Non-compliant Birmingham housing associations paid £550m for exempt accommodation claims

Exempt accommodation is often used to house people who have very few housing options, such as prison leavers, rough sleepers, refugees and migrants, and those experiencing substance abuse issues.

Because landlords provide loosely defined care and support services, their tenants can be exempt from housing benefit caps and providers can charge much higher rents than regular landlords.

In many cases in Birmingham, registered providers employ managing agents to provide the accommodation and support services. They enter into short-term lease arrangements with them while taking a management fee.

Many exempt accommodation properties are good quality, providing essential support and a roof over the heads of thousands of people who would otherwise not have this. However, for an increasing number of these properties, standards and support are not at the required level.

A recent report by the Levelling Up, Housing and Communities Select Committee described the sector as a “gold mine”, and a “licence to print money” for some providers.

According to the latest figures from the council, the spend on Birmingham’s nine largest non-compliant providers has grown each year, from just over £73.5m in 2018/19, to £192.7m in 21/22.

Birmingham City Council told Inside Housing the figures could include payment for general needs housing.

However, Inside Housing’s analysis of each provider’s annual returns show they have only a very small percentage of general needs housing in Birmingham.

The total figure includes Reliance, the city’s biggest exempt accommodation provider, which received £90m in housing benefit last year alone. This figure is well over three times higher than the total spend on exempt in Manchester. Over the past four years, Reliance has received £161m, increasing from just £2.3m in 2018/19. 

Nearly all of this would be for exempt accommodation; Reliance owns only four general needs social housing properties in the West Midlands, as of April 2022.

Reliance’s growth is all the more incredible when one takes into account that it was a dormant housing association based in Gravesend in 2017 and only acquired its first supported housing property in 2018.

Since then, it has grown to be Birmingham’s largest exempt provider. It has 8,034 claimants in Birmingham, a third of all the city’s claimants.

The Regulator of Social Housing (RSH) deemed the association non-compliant in October last year. The RSH stated that Reliance had breached its standards regarding governance and finance.

The regulator found that it had failed to ensure effective governance was in place and had failed to ensure that arrangements it enters into do not inappropriately advance the interests of third parties.

Speaking in parliament on Friday, Shabana Mahmood, MP for Birmingham Ladywood, accused Reliance of “failing her constituents and exacerbating the issues within the exempt accommodation sector”.

Responding to the figures, a Reliance spokesperson said that it “does not spend all money on exempt accommodation and continues to grow its current portfolio of social housing stock, having acquired outright a number of assets in 2022 with a combined value of approximately £2.5m”.

Reliance was one of three providers paid more than £25m in housing benefit last year. Concept was paid £41.6m and Ash Shahada £27.5m. Across the four years, Concept has secured more than £80m and Ash Shahada £65m.

Both associations have also been deemed non-compliant with the regulator’s governance standards. The regulator also raised concerns over their inability to demonstrate that the arrangements they entered into do not inappropriately advance the interests of third parties.

Other providers to have received tens of millions of pounds in recent years include New Roots, which has now pulled out of the exempt sector, and Prospect Housing, which shut down last year.

New Roots decided to close after new management took over and launched a “forensic audit” into the landlord. This revealed a “complete lack of internal controls surrounding the identification, declaration and recording of related-party transactions”.

The transactions recorded in the accounts show payments to companies owned by management staff, as well as family members.

This included the former chief executive using company funds to buy a motorhome off a previous spouse. 

Sustain is another non-compliant landlord in the list, with the provider receiving £87.5m in the past four years. Sustain was first deemed non-compliant in January 2019, when the regulator warned of inappropriate remuneration levels for directors. It also found that inherent conflicts of interest had arisen as a result of related-party transactions to companies owned by Sustain’s executives.

Inside Housing later revealed that the chief executive and inspections directors were paid £215,000 a year, despite the landlord only owning a few thousand homes. It was also discovered that payments of £1.3m had been made to companies that were linked to directors.

At the time, Sustain said the directors had received no salary between 2007/8 and 2016/17 and invested £1m into the business.

The landlord said the directors in question left the business last year, and all conflicts are now resolved.

Sharon Thompson, Birmingham City Council cabinet member for housing and homelessness, said: “These payments to registered providers are another symptom of the broken system which sees us obliged legally to pay them, knowing that the service they provide often lets down the most vulnerable people.

“To make a real difference, any legislation must give local authorities like Birmingham the ability to control the growth in exempt housing, the ability to withhold payments and the powers to close down bad providers.”