Housing and Planning Bill Committee

Written evidence submitted by Longlife Housing Co-operative Limited (HPB 115)

1.0 Purpose

1.1 This submission summarises the views of the Co-operative's Management Committee and provides information about the likely impact of the Bill on the Co-operative and its membership, and suggests amendments to the Bill.

2.0   Summary

2.1   Longlife Housing Co-operative Limited is a Fully-Mutual Housing Co-operative set up in 1981. Our properties are in the London Borough of Newham and provide 64 units of accommodation in 15 new build and 23 rehabilitated Victorian properties. These 38 properties range from small bedsits to large family houses. Most of our units are within the Forest Gate area, with 2 in East Ham and and 5 in Stratford.

2.2 Longlife is managed by its members for its members. The Co-operative has a Management Committee of 15 tenant members that meets at least once a month to manage its affairs. The Co-operative employs Home from Home Housing Association to provide a maintenance service and Co-op Homes to provide management services. The ManagementCommittee runs large scale maintenance directly through employing surveyors.

2.3 Longlife notes the Agreement with the National Housing Federation, which was confirmed by the Minister on moving the Bill, that "Co-operative properties are among the categories for which Housing Associations can exercise their discretion not to sell their property to tenants. In the agreement, such tenants would potentially be able to use the new ability to have a portable discount."

2.4  Longlife is concerned that implementation of the aspects of the legislation relating to Pay to Stay, as outlined in the Impact Assessment for the Bill, could result in homelessness for members, increased and unfunded management costs including action for possession and legal action under the Data Protection Act. It seeks an amendment to to exempt Co-ops and small Housing Associations with under 100 properties from Pay to Stay.

2.5 Longlife notes in the Impact Assessment signed by the Minister that "Housing associations will be given the ability to charge higher rents to tenants in social housing with higher incomes. These increased revenues, of up to £3,500 per year for some of their most valuable properties, can be retained by housing associations. Accordingly it seeks an amendment such that the maximum increase in rent payable under this Bill is £3,500pa adjusted by RPI.

2.6 In order to reduce the risk of homelessness Longlife seeks an amendment such that any increase in rent should be no greater than 15% pa

2.7 A rationale for the Pay to Stay policy is that "This intervention is designed to remove an unfair subsidy. Households with a sufficiently high income do not require this, as they are able to access market housing." Given recent research that shows 60.1% of those London tenants impacted by this policy could afford neither the market rent nor to exercise the right to buy Longlife seeks an amendment that defines the household income at which people can afford market housing in London and requires that pay to stay does not apply to people below this level.

Right to Buy

 

3.0 Discretion not to sell

3.1  We are glad that the Minister has confirmed that fully mutual co-operatives can exercise their discretion not to sell their property and that our tenants could potentially be able to benefit from the new portable discount.

3.2 As a mutual co-operative we are unable to let our housing to non members. Many of our homes are flats and these can only be sold leasehold even if there were a right to buy. A lease is a form of tenancy so could only be held by a co-operative member, which would make it impractical for the right to buy purchaser to resell the lease. Our understanding is that if the Co-operative sold a property it would need to use the money raised to provide another, which would take a great deal of voluntary input that may not be forthcoming. Developing new housing would involve risk in that costs may be greater than anticipated and given we only have 18 houses this risk and effort would be unfair on the 44 households living in flats and mainsonettes. Accordingly it is highly probable that Longlife will exercise its discretion not to sell property under the right to buy.

4.0 Portable discount

4.1  Some Longlife members may be able to buy a property given a £103,900 discount in order to do so. It seems unfair that such people should be disadvantaged through living in a co-operative and it makes sense for properties to be freed up for people in greater need. Longlife supports the idea that members who wish to buy should be able to benefit from a portable discount.

Pay to Stay

 

5.0 Legal difficulty in a co-operative implementing

5.1   Longlife is a fully mutual co-op. with all tenants being members and vice versa. Its budget is drafted by its tenant Officers, for initial approval by the Management Committee of tenants, before being recommended for approval by the General Meeting of tenants, almost all of whom are neighbours. The target rents of Longlife’s properties are identical for similar property types so it will be apparent to the membership as a whole which households are subject to the pay to stay regime.

5.2 For the co-operative to exercise due diligence in its financial management and rent setting it will need to disclose financial information about its tenants to its tenants, a possible breach of the Data Protection Acts. It is hard to see how a Co-operative can comply with Clause 76 with regard to HMRC information thereby becoming guilty of wrongful disclosure under Clause 77.

5.2 The issue of requiring personal information on occupants who are not tenants and therefore have no legal relationship with the co-operative is problematic. Tenants currently have no legal obligation to advise their landlord of other occupants in their home however the Bill may require that tenants provide personal information about other occupants to their Landlord. In a Co-operative this would mean sensitive information would need to be shared with people who are very likely to know the persons concerned.

