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Islington's plan for affordable homes

May 3, 2011.  Today is the deadline for housing associations to submit their ‘offers’ to the Homes and Communities Agency about what homes they might build over the next four years.  Islington Council in London has thought long and hard about its strategy for delivering affordable homes.  In an exclusive article for Red Brick, Councillor James Murray, Executive Member for Housing at Islington, sets out the borough’s plan.
Today marks the latest stage (and by no means the final one) in attempts by housing associations and others to steer a course through the government’s new ‘Affordable Rent’ programme. This programme’s headline has been known for a while: that housing associations would be allowed to charge up to 80 per cent of market rent on new build homes and a percentage of their relets. But teasing out the practicalities and implications of how this works in practice is taking a lot more discussion.
And in London, the acute implications of rent levels being set at 80 per cent of market – particularly in the inner-London boroughs and particularly for family-sized properties – have inspired months of discussion between London boroughs, the Homes and Communities Agency, and housing associations operating in the capital.
As part of this discussion, many London boroughs have set out their initial positions on ‘Affordable Rent’. In Islington, our position has focused on how we can respond to the concerns we have about the difficulty of using ‘Affordable Rent’ to address housing needs in our very high value borough.
We believe a different model is more appropriate for Islington. We are asking housing associations to work with us and use grant from the local authority – in the form of public land at discounted rates and capital from our new homes bonus – rather than grant from the government’s main ‘Affordable Rent’ programme. In return for this, we ask that housing associations build homes at social rents.
We believe that this is the best way to tackle our housing crisis in Islington. Like many London boroughs we have thousands of overcrowded families, and several hundred who are severely overcrowded (lacking two or more bedrooms). It is clear that tackling this means prioritising more family homes for social rent.
Since the election in May, 2010, we have prioritised a new council home building programme that means we will be on-site for over 100 new homes this year. Alongside our council-owned stock, we want to continue to work with our housing association partners.
In Islington we have a strong relationship with a number of housing associations. Through historical links, stock transfers, and new build projects, housing associations have played and continue to play a vital and positive role in Islington’s affordable housing stock.
We want this relationship to continue, and we believe that our plan for social rent with local authority grant will be the best way to enable willing housing associations to continue to build the kind of homes we need.
It goes without saying that the 80 per cent of market rent ‘Affordable Rent’ properties would be completely unaffordable in Islington. Our social rents are currently between 30 – 35 per cent of market rent, and so this would represent more than a doubling of the current levels.
Allowing properties to be developed at 80 per cent market rent would mean the new tenants either face an enormous rent hike or a deep benefits trap. Those not on benefits may decline to move into a new flat in future – even if doing so would relieve overcrowding or reduce under occupation – because of the unattractiveness of higher rents for new build properties. And for those on benefits, the looming prospect of caps makes the outlook uncertain and grim.
Some have suggested allowing 80 per cent market rent on, say, one-bed properties, and offering a rent level less than 80 per cent on the larger family dwellings. This may work in some places, but we do not believe it works in Islington. Our planning policy is explicit that we need the family homes rather than new one-bedroom flats. Our current council-owned stock is over 40 per cent one-bed properties – we are in fact piloting a separate programme of selling certain one-beds through shared ownership and using the capital raised to build new family homes.
So our priority in Islington has to be family homes at genuinely affordable rents. With our well-known high property prices in Islington, we believe that social rents, offering close to a level playing field with council rents, are the right level for this.
That is why we have said we will support schemes from housing associations that offer homes at social rent, and that are subsidised where necessary through our grant in the form of public land or capital. We have a pipeline of sites identified from public land – enough land for over 500 homes immediately, with several hundred more being looked at for the future. And our decision to dedicate almost all the borough’s new homes bonus to new home building means this year we can offer £1 million capital grant.
We have been pleased by the positive reaction from a number of housing associations to our plans. We are currently in negotiation with one of our housing associations on the details for a new scheme that would be the first under the new regime to offer social rent with land subsidy from the borough.
Our model will not be appropriate for allLondonboroughs – just as the ‘Affordable Rent’ model is not appropriate for Islington. But although it is self-evident that our position is outside the government’s main programme, we are committed to working with willing housing associations to make this work for them and for those in our borough with the most acute housing need.

