Time to decide

Mark Prisk is ticked off. At the National Housing Federation annual conference in Birmingham two weeks ago, the housing minister bemoaned the ‘modest’ number of re-lets some social landlords have converted to the government’s ‘affordable’ rent product.

Providers must ‘maximise’ conversions to affordable rent if they want to get their hands on a slice of £2.8 billion available in the 2015 to 2018 second round of the affordable homes programme, he added.

Under the affordable homes programme, housing associations submit bids to the Homes and Communities Agency - or the Greater London Authority in London - for grant funding. Compared with previous schemes under Labour, landlords receive less grant per home and are instead expected to charge rents at up to 80 per cent of market rates on new properties and a proportion of re-lets.

This increase in income is intended to boost borrowing capacity and attract private finance to build new homes.

According to the HCA, landlords forecast they would convert around 80,000 re-let properties to affordable rent under the affordable homes programme - a figure likely to represent less than 20 per cent of all re-lets over the period.

Mr Prisk is now telling associations that when they bid for grant under the next round of the programme, the government will be ‘more persistent when it sees under-performance in terms of re-letting policy’.

So why has the number of conversions been so ‘modest’ and how much appetite is there among housing associations to re-let at affordable rent?

One reason for the ‘modest’ number of conversions is that there are simply not enough opportunities to re-let.

Staying put
‘Everybody has said their number of re-lets has been much lower than they expected so it’s quite difficult [to increase the number of conversions],’ says Abigail Davies, assistant director of policy and practice at the Chartered Institute of Housing.

According to government data analysed by the Chartered Institute of Housing, the number of re-lets in 2011/12 was 212,234, which is 5.24 per cent of the total housing association and council-owned stock in England.

This is a particular problem for associations in London, where housing costs make it less attractive for tenants to leave social homes to purchase or rent privately. The introduction of fixed-term tenancies by some social landlords is also likely to make tenants with a secure tenancy less likely to want to move.

Brendan Sarsfield, chief executive of Family Mosaic, reveals five years ago, void turnover for the 24,000-home housing association was about 7 per cent. Now it is 4 per cent. Family Mosaic is not converting any properties under the current programme, and has been cross-subsidising re-lets at social rents through private sales.

At 13,500-home East Thames, Geoff Pearce, director of development, says: ‘The average tenancy length for East Thames is about 12 years, so properties become available every 12 years… that’s about 64 homes [becoming available annually].’

The association has, however, converted 59 re-lets to affordable rent so far, as well as 45 new homes it built between 2008 and 2011.

Social purpose
The financial toll the higher affordable rent places on tenants is also a key concern for landlords whose residents are already being hit by welfare reforms such as benefit caps and the bedroom tax.

In London, where the difference between social and market rents is most pronounced, many associations feel that ‘affordable’ rent is not affordable for their tenants at all and charging it is at odds with their social purpose.

‘People are being nominated [by the council to take on the properties] who aren’t able to pay the rent,’ says Neil Hadden, chief executive of 32,000-home Genesis.

On a similar theme, Amicus Horizon would like affordable rents to be charged to employed households only, while 67,000-home L&Q does not convert its three-bedroom properties in London because it thinks that would be unaffordable for tenants.

On the other hand, John Brace, resources director at 27,000-home Aster Group, which operates in the south west of England, says while there is a reasonable gap between social and affordable rents, it is nothing like the ‘huge gulf’ in London.

‘For us it seems to work… We’ve seen an increase in the rental stream and it hasn’t caused huge problems’ he says. In the first 18 months of the programme, it converted 50 per cent of its re-lets to affordable rent.

But for some landlords the small difference between social and affordable rents can be a disincentive to convert re-lets.

One chief executive of a northern housing association, who did not wish to be named, says he is considering quitting the affordable homes programme altogether.

‘Conversions won’t create a large amount of money for us anyway,’ he states. ‘£2 a week isn’t a great deal for us, but could make all the difference for [the tenants] - especially as they are affected by some of the other welfare reforms.’

Another option
For associations in the capital, there may be a glimmer of hope. Three London providers say they have heard from the GLA that there will be grant funding to develop some homes for social rent.

‘If you want low-paid workers to be able to live in London then I think there has to be genuinely affordable housing and I think some people in government recognise that,’ says a director of a large London landlord.

Elsewhere, another housing association is also considering pulling out of the affordable homes programme because it has been told that in the next round associations will be expected to build to higher space standards, which will suck up the additional income generated by charging higher rents. The HCA declined to comment on this.

One thing is for sure. If landlords’ concerns fall on deaf ears, Mr Prisk may not just be annoyed at the lack of appetite for affordable rent, he may be wondering why associations are opting for something else off the menu entirely.