Housing and Planning Bill

Written evidence submitted by Home Group (HPB 83)

1.1. Home Group welcomes the opportunity to feed in to the Public Bill Committee’s examination of the Housing and Planning Bill 2015.

1.2. We are one of the UK’s largest registered providers, operating in over 270 local authorities and housing over 120,000 people. We provide high quality housing and a range of products and services for our customers: from direct sale and social housing, to bail accommodation and supported housing for vulnerable client groups, including domestic violence survivors and people with severe and enduring mental health needs.

1.3. We support the principle of the Housing and Planning Bill 2015, particularly the aspiration to increase the number of homes built and the opportunities for home ownership. In light of this, we support the Voluntary Right to Buy offer, the changes to planning and the renewed emphasis upon Starter Homes.

1.4. We believe that these measures offer valuable opportunities to address the housing crisis that many areas of the country are facing.

1.5. Whilst we acknowledge that this bill is an enabling piece of legislation, and look forward to more details in the regulations, we believe that it is important we grasp the opportunity presented by this Bill. Therefore, we believe that there are some important improvements, clarifications and amendments that should be made to the Housing and Planning Bill to ensure that this piece of legislation achieves its potential. This is particularly the case with regards to the Pay to Stay policy for ‘Higher Income Social Tenants’, which at present risks including a dual-income full-time minimum wage earning household. We have set out within our submission, and in our response to the consultation for this policy, our recommendations of how this policy could be reformed to protect against any work disincentives.

1.6. We additionally believe that there are a number of concerns which we hope will be clarified in the Public Bill Committee and subsequent Parliamentary stages. This includes: how to ensure Starter Homes meet the diversity of the target group; how to ensure that development meets the needs of all families; workers and households within a local community; and how to ensure that local authorities can continue to contribute to building homes for the future.

1.7. I would welcome the opportunity to discuss our position in more detail with the Committee, relevant departments and other external partners.

2. Voluntary Right to Buy

Home Group supports the principle of home ownership

2.1 Home Group shares the Government’s goal of increasing home ownership. We have undertaken polling of our customers, 87% of whom are interested in buying their home; 46% now and a further 41% at some point in the future. We believe it is important for housing associations to work with partners and our tenants to help them achieve this goal.

2.2 However, of those interested in buying their home now, only 21% of this group believe that there are no barriers to prevent them doing so (which equates to around 10% of our overall customer base). Other sources of customer data suggest that a take up rate of around 10% in the first 5 years or so is realistic. Only 13% of our customers expressed no desire to buy at any point. Although this trend was broadly similar across different geographic areas and property types and tenants’ profiles, there were a number of nuances which we would be happy to share in more detail should the Public Bill Committee be interested.

2.3 We believe that increasing routes to home ownership could not only help meet the stated aspiration of our customers, but could also confer a number of other benefits, including:

2.3.1 Giving tenants a greater sense of ownership and responsibility toward the house and property they live in;

2.3.2 Helping provide some tenants with a greater incentive to become economically independent rather than relying on benefits; and

2.3.3 Supporting an often economically marginalised group to take advantage of rising house prices – for greater financial security and/or to leave a legacy for others.

2.4 It is on these grounds that we support the extension of Right to Buy to housing association tenants. However, we believe that whilst this will help a number of households achieve their dream of home ownership, it is not the full answer. There are a significant number of households who are unable to save up the deposit or guarantee regular mortgage payments, and Right to Buy will not help those living in the Private Rented Sector save up and access home ownership. At Home Group we are exploring the part that we could play in helping these households, particularly on fresh solutions such as equity stake products. We would welcome support and further assessment of how the measures within the Housing and Planning Bill, and beyond, could meet the needs of these groups.

2.5 We similarly would caution that whilst evidence shows that a significant proportion of households seek to become home owners at some point in the future, there remains at least 13 per cent who are not interested in this type of tenure. Therefore, it is important that there are products available for these tenants, such as affordable rent.

Replacement

2.6 A necessary condition of our support for the Voluntary Right to Buy offer was the assurance of 100% market rate compensation to ensure 1 for 1 replacement of sold stock. We recognise that once a home has been sold, it does not disappear, but, given the scale of demand for Housing Association properties, it is important that the rental model we provide can continue to be a part of the housing market.