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Institutional chaos

The Chief Executive of the National Housing Federation, David Orr, spoke last week about the ‘institutional chaos’ facing housing associations and the need to think carefully about balancing the needs of their business with their mission. 
He said “You might take a strategic business view that the smart thing to do is wait until all the moving parts have settled down and not take any risks. But that is pretty disastrous in mission terms with the scale of the housing crisis.”
Housing associations (HAs) certainly face huge dilemmas in the current policy framework.  It is no longer possible to build what is needed most – social rented housing at genuinely affordable rents – except in tiny numbers as a special case.  So, if HAs with development programmes want to keep them going, and most are assembling their bids at the moment, there is little choice but to plan a mix of private housing, shared ownership and the new, grotesquely-named ‘Affordable Rent (AR)’ product (which is little different from the intermediate rent products we have seen before).  Of course it can be argued that building almost any housing is useful given the current shortage, and AR at 80% of market rent is not that much different from social rents in those parts of the country with the lowest values.  But everywhere else, the virtual removal of social renting from the mix totally disregards the needs of communities and the people on lowest incomes.    
One thing HAs with a development programme can and must do is protect the existing stock of social rented homes when they become available for re-letting.  The government wants them to re-let a share of their existing homes at AR rent levels to generate funding for new development.  I think they should demonstrate their commitment to their mission, to borrow David Orr’s word, by refusing to do so and by re-letting these homes at social rent levels.  Councils, in revising their housing strategies and setting their new ‘tenancy strategies’ under the Localism Bill, should set out their opposition to existing social rented homes being re-let at such high rents. 
Lettings policies, already the art of getting a quart in to a pint pot, will come under even greater strain.  Demand for homes that are re-let at social rents will increase as supply contracts even further.  Who will the new AR tenancies at up to 80% market rents be allocated to?  The government argues that the profile will be the same as those who currently get allocated social rented homes, but they also say that the new policy will not impact on the requirement for housing benefit – and they can’t have both of these.  Higher rents require more housing benefit, as we have argued before and as Family Mosaic’s research showed.  Once again their housing policy and their welfare reform agendas are in direct conflict. 
HAs caught in the middle say quietly that this is an argument that the lenders may ultimately decide – they don’t like it when the tenants can’t pay their rents and this will be reflected in their risk assessments of new schemes.  One middle course would be for HAs to refuse to set AR rent levels above the limit for Housing Benefit, irrespective of local market rent levels.  That would reduce the yield but would keep the homes available for people on housing benefit.  But, in higher value areas, it is the total benefits cap (rather than the housing benefit limit) that will prevent many tenants from being able to pay their rent.  This will be reflected in the risk assessment for new schemes and the pressure will be on to let to people with sufficient income to be able to afford the rent. 
So, there are dangers both ways.  If AR homes are let to people on low incomes who would previously have qualified for a social rented home, then housing benefit spending will go up.  If AR homes are let to people who can afford the higher rents, then people on lower incomes will be squeezed out and more will end up in private rented accommodation at higher rents with a higher requirement for HB support.  Either way, there is likely to be upward pressure on HB spending: the government will have to find more money or look for more cuts.  The prospects are grim.

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What are housing associations for?

<strong><span class="has-inline-color has-accent-color">Steve Hilditch</span></strong>
Steve Hilditch

Editor and Founder of Red Brick. Former Head of Policy for Shelter. Select Committee Advisor for Housing and Homelessness. Drafted the first London Mayor’s Housing Strategy under Ken Livingstone.

There has been speculation in the last few days that the charitable status of housing associations might be under threat.  It would cost the sector a huge amount in additional tax if charitable status was lost.  The issue has been bubbling under for a while, but the new debate has been triggered by a request from the Tenant Services Authority to the Charity Commission to express a view on the implications of the new (mis-named) Affordable Rent regime. 

The Commission’s response is of course equivocal: it depends on the circumstances of each association, what their charitable objectives are, and how Affordable Rent fits in with their activities as a whole.  The key sentences in their reply are these:

“Generally, where an association has a charitable purpose to relieve those in need by providing housing, then those who benefit must be poor and in housing need…….. Associations will be aware of whether, in practice, some affordable rent products have rents at a level that people in poverty cannot access, and where housing benefits are capped at a level below the rent.”

“In summary, in principle, charitable housing associations can provide an Affordable Rents product. However, the extent to which the product will be used to relieve poverty may determine whether it is able to satisfy the public benefit requirement and one aspect of this will be the extent to which housing benefit will cover the rental. Charitable associations operating in areas of high market rents will therefore need to look at this aspect in detail to see whether the affordable rents can provide a means of relieving poverty.”

From an ideological point of view, it is clear where the Government is headed.  By dictating that there will be no new social rented housing built in future, only ‘Affordable Rent’ (ie up to 80% of market rents), and by requiring that a proportion of re-lets in developing associations are also let at ‘Affordable Rent’ levels, the government is signaling the transformation of housing associations from bodies dedicated to providing homes for the poorest in society to institutional private landlords of near-market homes.  

Some people in the sector have also been asking for this problem to visit them.  Many housing associations are brilliant at what they do and serve homeless and badly-housed people, their tenants and their communities very well, but some look and act less and less like charitable bodies as each year passes and give every impression of not liking poor people much let alone wanting to relieve their poverty.

