A happy anniversary?
It’s nearly a year since the Homes and Communities Agency announced a target of 80,000 new homes to be built under the new affordable rent regime. Keith Cooper finds out if landlords are in the mood to celebrate or whether they’ve got the birthday blues
In July last year affordable housing developers were finally let loose. Nine months after the a new ‘affordable rent’ product was heralded in the 2010 spending review, developers, councils and housing associations finally found out how many homes they should build. The news from the Homes and Communities Agency in July 2011 appeared promising: around 80,000 homes for affordable rent and shared ownership could go up under its £1.8 billion affordable homes programme in England between 2011 and 2015.
So how have the HCA’s chosen deliverers laboured under the yoke of this new approach in their first year? Has it made any difference to the way they operate?
The answer to both questions varies tremendously: the 2011/15 programme effectively had three prongs. First, the housing associations to which the HCA handed funding up front to give their stalled development programmes a hefty kick-start. Second are the private developers, which will only get government cash when homes are finished. Third are the town halls, which are still barely beginning their development prgrammes, having gained control of their housing finances just three months ago.
The first year of affordable rents has therefore jolted housing associations the hardest. As the dominant social housing developers of the past, they are also doing more to adapt to a new order in which funding relies more on rental income than government subsidy. To ease this shift, associations are allowed to let new properties at up to 80 per cent of local market rates rather than the more modest social rent, and to convert agreed numbers of their existing stock to the new product.
Several have already collected data on how affordable rents might affect their businesses and what that might mean for their futures. An analysis by 25,000-home Southern Housing Group of 19 one-bedroom flats converted to affordable rent reveals the types of households this new product attracts. Their annual income ranges from £8,000 per year to £50,000. The majority of the 24 tenants had lived previously in the private rented sector; only one had been homeless. This, says Mike Basquill, strategic property director at the group, is a ‘largely different demographic to socially rented’.
Mr Basquill says it is ‘consciously targeting’ the ‘squeezed middle’ of low-paid, working households. ‘Most of the affordable lettings have gone to people in work - they are in the majority,’ he adds.
Southern has been quite ‘ginger’ about conversions, Mr Basquill says. The group aims to convert around 390 of its homes to affordable rent over four years - just 10 per cent of the number it has re-let over the same period in the past. The rent raised from these properties will help pay for the development of 553 new affordable homes, two-thirds of which will be for rent, the rest for shared ownership.
The homes built represent just 20 per cent of its total development pipeline over the next four to five years. Southern’s preparation for the switch to affordable rent involved training staff to market and let the new product. Homes rented out at higher affordable rates have also been spruced up with an extra £2,000 of fixtures and fittings, such as carpets, repainting and kitchen appliances. In return, prospective tenants must pay a deposit and provide references. ‘This mirrors the experience of the target group, which would have previously sought accommodation through open market rent,’ explains Mr Basquill.
London-based association Peabody has seen a more varied profile of tenants move into the 50 affordable rent homes it has let so far. ‘We have half in work, half not in work,’ says David Lavarack, executive director of corporate services at the association, which plans to re-let some 500 homes over the course of the programme. ‘This pretty much mirrors our broader portfolio.’
Peabody encountered two main challenges when introducing affordable rent: keeping rents affordable in high-cost areas and dealing with local authorities’ attitudes to the product. The need to accommodate councils’ differing views is a common concern for both associations and private developers.
To keep rents affordable, 20,000-home Peabody is concentrating on converting bedsits and one-bedroom flats rather than larger homes, charging on average 65 per cent of market rate. The organisation has also strengthened its relationships with the 27 London boroughs in which it operates to ensure conversions comply with their individual rent policies. ‘Each authority has its own perspective,’ Mr Lavarack says. ‘We now have a genuine two-way dialogue.’
Down in the south of England, 17,000-home Aster Group is also adapting to life under affordable rents. The group has re-let 300 properties at the affordable rate since November. ‘It has been quite a bit of a culture change,’ says Julian Paine, regional director for Wiltshire at Aster Communities, the group’s landlord division.
Concerns about the effect of affordable rents led Aster to put its plans to introduce fixed-term tenancies on ice. Prospective tenants would be doubly deterred from renting homes which were both more expensive and short-term, it feared. ‘We decided to defer decisions of introducing fixed-term tenancies until we see what the impact of the affordable rents is,’
Mr Paine says. ‘We are now starting to look at the issue again.’
Associations in the north are encountering different issues. Hugh Owen, director of policy and communication at 50,000-home Riverside Group says demand for the affordable rent product has been less than expected. The group has secured HCA agreement for a maximum of 2,500 conversions to help fund the development of 592 homes in the north west, north east and London, which is around 60 per cent of the scale of its 2008 to 2011 development programme. Of the homes that will be built in Riverside’s current programme, 87 per cent will be let at affordable rents and the rest sold under shared ownership.
‘Broadly speaking, the number of lettings are down,’ says Mr Owen, who speculates that this is due to several factors, including economic uncertainty and tenants’ concerns about losing their right to a tenancy for life when they move. ‘This may create an issue with cash flow but not one which is fundamental to the whole programme,’ he says. But Riverside remains optimistic that conversions will eventually raise the income it requires, he adds. ‘The issue isn’t so much if we achieve the required additional income, but when,’ Mr Owen says.
