Housing and Planning Bill

Written evidence submitted by Rentplus (HPB 52)

1.0 About Rentplus

1.1 Rentplus is an affordable rent to buy housing model that is fully funded by institutional investment with no recourse to grant funding or other public subsidy. It is well-placed to help the Government achieve its ambitions for home ownership and 1 million new homes.

1.2 Affordable rent to buy is a new NPPF compliant ‘hybrid’ housing tenure sitting between affordable rent and intermediate housing.

1.3 The tenure extends the opportunity of home ownership to the large number of people who are not prioritised for affordable housing, but cannot afford a deposit whilst paying higher private sector or market rents and so cannot access Starter Homes or the Help to Buy range, despite an aspiration to buy.

1.4 The programme is already committed to delivering 5,000 new homes by 2020 but with a couple of modest changes to policy this could be tripled to enable 15,000 more people to buy their home.

2.0 Executive Summary

2.1 The affordable rent to buy model provides new build homes for tenants at an affordable rent with the intention that they are able to use the savings generated through the rental period to save to buy the property after at least 5 years. Tenants receive a 10% gifted deposit and use their savings to top this up.

2.2 Rentplus welcomes the provisions in the Bill as they relate to building more homes that people can afford; giving more people the chance to own their own home and speeding up the planning system with the aim of allowing it to deliver more housing.

2.3 With three amendments the Bill could be improved to extend home ownership to thousands more working households.

2.4 The Government’s announcement that the definition of affordable housing will be extended to include Starter Homes to buy and not just homes to rent is welcomed.

2.5 Given its complementary role in providing low cost home ownership to first time buyers, the affordable rent to buy tenure should also be included within the extended definition of affordable housing.

2.6 Guidance should be issued to local authorities that acknowledges that the tenure is compliant with the National Planning Policy Framework definition of affordable housing. This will greatly speed up the planning process and give housebuilders the confidence to build at scale making many more properties available to those looking to buy their home and save for a deposit.

2.7 Given its capacity to provide new affordable homes to buy, the tenure should be promoted alongside Starter Homes in new developments. This will extend the opportunity of home ownership to those first time buyers currently unable to access the Help to Buy range or Starter Homes given the difficulties in saving for a deposit whilst renting.

2.8 To support those saving to own their own home the Government should include within the Bill an exemption for affordable rent to buy tenants from pay to stay. The tenure is not social housing and is only available to those committed and able to purchase their own home; to apply this policy to such tenants would significantly reduce their ability to save and progress on the path to home ownership. Rentplus UK has made a separate submission in response to the government’s consultation on the pay to stay provisions setting out our rationale for this exemption.

3.0 Background

3.1 Part 1 of the Bill puts into legislation the Government’s commitment to provide a number of Starter Homes for first-time buyers under the age of 40.

3.2 Clause 3 of the Bill puts a general duty on all planning authorities to promote the supply of Starter Homes.

3.3 Clause 4 provides a specific duty, to be set out in later regulations, to require a certain number or proportion of Starter Homes on new residential developments.

3.4 Part 4 of the Bill makes a provision for high income social tenants (‘HISTs’) to pay a market rent as opposed to a social rent. Clause 74 gives the Secretary of State the power to set the levels of rent that registered providers of social housing must charge high income social tenants (i.e. those earning above £40,000 in London and £30,000 elsewhere).

4.0 The Model – Enabling Tenants to Save for Deposits

4.1 The British Social Attitudes Survey reports that, given a free choice, 86% of people would buy their own home, rather than rent.

4.2 Raising a deposit acts as a barrier to many with this aspiration. There are thousands of people on council and housing association waiting lists but not prioritised for affordable housing who aspire to buy but cannot afford to save for a deposit whilst paying higher private sector or market rents, and thus cannot access Starter Homes or the Government’s Help to Buy range.

4.3 Halifax’s Housing Market Confidence Tracker found that in Q2 2015, 55% said that raising a deposit was the main barrier to buying a property. The Council for Mortgage Lenders found that more than half of first time buyers in 2014 had to rely on funds provided by relatives to afford a deposit and a poll commissioned by Shelter in October 2015 showed that 48% of renters are unable to save towards a deposit with a further 25% only able to save £100 or less a month.

4.4 Shelter also calculated that across the country a person would need an income of £50,000 and a deposit of £40,000 to afford a Starter Home. In London this rises to an income of £77,000 and a deposit of £98,000.