Charitable status might be protected as long as it is possible for people on low incomes to access ‘Affordable Rent’ homes.  That in turn will depend on the allocations policies followed and the continued availability of housing benefit.  Some associations think they will not be able to let the new homes to people who could be defined as charitable beneficiaries; for schemes to be viable they will have to let the homes, or at least a significant proportion of them, to people who can afford the rent without the risk associated with needing housing benefit to support their payments.  For the moment, the government says HB will be available for AR properties, but in high cost areas it is the operation of the overall benefits cap and the uprating by less than real inflation that will make it impossible for families on benefit to access these homes. 

The loss of charitable status would be a blow, but, in the context of government housing policy, it is the bigger question ‘what are housing associations now for?’ that needs to be answered.

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Godzilla versus King Kong: the new Affordable Rent model versus the new Housing Benefit regime

<strong><span class="has-inline-color has-accent-color">Steve Hilditch</span></strong>
Steve Hilditch

Editor and Founder of Red Brick. Former Head of Policy for Shelter. Select Committee Advisor for Housing and Homelessness. Drafted the first London Mayor’s Housing Strategy under Ken Livingstone.

On 28 February, in answer to a Parliamentary Question, the Minister of State at Work and Pensions, Steve Webb, admitted that his department “has not estimated the proportion of tenants in social housing likely to claim housing benefit if rents for new tenants are let at 80% of market rates”.

This would seem a crucial piece of information and illustrates how much prejudice and how little evidence was used to determine the many changes to Housing Benefit the government is committed to introducing. 

Fortunately others in the real world have been doing some background.  At pretty much the same time as Mr Webb was making his admission, Family Mosaic Housing Association was publishing research based on real life calculations for a sample of their properties and tenants.  This showed, in their words, that “setting rents at 80% of market rent would increase our clients’ requirement for housing benefit by 151%”. 

Like a lot of housing associations, Family Mosaic does not seem to be hostile to the government’s proposals to introduce flexible tenancies or to put rents up to some extent to fund new development.  It appears that quite a lot of landlords think that they should have more ‘freedoms’ and that their tenants should enjoy fewer rights (this is the long-term character flaw in my view).  But at least FM deserve a little credit for digging into the issue and publishing the results.

The report states that “the impact on tenants will vary by location, with those living in inner London the hardest hit: for most of those in Essex, social rents are already at 60-80% market rates” and concludes that “for those tenants receiving benefits, the proposed new affordable housing model creates, or worsens, the poverty trap, acting as an additional disincentive to gain employment.”  Rents for their properties in London would increase by over £100 per week and in some cases by over £200 per week.  The worst affected people will be those on benefits facing large increases in rent but who are also likely to be caught by the overall benefits cap of £26,000, as Tony has pointed out in previous Red Brick posts.  

If (when) the new rent regime comes in, income to FM to support their development programme would indeed increase, but this would be significant only in London.  The cost would be shared by the new tenants paying higher rents and by Housing Benefit.  If the increased cost in HB terms is anything like the figures published by FM, there will be a head-on collision between Godzilla – Eric Pickles’ policy of moving towards market rents as a way of funding development – and King Kong – Iain Duncan-Smith’s policy of cutting housing benefit to the bone.

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Passing the buck for new homes

<strong><span class="has-inline-color has-accent-color">Steve Hilditch</span></strong>
Steve Hilditch

Editor and Founder of Red Brick. Former Head of Policy for Shelter. Select Committee Advisor for Housing and Homelessness. Drafted the first London Mayor’s Housing Strategy under Ken Livingstone.

The proposals for the new ‘Affordable Rent’ regime published today by Communities and Local Government department and the Homes and Communities Agency  are in the classic style of this government. 

Make huge cuts.  Change a few rules.  Devolve responsibility.  Then wash your hands, it’s nothing to do with us.

Passing the buck developed as an art form.  Pontius Pilate has nothing on these guys.  Nothing could be clearer than the one underlined and emphasised sentence in Grant Shapps’ introduction:

 “So Government is getting out of the way where it needs to, and is supporting you where it can. Ultimately, though, delivery depends on the initiative of providers, and the support of local authorities and local communities. It is now up to you to deliver the homes we need.”

The mis-named ‘Affordable Rent’ (AR) product will be the main form of provision in future.  Providers will be able to get some grant from the Homes and Communities Agency, but the pot is about half what it used to be.  They will have to show how they can generate resources  by borrowing (I thought the government didn’t like borrowing?) against the increased rental stream from letting new homes and a proportion of re-let homes at AR levels (up to 80% of market rents), together with other resources such as existing surpluses, s106 planning gain, free or cheap public land, recycled grant from previous developments and so on. 