5.3 As a co-operative Longlife cannot see how to implement this legislation without breaching data protection laws and privacy of the individuals..

5.4 Longlife would like assurance that if it implements the Act according to guidance issued it will be indemnified against legal action that is a direct consequence of following the guidance given.

6.0 Affordability of market rents

6.1 The impact statement (clause 4.4.5) states that a rationale for the Pay to Stay policy is that "This intervention is designed to remove an unfair subsidy. Households with a sufficiently high income do not require this, as they are able to access market housing."

6.2 The House of Commons Library’s Briefing Paper on Pay to Stay (document Number 06804, 18 August 2015) quotes an Inside Housing, in August 2013, on the findings of research conducted by the consultancy Hometrack. The research indicated that in 16 London local authority areas an income of £82,226 was required in order to be able to pay an ‘affordable rent’ (normally set at 63 per cent of market value). If this is correct it follows that the income to afford a full market rent would be £130,518 pa.

6.3 Savill’s Residential Research conducted a survey, published by Inside Housing 4/9/15, which revealed that of those households in London impacted by "Pay to Stay" only 2.7% could afford the market rent, 60.1% couldn’t afford the market rent or exercise the right to buy and 37.1% could afford to exercise their right to buy but could not afford the market rent.

6.4 Contrary to the given rationale the policy threatens the housing of the 60.1% of households targeted who will neither be able to afford to buy or to pay the market rent.

6.5 Newham market rents are lower than the areas where most London co-operatives operate so it is unlikely that market rents will exceed net income. In some parts of London market rents exceed the £50k gross income, let alone net income. The median rent for a 3 bed property in NW1, where a number of co-ops operate, is £4,171 pcm or £50,052pa (www.home.co.uk)

6.6 Increased rental costs will make it harder for families to afford to move to larger accomodation to meet their needs as their family grows leading to a choice between overoccupation, earning less and homelessness.

6.7 Impacts on Longlife could be that arrears increase and it is forced to take proceedings against people who have no hope of paying the rent that it has to charge.

6.8 To minimise the risk of homelessness regulations need to allow for any increases to be phased and set a maximum percentage rent increase in any year. Longlife seeks an amendment such that any increase in rent should be no greater than 15% pa

6.9 Longlife seeks an amendment that defines the household income at which people can afford market housing in London and requires that stay to pay does not apply to people below this level.

7. 0 Threshold

7.1 The Impact Statement (Clause 4.4.4) asserts that "The decision has been taken that households with higher incomes will be required to pay higher rents. The Budget said that social rented tenant household with an income of £30k, or £40k in Londonwill be required to pay market or near market rents"

7.2 The London Living Wage (LLW), as calculated by the GLA, is currently £9.40/hr. [1] The LLW takes means tested benefits into account and without these would be £12.00 per/hr, it also assumes non market rents for families) The LLW is based on a relative poverty measure that looks at 60% of the median wage.A houseshold with two full time employees on the LLW could have an income of £38,688. A small increase in the number of hours or pay could see them have to pay 80% of the market rent.

7.3 The minimum starting salary for a registered nurse is £21,692. Two basic grade nurses living together in shared housing would have a household income of £43,384 and, just exceeding the threshold, could be expected to pay 80% of the Market rent.

7.4 According to provisional 2015 Earnings Data released by the Office for National Statistics (ONS), [2] the median gross annual wage for people working in London is £660pw or £34,320pa – that means half earn more than this and half earn less. A couple earning the median wage would be on £68,640 pa and would be subject to the full market rent.

7.5 Given that the Bill allows the increase only to apply to "higher income" households it appears contradictory for the threshold to apply to households that earn less than the median wage. Given that two people’s income will be considered Longlife suggests that the threshold should be twice the median wage, £68,640 in London, and should be updated annually.

8.0 How much extra should people have to pay?

8.1 The Impact Assessment signed by the Minister of State states that "Households in social housing earning over £30,000 (£40,000 in London) will see a reduction in the subsidy they receive on their rent. For those on the highest incomes and in the most valuable housing, this subsidy could be worth as much as £3,500 per year. " The Benefits Section of this Assessment states "Housing associations will be given the ability to charge higher rents to tenants in social housing with higher incomes. These increased revenues, of up to £3,500 per year for some of their most valuable properties, can be retained by housing associations.(our emphasis) Clause 4.4.3 states "Social tenants benefit from a subsidised rent that could be as much as £3,500 less, on average, compared to equivalent rents in the private sector."

