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What’s in the tea leaves for housing?

Social housing is facing radical change that may alter the face of the sector for years to come. With a slew of policies buffeting English landlords, soon the UK may be starkly divided. Joe Dart reads the sector’s tea leaves for clues to the future

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Social housing is facing what you might call a defining moment. In England, landlords are being buffeted by Westminster policies that are likely to fundamentally change what the sector looks like and who it serves.

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Meanwhile, in the other countries of the UK, devolved governments are leading landlords in a completely different direction. Although most of the UK is in the midst of the same housing supply crisis, the coming years will see a patchwork of different responses - with tenants facing quite different access to social housing depending on where they live, and landlords taking quite different approaches to the future of their organisations.

One other big defining change shared by the whole sector is the reclassification of housing associations as part of the public sector by the Office for National Statistics - which has occurred in England and is being considered in the rest of the UK. In all countries, such a decision is expected to be swiftly followed by deregulation that shunts housing debt back off the countries’ balance sheets, with unpredictable results.

Inside Housing spoke to landlords across the UK to find out how they see the future of the sector.

England

The big moment for English housing is easy to pinpoint: May 2015. The Conservatives’ surprise majority in the general election that month was swiftly followed by policies that brought about a dramatic shift in housing provision.

“The combination of a new Tory government determined to see more homes built, the step change from [grant for] rented housing to shared ownership, the extension of the Right to Buy, the 1% rent cut, the Starter Homes initiative - all of the incentives about homeownership, the disincentives about rented housing - we have never seen anything like it before, just in the space of a few months,” says David Montague, chief executive of 70,000-home L&Q.  

For Sinéad Butters, chief executive at 9,000-home Aspire Housing, the changes represent some of the biggest “existential challenges to have come our way”.

“It was a big shock for the sector,” continues Ms Butters, who also chairs the Placeshapers group of more than 100 community-based housing associations. However, despite the initial schism over the introduction of these reforms, Ms Butters thinks that by working closely with the government, housing associations will gain more respect in the future.

“I think as a sector we’ll able to be better understood as this unusual and special beast that adds all sorts of value beyond the core service,” she says.

John Bibby, chief executive at ARCH - the Association of Retained Council Housing - says that, for local authorities, the biggest threat for the future has come from “uncertainty”.

“We’ve got the Housing and Planning Act, which radically changes the basis of council housing from that envisaged in the self-financing settlement of 2012,” he says.

“Local authorities were able to retain rents locally and reinvest based on decisions around the good management of the housing asset and what tenants expectations were locally.”

However, the Housing and Planning Act has “changed all that”, he argues. Major challenges for local authorities in England as a result of the act include the introduction of the Right to Buy levy. Under the act, councils are forced to pay a fixed sum based on the level of their high-value council stock the government estimates will become empty. Councils are then encouraged to sell these homes to pay the levy.

What is more, councils are required to sell their high-value void homes. They are also coping with the introduction of Pay to Stay for high-earning tenants and the phasing out of lifetime tenancies.

One-for-one replacements

For Mr Bibby, the future of council housebuilding depends heavily on deals struck between local authorities and government on the retention of the elements of the Right to Buy levy that would enable them to at least deliver one-for-one replacement or better.

“I suspect the reality is the total stock of local authority housing will continue to decline, as it has done since the turn of the century. Social tenanted housing owned and managed by local authorities and their arm’s-length management organisations will, I believe, still be there in 2025, but it may have a different function,” he says.

Statistics from the Department for Communities and Local Government show that 170,690 homes were added to England’s building stock in 2014/15. However, organisations such as Shelter say England needs closer to 250,000 extra homes a year. Housing minister Brandon Lewis’ ambition is to build one million new homes by 2020, with housing associations set to play an integral role in meeting this target.

To achieve this, and in response to policy, many associations are becoming more commercial in their approach to development. A major symptom of this change is the increasing number of mergers in the pipeline. L&Q, Hyde Group and East Thames are forming to create a new organisation which has promised to deliver 100,000 new homes across London and the South East, with 25,000 homes set aside for affordable rent and another 25,000 affordable homes earmarked for first-time buyers.

The fact 50,000 of those homes will be built for market rent and sale has come under attack from some corners, but Mr Montague says such a move is needed for the continued strength of the social housing sector.

“You are going to see housing associations take on a more commercial role, but it is for a purpose, to fund more affordable housing,” he says.

Mr Montague says existing tenants will still come first, even in the era of the 100,000-home social landlord. There is a question to be answered as to whether associations really are still ‘social’ landlords in light of the reforms.

“We really wondered what social housing meant, what the role of housing associations would be in future,” says Mr Montague. “If we were now in an era where social housing was not a government priority, we asked - what is our purpose?”

However, the enthusiasm for delivering social value still remains strong. “While we’ve been through so much change since our formation, one thing that hasn’t changed is social purpose and it is still the torch to be carried,” he concludes. For Ms Butters, a significant challenge for the sector in the future is to manage the changes to the housing benefit.

“There’s an issue as to whether housing allowance will actually pay the rent, and the rent’s not high - the rent’s £70, but the Local Housing Allowance is £50,” she says. “If you can’t rent it, you’ve got obsolescence in stock.”

Tuesday 28 June

One year in - what will the future policy and legislative environment look like? (11.30, Exchange Auditorium)

Scotland

With the recent election of the Scottish National Party into a minority government in May, the Scottish sector is earmarked to receive £3bn of public sector investment for the delivery of 50,000 affordable homes by 2021, of which 70% will be for social rent. This figure is almost double the previous parliamentary term’s grant of £1.7bn.