But there are no numbers – no specific expectations, not even a regional distribution of the HCA’s funding (although London is expected to get the same share of outputs as now, around 27%), no expected or even hoped-for split between city town and country.  The outcome will depend on the bids, what providers think they can do and where they think they can do it.  From housing strategy to housing chaos in one easy step.

The HCA paper does include some detail about AR.  The product (and therefore the rental income) will only be available to Registered Providers who achieve an HCA contract for delivery, so that will exclude virtually all councils and all non-developing housing associations and any existing developing HAs who do not win a contract.  So that will keep the numbers of AR lettings down and ensure that most re-lets across the stock will be under a continuation of the existing ‘rent restructuring’ rules.  Under AR or social rent, the terms of tenancy will be up to the landlord to decide within a policy framework set by local authorities – subject to a 2 year minimum term for AR tenancies.  So all future tenancies could be short or long term at the landlords’ whim. 

The relationship between AR and housing benefit is going to be crucial.  The HCA paper implies that HB will be payable on an AR letting even if the 80% market rent takes it above the local LHA limit.  That might offer some protection to tenants who will be on benefits for a long time.  However the overall benefits cap of £26,000 will still apply, irrespective of the rent being covered: in high rent areas, that will be the worst of all the new rules in practice.  If the aim of building 150,000 new affordable homes is achieved, and say 90% of them are AR and say 60% of those are let to HB tenants, then the cost to the government will run to several hundred millions of pounds, proving yet again that cuts in one place often pop up as extra costs somewhere else.  

Providers have to submit their ‘offers’ by 3 May and initial contracts are expected to be sign in July.

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A nice little earner – or not?

<strong><span class="has-inline-color has-accent-color">Steve Hilditch</span></strong>
Steve Hilditch

Editor and Founder of Red Brick. Former Head of Policy for Shelter. Select Committee Advisor for Housing and Homelessness. Drafted the first London Mayor’s Housing Strategy under Ken Livingstone.

The New Homes Bonus 

As a country we have failed to build enough new homes for more than 30 years.  The coalition’s scrapping of Labour’s system of regional housebuilding targets, which was only starting to have effect, has caused great concern.  Now a little flesh has been put on the bones of their proposed alternative – the New Homes Bonus – in a consultation paper published on 12 November. 

The core proposal is that each council will make its own decisions on the scale and nature of housing development, but they will be incentivised to encourage building through a grant that will match the council tax raised on new homes for the first six years after development.  The benefit to councils (on current figures) over 6 years would be over £8,000 for a Band D property (using the national average) and over £10,000 for a band E property.  An additional flat rate of £350 a year would be paid if a property falls within the definition of ‘affordable’ in PPG3. 

Communities and Local Government department estimates that the cost will rise to over £1 billion a year in year 6 even on current housebuilding numbers, but it is likely to be significantly more if the scheme has the desired effect and housebuilding increases.  A contribution to the cost will come through scrapping the current Housing and Planning Delivery Grant – about £250m a year for the first 4 years – but all other costs – ie £1 billion or more by year 6 – will come out of local authority Formula Grant, so there will obvious gainers and less obvious losers.  Very little is said in the paper about the losers (ie those that will lose more in Formula Grant than they will gain in NHB) and how much impact the overall reduction in Formula Grant will have. 

Despite the wealth of methodology in the paper, the government has no real idea how many extra homes NHB will generate and how much impact an incentive of say £8k a home over 6 years will have.  Is that enough to overcome nimbyism and genuine local concerns?  An estimate is made that by 2016-17 there might be an uplift of 8-13% from the base, but this is not convincing. 

There is no guarantee that the grant will be used to help communities affected adversely by development or to support infrastructure.  It can be spent in any way the beneficiary council chooses – and the document identifies only non-housing uses like council tax discounts, rubbish collection, and providing local facilities like swimming pools.  Most likely in the current climate, it will be used to offset the general cut in Formula Grant that is taking place anyway as part of the CSR.

Will the scheme encourage affordable homes?  The £350 enhancement for affordable homes appears plucked out of thin air.  Who knows if this is a real incentive or not?  Using the PPG3 definition of ‘affordable’ means that everything that is sub-market will be included, and there is no specific incentive to encourage homes for those most in need. 

The scheme does not distinguish between different areas in terms of the need to build.  The benefit will come to those with the greatest capacity to build on easy sites.  Councils with little developable land or no need to build will be concerned about the overall impact this might have on the finances. 

An interesting oddity is the intention that acquisitions that increase the availability of affordable homes would receive the £350 enhancement but not the core NHB.  It is also suggested that the scheme might cover the bringing back into use of empty homes. 

I would strongly urge everyone to read the consultation paper and to get comments in.  We’d be delighted to report your views here on Red Brick. 

Click to access 1767788.pdf