should increase in line with CPI each year.

3.6 The ELHP supports the implementation of a taper. This would need to recognise the high degree of variation in rental market between and within local authorities. It also needs to recognise individual financial need and the impact of numerous welfare reforms coming into place at once. Tenants should pay no more than 35 per cent of their income on rent.

4. Evidence of administrative costs

4.1 There is still considerable uncertainty around how this policy will be applied. This has meant that the Partnership has been unable to arrive at an accurate quantitative assessment of administrative costs. The ELHP would welcome further engagement with the Government in order to arrive at an accurate evaluation of costs, and in order to ensure that the cost of implementing this policy do not exceed income raised. We would expect that local authorities are fully compensated for the cost of implementing this policy, and that these costs be awarded in advance.

4.2 The ELHP does not consider the current policy equitable, with local authorities being required to return rental uplift to the Exchequer whilst housing associations are able to retain these funds. This is contrary to the principles of Housing Revenue Account (HRA) ring-fencing. East London local authorities should be permitted to retain any additional income generated through this policy for the benefit of local tenants and residents and to support their capital programmes.

4.3 Additional costs of implementing the pay to stay policy include:

a. Collecting / recording information on income, including obtaining data from HMRC as appropriate.

b. Amendments to tenancy agreements, including consultation on these changes

c. IT changes required to implement the policy

d. Completing market valuations and implementing increased rents (including affordability checks and support for tenants

e. Review of rents due to changes in circumstances

f. Collection of additional rent, including the delivery of support and enforcement, where necessary

g. Provision for bad debt and rent arrears

h. Communicating the changes and responding to enquiries about the policy

i. Responding to complaints and appeals

j. Re-training of staff and service re-design

k. Review of existing benchmarking activities and evidencing value for money

4.4 These costs will be largely met from landlords’ HRAs, which will be under increased pressure due to the recently-announced rent reduction. There are a number of factors that drive these costs, such as:

a. The exact nature of HMRC involvement in providing income information, and the powers granted to social landlords to require their tenants to declare their household income. These factors have the potential to vary considerably the cost of administration of this policy by landlords.

b. Where income information is provided to social landlords, how current this data would be. Where this data is not current, landlords would need to input additional time to verify the accuracy of this information.

c. Whether this policy is applied to existing social tenants, which will require renegotiation of tenancy agreements

d. How market rents are to be calculated

e. The cost of amending the functionality of IT systems in order to implement this policy, and establishing interfacing of systems as required. This is likely to require considerable initial investment for local authorities.

f. The number of rent reviews required to be carried out per financial year.

g. How tenant appeals are managed. The ELHP would welcome further guidance on appeals to ensure consistency in approach.

h. How this measure will be implemented alongside other policy changes, such as those outlined in the Welfare Reform and Work Bill.

4.5 The ELHP recommends that the introduction of this policy is delayed whilst the Government works with social landlords to clarify these issues.


[1] DCLG (2015): Indices for Deprivation.

[2] GLA (2015): 2014 round of trend-based population projections.

[3] GLA (2015): Further Alterations to the London Plan

[4] DCLG (2015): Statutory Homelessness detailed local authority live tables: April to June 2015

[5] ibid

[6] ibid

[7] DCLG (2015): Pay to Stay: fairer rents in social housing consultation

[8] DCLG (2015): Indices for Deprivation.

[9] Homelet (2015): Annual variance in rental index, July 2015.

[10] National Housing Federation (April 2015): http://www.housing.org.uk/blog/right-to-buy-extension-estimated-to-cost-12-billion/

[10]

[11] Land Registry (2015): Land Registry House Price Index, September 2015.

[12] Shelter (2015): Starter Homes – will they be affordable?

[1] Land Registry (2015): Land Registry House Price Index, September 2015.

[13] DCLG (2015): Starter Homes exception sites guidance

[14] ibid

Prepared 8th December 2015