2.7 Much of the criticism of the original Right to Buy policy has been targeted at the low replacement rate and thus the ever-greater housing deficit which has developed. We believe that the guarantee of 100% market rate compensation for any housing association property sold under Right to Buy is a crucial safeguard against such unintended consequences. At Home Group, we remain confident that we will continue to be able to contribute to meeting the housing needs of the future and replace properties sold under Right to Buy.

2.8 There are a number of issues regarding the definition of replacement properties that we additionally are seeking clarity on and hope that these will be considered during the Committee stages or outlined in the regulations:

2.8.1 Will replacement homes delivered through S106 obligations count?

2.8.2 Will development that has been grant aided by the HCA or GLA in their 15-17 or 15-18 funding programmes count?

2.8.3 Will developments that start in advance of the Right to Buy sale count?

2.9 Additionally, we appreciate that some members of the Public Bill Committee, and other MPs representing London constituencies have expressed particular concerns about the potential for geographic inequalities in replacement.

2.10 Whilst we understand the sentiment of Zac Goldsmith MP’s amendment, we believe that, as private bodies, Housing Associations should be free to develop in accordance with their own development strategies. We would support alternative measures which would encourage additional development within London. However, as David Orr noted in a recent evidence session with the Communities and Local Government Select Committee, most housing associations operate on a local basis, so replacement will be at a local level.

Funding mechanism

2.11 We do not support the Government’s proposal to fund the 100% market rate compensation of properties sold under Right to Buy by the proceeds from high value asset sales. We discuss this in more detail later in our submission.

2.12 As outlined before, the Voluntary Right to Buy offer is dependent upon 100% market rate compensation which will mitigate against any unwanted side effects and ensure that Housing Associations can continue to contribute to addressing the housing crisis.

2.13 Decisions about how this compensation is collected are for the government. We believe that there are questions surrounding the funding mechanism must similarly be answered:

2.13.1 How will the market rate be calculated?

2.13.2 How will payment of compensation work in Year 1?

2.13.3 Will the compensation programme be a managed programme (i.e. managed by the HCA and GLA as our existing grant programmes are), or will it be a simple year-end reconciliation?

2.14 We hope that these questions will be clarified within the draft regulations, however believe that the answers may have important implications for our development plans, future strategy and for the shape of the UK housing market as a whole. We hope that these regulations are published in time for consideration by Parliament.

Additional regulations

2.15 We recognise that there are arguments surrounding the possibilities of additional regulations on a housing association tenant’s ability to exercise the Right to Buy. These range from a tenure requirement beyond three years, to rules regarding the private renting of a home bought under Right to Buy.

2.16 We hope that such potential regulations are considered during the Parliamentary process of the Housing and Planning Bill in order to ensure that the Bill is as comprehensive as possible and accurately balances the needs and desires of individual tenants and the ultimate long-term impact of such upon the housing market.

3. ‘High Income Social Tenants’

Home Group supports the principle of fairness

3.1. We support the principle of the ‘High Income Social Tenant’ status. It is right and fair that those who earn high incomes do not benefit from subsidised social housing at the expense of those whose needs are greater. This is particularly the case at a time when the need for affordable housing is so keenly felt in many areas.

3.2. However, we have concerns that the thresholds defined within the legislation as ‘high income’ are too low. At present, these threshold would include the poorest third of dual-income households in nearly half of all local authorities and by April 2017, all full-time, dual-income households on the minimum wage would classify as ‘high income’. We are concerned that this may reduce the incentive to increase hours or to take up additional or new employment. Therefore, we recommend that the threshold be relational to the national minimum wage, thereby reducing the work disincentives, reducing the negative potential impact upon the housing benefit bill and ensuring that our poorest workers who work hard and want to get on are not faced with crippling rents.

3.3. We also believe that this policy can be improved so that once a household is over the threshold, they are not faced with a steep ‘cliff-edge’, but rather a proportional taper. This will reduce the impact upon individual households’ personal finances, reduce the likelihood of changing employment behaviour to fall back below the threshold and reduce the potential negative impact upon the income mix and stability of our communities.

Overview of our research on impact and likely behavioural responses

3.4. We have conducted research into the anticipated impact of ‘Pay to Stay’ as a policy. We conclude that around 3,806 Home Group tenant households will be affected by the Pay to Stay policy as it currently stands. This equates to 11.3% of our total customers in England. However, these are likely to be concentrated in 46.4% of local authorities, where a two-earner household within the poorest third of earnings will qualify as ‘high income’. These findings support research conducted by Savills, which concluded there will be regional differences in impact, with the highest proportion of affected households in the South East of England.