4.5 Affordable rent to buy extends home ownership to a large section of working households who would otherwise be unable to access it. The model uses institutional funding to build new homes with no public sector contribution. The homes are managed by registered providers during the period prior to purchase with no need for them to raise additional borrowing and are let at an affordable rent; 80% of market rent of Local Housing Allowance, whichever is lower. This enables tenants to save significantly more than they otherwise would if paying a market rent. To top up these savings, tenants are gifted a 10% deposit at the point that they purchase their home after renting it for 5, 10, 15 or 20 years.

4.6 Affordable rent to buy aligns well with Government objectives and National Planning Policy Objectives that seek to increase affordable housing and home ownership and is an NPPF compliant intermediate affordable housing tenure.

4.7 Specifically, it achieves the objectives of NPPF paragraph 47; to deliver a wide choice of high quality homes and boost significantly the supply of housing. This paragraph requires local authorities to assess housing need, including for affordable housing, to translate into targets in Local Plans. As a hybrid product affordable rent to buy can help to meet affordable rent needs in the short and medium term and home ownership at 5 year intervals. The model is funded by institutional investment and thus can deliver new houses at scale, increasing housing supply.

4.8 Affordable rent to buy also achieves the objectives of NPPF paragraph 50, which seeks to "widen opportunities for home ownership and create sustainable, inclusive and mixed communities". The flexibility of the model has the potential to take residents off the housing waiting list, to contribute to economic sustainability by enabling people to afford to live in the areas they work or travel to work areas, and for Registered Providers and local authorities to use existing social housing effectively for those households most in need. Affordable rent to buy helps to create and maintain inclusive and mixed communities; Rentplus uses best endeavours through agreements with local authorities to reinvest in these communities by offering replacement affordable rent to buy homes. This commitment needs to be reflected in future planning requirements so that approval for such developments can be streamlined.

5.0 Issuing Guidance to Speed Up the Planning Process

5.1 Local authorities are approving affordable rent to buy developments but it is time consuming and inefficient as each has to seek legal advice about its status within the NPPF. The uncertainty arises as the tenure sits between the NPPF definition of affordable rent and intermediate housing, whilst achieving both.

5.2 Although legal advice is that the tenure is NPPF compliant the time taken in explaining this to each local authority is holding back the delivery of new affordable homes and restricting the opportunity to buy for aspirational homeowners.

5.3 Rentplus welcomes the Government’s announcement that the definition of affordable housing will be extended to include affordable homes to buy and not just homes to rent. Given its complementary role to Starter Homes in offering low cost home ownership for local households, the affordable rent to buy tenure should also be formally included in this extended definition.

5.4 DCLG guidance should be issued to local authorities that formally recognises affordable rent to buy within the NPPF definition of affordable housing. This will greatly speed up the planning process and give housebuilders the confidence to build at scale making many more properties available to those looking to buy their home and save for a deposit. The Bill should give Ministers this power.

6.0 Promoting Affordable Rent To Buy Alongside Starter Homes

6.1 Without addressing the issue of deposits, Rentplus is concerned that the Bill does not provide the opportunity of home ownership to as many people as it could do.

6.2 Following the Government’s announcement that the definition of affordable housing will be extended to include Starter Homes to buy and not just homes to rent, the Housing Bill will require local authorities to actively promote their supply including a provision for a certain number or proportion of Starter Homes in all new residential developments.

6.3 Given its complementary role in providing low cost home ownership to first time buyers, affordable rent to buy should also be promoted in the Bill alongside Starter Homes in new developments to provide a mix of affordable homes to buy. This would increase the delivery of new affordable homes to buy and further widen opportunities for home ownership (see Appendix A for suggested amendment to the Bill).

7.0 Exemption from Pay to Stay

7.1 Clause 74 of the Bill gives the Secretary of State the power to set the levels of rent that registered providers of social housing must charge high income social tenants (‘HISTs’). Income thresholds will initially be set at £40,000 in London and £30,000 elsewhere and tenants will be required to pay an increased level of rent at market or near market levels.

7.2 Affordable rent to buy is a new class of intermediate affordable housing with rent charged at a cost above social housing; it is not social housing (as defined by NPPF 2012) - therefore the proposals regarding high income social tenants and ‘pay to stay’ do not apply to the affordable rent to buy tenure.

7.3 To qualify for affordable rent to buy, tenants must demonstrate a commitment and ability to purchase in 5, 10, 15 or 20 years’ time. Tenants’ failure to purchase at the agreed time may result in notice being served by the Registered Provider for possession; affordable rent to buy homes are not a permanent rented tenure and tenants cannot just choose to rent indefinitely.