8.2 The difference in current and likely market rents using information from www.homes.co.uk is as follows:

Property

postcode & type

Current* rent pa

Market rent pa

80% market rent

Increase at full MR

Increase at 80% MR

Increase at full MR

Increase at 80% MR

E6 - 2 bed hse

6,178

15,600

12,480

9,422

6,302

153%

102%

E6 - 3 bed hse

6,856

19,188

15,350

12,332

8,495

180%

124%

E7 - 1 bed flat

5,060

11,700

9,360

6,640

4,300

131%

85%

E7 - 2 bed flat

5,942

16,172

12,938

10,230

6,996

172%

118%

E7 - 2 bed hse

6,178

16,172

12,938

9,994

6,760

162%

109%

E7 - 3 bed flat

6,561

19,812

15,850

13,251

9,288

202%

142%

E7 - 3 bed hse

6,856

19,812

15,850

12,956

8,994

189%

131%

E7 - 4 bed hse

8,121

27,612

22,090

19,491

13,969

240%

172%

E7 - 5 bed hse

8,650

26,416

21,133

17,766

12,483

205%

144%

E15 - 1 bed flat

5,060

15,288

12,230

10,228

7,170

202%

142%

E15 - 2 bed flat

5,942

18,928

15,142

12,986

9,201

219%

155%

E15 - 2 bed hse

6,178

18,928

15,142

12,750

8,965

206%

145%

*Current rent includes the 1% reduction under Welfare Reform & Work Bill

8.3 There is no indication in the Impact Assessment that the Bill could actually increase the rent of a typical 2 bed flat in a poor area of London by £13,000 a year. If the statement signed by the Minister is true it follows logically that any increase over £3,500 would not represent a removal of subsidy, rather it would amount to a form of taxation.

8.4 It is proposed that, given the advice given to MPs in the Impact Assessment that the increased revenues to housing associations will be "up to £3,500 per year for some of their most valuable properties", £3,500pa should be the maximum rent increase payable under the bill

9.0 The calculation of household income

9.1 The Impact Assessment (4.4.10) states the definition used in the Summer Budget modelling of Pay to Stay was as defined in the glossary of the English Housing survey. The Pay to Stay consultation refers to a different approach (clause 5.) namely "Our starting assumption is that the policy will operate in broadly the same way as the current Pay to Stay policy.

9.2 These different methods of calculating income would have a very different impact on the assessment of total household income with the former leading to a higher assessment not least as it is not limited to considering the income of the two highest earners.

9.3 Assuming the method of calculation used is as refered to in the Consultation the calculation of household income will be based on the earnings of the two highest paid individuals living in a property, regardless of whether they are tenants or not. This could force households to split in order to avoid being made homeless through inability to pay the market rent, adult children living with their parents because they cannot afford a place of their own being a particular problem.

9.4 It is suggested that the the definition referred to in the Consultation is adopted and regulations are used to minimise the risk of splitting households.

10.0 Verification of household income

10.1 Clause 77 (1) enables the use of HMRC as a source of information as to income in the previous year. There is a problem in this for self employed people in that their earnings and tax affairs need not be settled until the 31st January following the April year end. Consequently, for a person who is self employed, HMRC may be unable to evidence earnings for the prior financial year in the period from April to January.

10.2 Regulations need to ensure that Landlords have the option not to use the prior year income to set the rent where there is clear evidence of a drastic fall in income caused by, for example, redundancy, illness or retirement.

11.0 Meeting the cost of implementation

11.1 The impact assessment (4.4.28) notes "Considering the impact on business in isolation, the additional rental income to housing associations is expected to comfortably exceed the costs of administering the policy. "

11.2 Housing Associations are expected to cover the cost of administration themselves. For a small Co-operative such as Longlife this will be very difficult. The 1% pa rent decrease consequential on the Welfare Reform and Work Bill will cut our annual income by £14,747pa by the 4th year and we already have to find ways of covering this without reducing what we spend on maintaining our housing. It is hard to see how we can meet this obligation except through doing the work on a voluntary basis but this could be impossible because of the data protection and confidentiality issues.

11.3 We would also incur the cost of obtaining a valuation as to the market rent of any property where pay to stay is implemented.

11.4 A consequence of a great increase in a household’s rent, especially if based on tenant income that doesn’t relate to their current earnings, is the likelihood of increased arrears and in the worst case legal costs for possession.

11.5 For a small Housing Association, it unlikely that the costs of implementation would be recovered let alone be "comfortably exceeded" by the income generated.

11.6 There should be an exemption from Pay to Stay for small Housing Associations with 100 properties or less.

12.0 Other Concerns

12.1 Co-operatives exist due to the large amount of work that members contribute on a voluntary basis over many years and are different from Associations where no such commitment is needed.

12.2 We may lose some experienced members through homelessness as they are unable to afford the market rents and others through use of a transferable discount to buy in another association.

12.3 Charging members a different rent for identical properties with identical services could be highly divisive for co-ops that are both ethically and legally based on treating their members equally.

December 2015

Prepared 8th December 2015