3.5. We have significant concerns that the delayed impact of this policy, which is due to be implemented in April 2017, combined with the incremental increases in the Higher Living Wage will mean that a dual-income, full-time minimum wage earning household will qualify for the non-London threshold.

3.6. We set out these conclusions below:

Minimum Wage (£)

Est. weekly wage (40 hours)

Annual Salary (individual)

Annual salary (2 FT minimum wage household)

Current (2015)

£6.70

£268

£13,936

£27,872

April 2016 (HLW)

£7.20

£288

£14,976

£29,952

Lower bracket 2017 estimation

£7.60

£304

£15,808

£31,616

Higher bracket 2017 estimation

£7.80

£312

£16,224

£32,448

3.7. We conclude that there will be three ‘groups’ of affected households, those who can afford (and do so) to Right to Buy, those who can afford (and may or may not do so) to ‘Pay to Stay’ and those who cannot afford to do either. We argue that those who can afford to Pay to Stay and those who cannot afford to do either are likely to adopt three further behavioural responses: reducing their work hours, leaving employment altogether, or leaving the area.

3.8. Our research demonstrates that approximately:

3.8.1. 2,002 Home Group tenant households will opt for Right to Buy [1]

3.8.2. 1,500 Home Group tenant households will ‘Pay to Stay’ [2]

3.8.3. 304 Home Group tenant households will be able to afford neither to exercise Right to Buy or Pay to Stay.

3.9. However, these households are not distributed across the country equally, with tenants encouraged to exercise the Right to Buy disproportionately concentrated in the North and those tenants unable to afford either RTB or PTS within the Greater London area. We argue that the 304 households unable to access either RTB or PTS is a reflection of the distribution of our housing stock, rather than a result of a small proportional impact. This point is supported by Savills’ research which shows that this final group accounts for 27.8% of the total estimated number of households (compared to 21.4% of Pay to Stay, and 50.8% for Right to Buy.)

3.10. The map below, taken using our own data on Home Group tenant households, demonstrates the regional differences in likely behavioural responses.

3.11. We have concerns that HIST status may significantly reduce the work incentives for a significant number of people (at least 59,700 households from the Savills data). We know that work is good for individuals, households and communities as a whole and we support the Government in their efforts to encourage more people into meaningful employment. We are concerned that HIST status will lead to some families to work less, or for one member of the household to give up employment altogether.

3.12. The Institute of Fiscal Studies’ [3] research into the impact that ‘Pay to Stay’ may have upon work incentives has concluded that "such a system would create big disincentives for social tenants to increase earnings over the threshold".

3.13. The second option of a household moving to a more affordable area is similarly not a desirable result.

3.14. There are real concerns about the impact that this would have upon community cohesion, and is likely to reduce the number and extent of ‘mixed income communities’, which research has shown has strong, positive and long-lasting effects upon neighbourhoods and communities. The previous government response to the consultation on the voluntary introduction of Pay to Stay at a £60,000 threshold argued that because the increase in rent would only affect those within the top 10% of earnings, "any reduction in income mix is likely to be very minor". [4] We believe that similar assessments must be made as the threshold is halved, with particular focus on the long-term impact upon the income-mix of local communities.

3.15. We also believe that the provision of alternative, intermediate products, such as equity stakes, would be beneficial to the group affected by Pay to Stay but unable to exercise the Right to Buy. This could help open up additional routes to home ownership.

Recommendations

3.16. Home Group believes that the principle of this policy is fair and understandable in the current economic context. However, we believe that the policy design would be improved and remove work disincentives if the following is accounted for

3.16.1. No dual-income full-time minimum wage earning household should be classified as ‘high income’

3.16.2. No household should face up to a £3,000 increase in their rent if they earn £1 more, taking them over the threshold. (‘Cliff-edge’ effect)

3.17. We believe that the policy should be reformed so that a household with two earners, working full-time on the minimum wage, will never classify as ‘High Income’. We would recommend the initial threshold to be set at £33,000 outside London, and be linked to increases in the minimum wage.