7.4 Affordable rent to buy incentivises existing social housing tenants who aspire to and can achieve home ownership to consider moving to affordable rent to buy properties, enabling best use to be made of existing social housing for households in priority needs groups.

7.5 Households who qualify for affordable rent to buy properties are required to meet similar income criteria and affordability checks as applicants for shared ownership properties; shared ownership and shared equity products are similarly not social housing.

7.6 Tenants pay an affordable rent; 80% of market rent of Local Housing Allowance, whichever is lower, enabling them to save to top up the 10% gifted deposit to buy their home. To apply ‘pay to stay’ to such tenants would significantly reduce their ability to save and progress on the path to home ownership

7.7 The tenure is only available to those aspiring to purchase their home and Rentplus is concerned that these households will be penalised in this ambition under the current provisions for the new ‘pay to stay’ policy.

7.8 This runs contrary to the Government’s ambitions to increase home ownership and the manifesto commitment that "everyone who works hard should be able to own a home of their own."

7.9 To enable working families to get on to the housing ladder, affordable rent to buy tenures should be excluded from ‘pay to stay’ requirements on higher earning households.

7.10 Rentplus UK has made a separate submission in response to the Government’s consultation on the ‘pay to stay’ provisions setting out our rationale for this exemption.

November 2015

Appendix A

CHANGES REQUIRED TO THE BILL AND GUIDANCE

1. Amendment to NPPF Definition of Affordable Housing

To speed up the planning process the Government should issue guidance that acknowledges affordable rent to buy as compliant with the National Planning Policy Framework definition of affordable housing, in line with the Government’s extension of this to include Starter Homes to buy.

The recommended modest changes to the definition of affordable housing as set out in the NPPF

Annex 2 Glossary are to read as follows:

Social rented, affordable rented and intermediate housing, provided to eligible households whose needs are not met by the market. Eligibility is determined with regard to local incomes and local house prices. Affordable housing should include provisions to remain at an affordable price for future eligible households ; or for the subsidy to be recycled for ; or for provision to be made for replacement investment in alternative affordable housing provision.

Social rented housing is owned by local authorities and private registered providers (as defined in section 80 of the Housing and Regeneration Act 2008), for which guideline target rents are determined through the national rent regime. It may also be owned by other persons and provided under equivalent rental arrangements to the above, as agreed with the local authority or with the Homes and Communities Agency.

Affordable rented housing is let by local authorities or private registered providers of social housing to households who are eligible for social rented housing. Affordable Rent is subject to rent controls that require a rent of no more than 80% of the local market rent (including service charges, where applicable).

Affordable rent to buy is let for the duration of the rental period (of no less than 5 years) by local authorities or private registered providers of social housing to households at a rent of no more than 80% of the local market rent with the expectation that the tenant will purchase an unencumbered interest in the property.

Intermediate housing is homes for sale and rent provided at a cost above social rent, but below market levels subject to the criteria in the Affordable Housing definition above. These can include shared equity (shared ownership and equity loans), other low cost homes for sale and intermediate rent, but not affordable rented housing.

Homes that do not meet the above definition of affordable housing, such as ‘low cost market’ housing, may not be considered as affordable housing for planning purposes.

2. Amendment to the Bill to Enable Developers to Include Affordable Rent to Buy Homes in Developments Alongside Starter Homes

The Government’s provision in the Housing Bill for the delivery of Starter Homes through a compliance directive should be widened to include affordable rent to buy. Rentplus recommends the following amendment to the Housing Bill:

6 Compliance directions

(1) The Secretary of State may make a compliance direction if satisfied that-

(a) a local planning authority has failed to carry out its functions in relation to starter homes or alternative affordable rent to buy products or has failed to carry them out adequately, and

(b) a policy contained in a local development document for the authority is incompatible with those functions.

3. Amendment to the Bill Exempting Affordable Rent to Buy tenants from ‘Pay to Stay’ Provisions

To enable working families to get on the housing ladder, an amendment should be made to the Housing Bill to exclude affordable rent to buy tenures from ‘pay to stay’ requirements on higher earning households. Rentplus suggests inserting an exemption into Clause 74 to read:

Affordable rent to buy tenures are exempt from the high income social tenants mandatory rent provisions.

Registered providers of social housing will not be required to implement mandatory rents for high income social tenants in those properties they are leasing as affordable rent to buy homes.

Affordable rent to buy properties are defined as those let for the duration of the rental period (of no less than 5 years) by local authorities or private registered providers of social housing to households at a rent of no more than 80% of the local market rent with the expectation that the tenant will purchase an unencumbered interest in the property.

Prepared 17th November 2015