The Scottish Federation of Housing Associations (SFHA) says that Scotland actually needs another 60,000 social homes by 2021. Yet Mary Taylor, chief executive of the SFHA, says the 50,000 pledge represents a “fantastic level of investment and [is] very welcome”.

Housebuilding boom

Thirty-five thousand of those homes will be for social rent homes, and Ms Taylor expects housing associations to be “significant contributors to meeting that level of need”.

“The fact that the government has not only increased the amount of money for investing in new supply, but also at a rate at which we have been lobbying for over many years after cuts in 2011, means that approximately half of typical construction costs [for social housing] are going to be funded by public subsidy,” she says. “That is excellent news because it restores the opportunity for affordable rent to be charged by landlords for new, highly energy efficient properties.”

Although the new funding removes one of the largest barriers to development, obstacles remain around land, planning and utilities, says Ms Taylor. “Some of the infrastructure development is in places where there is population growth and you need to expand settlement capacity, for example by providing adequate water and sewerage systems.”

But overall, she concludes, the outlook for social housing in Scotland has improved. “The ambition is there, the commitment is there, the will is there, the money is there - that’s progress,” Ms Taylor concludes.

David Bookbinder, director at the community-focused Glasgow and West of Scotland Forum of Housing Associations, shares this optimism for the future of social housing in Scotland. He says the new government’s investment programme in social housing comes across as a real “show of faith”.

“It does feel like a good time for the sector,” he says. “There is nothing that we know of coming from government about needing to rationalise the sector and we, certainly as a forum, plan to carry on promoting the huge good that comes from being smaller and local, and being in touch with tenants - we don’t feel as though we’re battling against the tide there.”

Wednesday 29 June

Social or commercial mission: building a culture of change (11.30, Exchange Auditorium)

Wales

“If we look at Welsh housing policy in the past few years, the diversion from England has been really striking,” says Stuart Ropke, chief executive of Community Housing Cymru, which represents Welsh housing associations.

For example, the Welsh Government has not introduced a rent cut for social landlords. With Welsh landlords still able to set their own rent levels, arguably they are in a stronger financial position for further growth. “We see differences in rent as of this year, which has helped secure income. The big challenge now is to ensure that continues,” says Mr Ropke.

Ban on Right to Buy

Other radical differences include the “[likely] abolition of Right to Buy, and we’ve seen Supporting People funding protected”.

“The difference between Wales and England for me is, while England has pursued a path of homeownership at all costs, Wales has really taken a whole-market approach,” he adds. The likely result is that housing for affordable rent will still play a big role in years to come. The new minority Labour government, elected in May, has pledged to deliver 20,000 homes by 2021, double the amount of the previous administration.

Westminster still retains control over some areas. For instance, the cap on the Local Housing Allowance will hit Wales.

Another aspect driving the direction of housing policy in Wales is value for money, according to Mr Ropke.

“The Welsh regulator and the new independent board for the regulator have been quite clear that value for money is a key focus,” he continues. This means that, despite rent levels being protected from cuts, Welsh landlords will also be required to invest in efficiency, lest they be downgraded by the regulator.

Overall, by 2025, Mr Ropke still sees a “strong, vibrant social sector in Wales, delivering for those most in need, but with savvy, technologically driven housing associations delivering for a wide range of people in their communities, helping people get on the housing ladder at whatever level they need to”.

Wednesday 29 June

The impact of welfare reform on housing (10.00, Exchange Auditorium)

Northern Ireland

The largest social housing provider in Northern Ireland is the Northern Ireland Housing Executive (NIHE), which manages around 89,000 homes. A major issue is that a lack of recent investment has left homes in serious need of tender loving care - it is an issue set to top the agenda here for decades.

Maintenance investment

“Savills has conducted a big stock survey that indicates there is a requirement for £6.7bn-worth of investment in the NIHE stock over the next 30 years to bring those 89,000 homes up to a good level,” says Cameron Watt, chief executive of the Northern Ireland Federation of Housing Associations. “I think that will require a huge increase in rents, and also a significant injection of private investment. And yet, as a public body, the Housing Executive isn’t allowed to use its powers to borrow privately.”

For housing associations the picture is different, however, following “a big process of consolidation” during the past few years, says Mr Watt. “The number of associations has come down from about 35 when I joined the sector four years ago to almost 20 now. I would expect over the next five years that will be down to about 10 to 15. That’s a major change.”

Whereas many English associations are cutting back on programmes, in Northern Ireland there’s also been a recent push towards community investment, with associations taking on a broader role outside of core housing and support services, according to Mr Watt.

“I think there’s a lot of untapped scope for associations to take on that broader role of community investment and place-making, working more closely with local authorities in the here and now, so that’s potentially quite an exciting opportunity for associations here,” he says.

Expansion is also on the cards for Northern Irish associations, says Mr Watt, with several seeking a bigger role in the Republic of Ireland.

“A number of our members are operating on both sides of the border - Fold, Choice and Apex have stock both in Northern Ireland and the Republic of Ireland,” he comments.

This prospect has arisen because “there’s a big pressure for approved housing bodies” in Ireland, according to Mr Watt. “In the south of Ireland - because social housebuilding was completely halted after its most recent crash and there’s a big housing and homelessness crisis - actually Northern Ireland-based housing associations could have a big role in helping to meet that need,” he concludes.

This cross-border expansion shows how social landlords are continuing to innovate in different parts of the UK - devolution has brought about major changes, but some exciting ones at that.

Thursday 30 June

What will social housing look like in 10 years? (09.30, Exchange Auditorium)

 


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