Welfare and Work Bill Committee

Written evidence submitted by the Abbeyfield Society (WRW 28)

Clauses 19 – 21, Rent Reductions

1. Summary

1.1 The Abbeyfield Society is a charity that has been supporting older people by providing sheltered housing and specialist homes for nearly 60 years. We are one of a relatively few number of Housing Associations that offers specialist housing to the elderly at affordable rates and there is significant demand for our services.

1.2 Abbeyfield fears that the recent Budget measures that require housing associations to reduce their rents by 1% a year to 2020 are the most significant challenge registered providers have faced in recent years. It urges the Committee to add an exemption to this measure for associations that provide supported housing for older people.

2. Concern over enforced rent reductions

2.1 The focus of this submission is clauses 19 – 21 of the Welfare Reform and Work Bill that requires social landlords to reduce rents by 1% a year until 2020. This is one of the most profound changes imposed on housing associations in many years, not least because it removes certainty and reduces their borrowing capability. It will also hit rent income and in the Abbeyfield Society’s case we estimate this is likely to be by £1.5 million or 13% by 2020.

2.2 To understand the implications, this measure needs to be set within the broader context in which we operate:

o Ageing population and the growing needs of our residents due to proliferation of conditions such as dementia

o Ever-changing and increasing regulation

o Local Authorities are not paying a fair rate for the support we provide

o In April 2014 (over a year before the Chancellor announced his Living Wage measures), we became the first national care provider to pay the higher rate Living Wage as set by Citizens UK.

2.3 As a charity that ploughs what surplus it makes back into our specialist housing, undermining our income presents deep challenges. Not only is the uncertainty caused disruptive and unhelpful operationally, we are very concerned that it will affect our ability to invest. Credit rating agencies and lenders are already questioning the impact on the housing sector as a whole by suggesting that this rent reduction could wipe 30% off UK housing association asset values.

2.4 Not unreasonably the Abbeyfield Society based its current assumptions on the 10 year fixed formula for social rents the Government laid down in May 2014 and which assured an annual increase of CPI + 1%. Instead, we now have to adapt to the worst-case scenario that we may have to reduce rents by 1% a year and forgo the previously anticipated CPI + 1% per year. Over the four years to 2020 this amounts to a 13% reduction in expected rent income.

2.5 While the Welfare Reform and Work Bill does provide the possibility of exemption for some social landlords, we have been advised that this would only be granted in extreme cases. We would apparently be required to show that we were non-viable and had explored merger options thoroughly before exemption would be given. If correct, these tests are unreasonable and we urge the Bill Committee to include a blanket exemption for older people’s supported housing because:

· The costs associated with providing sheltered housing for the elderly are often great than those borne by standard housing associations eg, there is often a warden or housekeeper, we provide two meals a day to our sheltered tenants, we offer communal facilities such as sitting rooms, sun lounges and gardens that require maintenance

· The average tenancy in one of our sheltered houses is far shorter than in standard association accommodation. This is because our tenants may have to move on due to changing care needs or given the age profile of the people we support, they may pass away. Inevitably this adds to our costs.

4. Potential negative impact of rent reduction clause

4.1 Administrative Burden

Evolved over the past 60 years, the Abbeyfield Society’s operational structure includes 185 member societies which toge ther house nearly 6000 older people within a larger national Abbeyfield Society that houses nearly 2000 people. Through this comprehensive local network Abbeyfield is able to meet the varying needs of individual communities. At the same time, being fleet of foot and cost conscious means that many of the smaller Abbeyfield Societies do not have large administrative resource. Therefore such unanticipated major changes as scoping out the impact on their future plans due to the rent reductions would impose an undue burden.

4.2 Pressure to close/merge

The H omes and C ommunities A gency has already flagged the possibility that the suggested rent reductions could increase the chance of mergers [1] . Given the Abbeyfield Society’s longstanding diverse structure that embraces smaller registered providers, we can envisage a situation where some of our smaller providers may come under pressure through these rent reductions and have to merge with others. Our biggest concern would be if such actions resulted in having to disrupt older people, a great number of whom have lived in our traditional sheltered houses for many years.

4.3 Cuts to plans to build new homes and specialist services

The rent reduction measures have already caused a negative reaction amongst the credit ratings agencies that warn that the rent reductions would affect a housing association’s ability to invest [2] .

From our charity’s perspective , we have moved from a situation earlier this year where we could approach a lender with the certainty of rent income for up to ten years up to 2025. Most lenders looking to invest in social housing are seeking stability and accept the inherently reduced returns as a trade in for certainty. The suddenness of the Government’s proposed changed has undermined this and we are fearful that this will impact lenders willingness to fund our essential new developments in the pipeline for 2020 onwards.

5. Challenging Government Assumptions

5.1 Not all Housing Associations are the same

UK housing associations vary in size from fewer than 10 homes, to more than 50,000. In the Abb eyfield movement, our smallest registered p rovider houses six older people all of whom are paying an affordable rent covered by housing b enefit. It is quite wrong to treat a charity like ours that happens to be a housing association in the same way as the largest associations whose tenants do not require specialist support and who manage vast ex-local authority estates.

5.2 Housing Associations have the capacity to deliver efficiency savings

As a charity the Abbeyfield Society has different priorities to many other housing associations and yet we are determined to run our services as efficiently and effectively as possible. An example of this came in April 2014 when we became the first national care provider to pay the Living Wage . Although this added to our costs, we are confident that this enhances the way we support the older people that live with us . For us it can’t all be about the bottom line. We are a charity and it is unreasonable for this rent reduction to apply to us.

5.3 Rents may have gone up but so have our costs

The Government suggests that because Housing Association rents have increased by 20% over the three years from 2010- 11 this justifies the current rent reduction proposals. The reality is that increases in social rents have barely kept pace with increased expenditure res ulting from heavier regulation and higher operating costs. Nor does it account for the fact that the Government’s own figures suggest that around £3 billion of housing benefit expenditure in 2010/11 can be attributed to real private rent growth over the previous ten years [3] .

September 2015

[1] http://www.insidehousing.co.uk/business/regulation/hca-seeks-big-players-to-rescue-strugglers/7011168.article

[2] http://www.insidehousing.co.uk/business/finance/rent/moodys-budget-changes-credit-negative-for-associations/7010709.article?adfesuccess=1

[3] https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/209675/impact-private-rent-growth-housing-benefit-expenditure.pdf

Prepared 16th September 2015