3.18. As the government recognise in the original policy proposal, the cost of Living in London implies an additional financial burden. Using the difference between the recommended London Living Wage and the UK Living Wage (£1.30 per hour [5] ) as recommended by the Living Wage foundation, we believe that the London threshold should be set at £38,000. As our research below demonstrates, this will similarly mean that a dual-income, full-time minimum wage earning household, paying the additional costs associated with living in London, would be excluded:

 

Minimum Wage (£)

Est. weekly wage (40 hours)

Annual Salary (individual)

Annual salary (2 FT minimum wage household)

Higher bracket 2017 estimation

£7.80

£312

£16,224

£32,448

2017 estimation + London £1.30 additional

£9.10

£364

£18,928

£37,856

3.19. We additionally believe that a taper would help to reduce the ‘cliff-edge’ effect. This would mean that a household will not experience significant financial penalties if additional, new or improved employment takes them above the threshold.

3.20. We argue that a proportional taper will be more effective and will not carry the associated work disincentives. The level at which the taper is set should be carefully considered against the likelihood of employment behavioural change.

3.21. The IFS recently set out the arguments for both a 50% (50p extra in rent for every additional £1 earned) and 20% taper. As the graph below demonstrates, it is clear that these tapers are both significantly improved from the cliff-edge proposal and we would recommend the government adopts either of these recommendations.

3.22. We additionally believe that a number of questions should be clarified within the Parliamentary process, the answers of which will have important implications for the likely administrative costs for this policy and even the scope and reach of the policy itself:

3.22.1. What period of time will income calculations consider? Will these be a ‘snap-shot’ of a month in time, or will they take the overall earnings for the preceding year?

3.22.2. Who ultimately has responsibility for the collection of income data? Will it be the duty of HMRC to report to Landlords or will landlords be required to have ‘chase-up’ administrative processes in place?

3.22.3. How will fluctuations in income that tenants may face be accounted for? At Home Group we plan to explore including an ‘Emergency Brake’ in the Pay to Stay market rent for affected households who experience sudden changes in income. However, will the policy design account for changes in circumstances?

3.22.4. How is ‘income’ defined? Will specialist benefits, such as Carer’s Allowance, Child Benefit and/or Child Tax Credits or Disability Living Allowance, be included in the assessment? If so, will there be systems in place to ensure such households can still afford the additional costs associated with their circumstances?

4. Starter Homes

4.1. We support the principle of Starter Homes, which offers a way for non-Housing Association and Local Authority tenants to access home ownership. We welcome such policy developments, and hope that the government continues to listen, research and innovate on products that could help to support different groups into home-ownership.

4.2. Continuing our earlier point about the importance of alternative products for tenants and prospective homeowners to choose from, we believe that Starter Homes have an important role in addressing the affordability problems facing some first-time buyers. However, this initiative is unable to cater for the full extent of demand, and we believe it is paramount that Starter Homes work alongside the provision of other products, be it direct sale, shared ownership, equity stake models and affordable rental properties.

4.3. We appreciate the concerns that have been expressed regarding the price at which Starter Homes will be marketed, particularly the £450,000 rate in London. We believe that the needs of this particular group (first-time buyers under 40) are hugely diverse and so too should be the design, price and location of Starter Homes.

4.4. We are supportive of the work being done by Local Authorities to develop local plans and would support further exploration as to the role that research for the local plans can play in helping to ensure that Starter Home developments meet the identified needs, both future and current, of the local area.

4.5. Our primary concern regarding the Starter Homes policy is that this may ‘crowd out’ affordable rental products and that the exemption from CIL will lead to a decline in infrastructure investment in communities. We strongly believe that Starter Homes should be provided as an additional, not a replacement, offer and that housing and infrastructure investment should be considered in tandem in order to ensure the success of both investments.

5. Sale of High Value Assets

5.1. As we have outlined previously, Home Group does not support the funding of the 100% compensation for properties sold under Right to Buy by the sale of local authorities’ high value assets. We believe it is the government’s responsibility to find a sustainable and equitable way to fund the 100% market rate compensation offered by Right to Buy.

November 2015


[1] We have assumed an income multiple of 5.5 is affordable for a mortgage once RTB discount is taken off the market value.

[2] This includes households in local authorities where the lower quartile house prices are unaffordable, and the average market rent for 2 & 3 bedroom properties is under 35% of household income (definition of ‘affordable’ rent)

[3] http://www.ifs.org.uk/publications/8036

[4] https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/8355/2160581.pdf

[5] London Living wage at £9.15, UK Living wage at £7.85 http://www.livingwage.org.uk/calculation

Prepared 24th November 2015