Riverside’s knottiest issue was the need for a rent policy which applied equally to all its tenants from high-cost areas like London to relatively cheaper locations like Merseyside. ‘Rather than setting all rents at 80 per cent of market rate, we have used a series of capping mechanisms,’ Mr Owen explains. This capping mechanism covers how much rent both welfare recipients and people on low incomes can actually afford to pay. This ensures that affordable rent payments - particularly in high-cost areas - do not cripple tenants financially.
‘We wanted to ensure that any rents we set were affordable to tenants both now and in the future.’
Riverside’s residents were worried the association would apply different rent regimes in each region. The capping mechanism alleviated such concerns, Mr Owen claims. ‘This is one way a nationally based association has tried to deal with that geographical variation in a national policy.’
Other northern associations share Riverside’s experience of lower than predicted demand for affordable rent properties. Manchester-based Great Places Group - which is converting around 500 homes a year and has also seen re-lets drop off. ‘People are staying because they are out of work or on low incomes,’ Stephen Porter, its chief executive, says. The 15,000-home association’s re-let rate has fallen to about 8 per cent this year, compared with its historic average of 10 per cent. Its conversions are being used to fund its 1,281 house building programme, which is considerably smaller than its 3,342 programme from 2008 to 2011.
Just over 60 per cent of Newcastle-based national housing association Home Group’s tenants claim benefits, and it has seen ‘very little’ change in the types of tenant renting the affordable rent product, says Joe Docherty, its deputy chief executive. Home Group has set up a dedicated project team to ease the transition to affordable rent and it expects to build 2,104 properties over the course of the 2011/15 programme - 376 fewer than under the 2008 to 2011 programme. ‘This was one of the biggest changes the sector has seen for some time,’ he added. ‘[But] the switch in focus has worked well - aided by good clear communication from the HCA.’
Local authorities are the late-comers to the affordable homes programme, only free to gear up once untethered from the housing revenue account, the Whitehall-controlled finance regime which was abolished this April.
Ashford Council is somewhat frustrated at the borrowing caps the government introduced as part of its housing finance reforms. ‘This has limited the amount we can borrow,’ says Paul McKenner, strategic housing and property manager for customer homes and property development at the district authority, in Kent. ‘We bid for £1.3 million to build 59 units but we would have liked to build 200. We have the sites and the planning.’
The authority is concerned about the capacity of affordable rents to fund its development ambitions. Ashford was earmarked as a growth area by the last government, but is suffering an annual shortfall of 400 affordable homes. ‘We don’t think there’s enough value in the difference between social and affordable rent [20 per cent in some areas],’ Mr McKenner adds.
One of the biggest challenges the council anticipates, he says, is explaining rent differences to tenants moving into its new build homes. ‘For someone looking at a bungalow in a rural area the rent is quite different. That might be a bit unpalatable.’
Northern local authorities face different issues to their southern counterparts. Blackpool Council secured a £3 million slice of the affordable homes programme to help fund a major regeneration scheme. This will see 500 smaller flats demolished and replaced by up 250 much-needed family homes. Like other authorities, however, it has yet to lay one brick, Steve Matthews, head of strategic housing and planning, admits. ‘We couldn’t play for the first year. We have been planning - we haven’t let any affordable rents.’
Blackpool’s ambitions are limited for the same reasons as Ashford’s. ‘The grant rate is very low and we have a finite ability to borrow because of the borrowing caps,’ Mr Matthews says. The council has, however, come up with an innovative model, which it hopes will help boost its house building programme. The council plans to use six years of its new homes bonus as a dowry to get a 400-home development off the ground.
With just three years of the 2011/2015 programme to run, there is still everything left to play for. With housing associations already on their feet, 2012/13 could well be the year for local authorities to catch up.
A brief history of affordable rents
Affordable homes programme heralded in the spending review
Communities and Local Government department consultation document, Local decisions - a fairer future for social housing, is published
Homes and Communities Agency releases its affordable rent framework paper
Affordable rent programme announced. Housing associations and developers begin delivery
Housing finance reform frees councils to start their programmes
Four of a kind: how councils’ diverse attitudes affect affordable rent delivery
Housing associations and developers alike must not only cope with the rules of affordable rent, they must also ensure developments fit with the policies of the local authorities in which they operate, according to Stephen Teagle, managing director of affordable housing and regeneration at developer Galliford Try, which was awarded £17 million by the Homes and Communities Agency to deliver 1,500 affordable rent and shared ownership homes.
Dealing with this diversity of town hall attitudes is one of the biggest challenges for developers attempting to adapt to the new regime, Mr Teagle believes.
He thinks there are four types of councils. The ‘new world order’ openly embrace affordable rents, while they are shunned by the ‘traditionalists’. Then the ‘pragmatists’ which want to impose their own caps. They say: ‘It isn’t 80 per cent, it is something less than that’. The fourth kind is the ‘districts’, which want a different approach for each development.
This ‘mixed position’ creates uncertainty for developers, says Mr Teagle. ‘The problem is that when you buy a piece of land you assume what is going to be paid for homes built on it - an uncertain position among local authorities doesn’t make that process any easier.’