RVBC Housing ForumChallenges for Housing

Associations

25th November 2015

Agenda•Setting the Scene•Financial Impact at RVH •Impact of the Right to Buy•Pay to Stay

Changing face of social housing

•Political•Public Perception•Demographics•RP’s need to embrace the challenges to become stronger fighting the change will weaken organisations

What are the challenges?• Rent Policy

• S106 Starter Homes

• Welfare Reform

• Right to Buy

• Pay to Stay

Rent Policy and its impact on RVH

• The Chancellor announced in the budget in July 2015 that all Social Housing Rents would reduce by 1% a year for four years with effect from the 1st of April 2016

• The real impact of this policy is far greater as the reductions are compounded over the 30 years of Association’s Business Plans and the reduction is instead of an anticipated increase under the old rent policy

• The old rent policy that had been agreed for 10 years in 2014 allowed for rent increases of CPI +1%

• With CPI assumed at 1% to 2% Business Plans contained increases of between 2 and 3 %

RVH and the rent decrease 

2016-17 2017-18 2018-19 2019-20+

 Avg Weekly Social Rent Current business plan Budget statement Impact on tenants

  

£84.21£81.93-£2.28

  

£86.12£81.18-£4.99

  

£88.80£80.32-£8.49

  

£92.25£79.75

-£12.50

 Total Rental Income Current business plan Budget statement Impact on RVH

  

£4.92m£4.79m

-£0.13m

  

£5.06m£4.77m

-£0.29m

  

£5.23m£4.74m

-£0.49m

  

£5.43m£4.70m

-£0.73m

 Minimum cash savings required – current prices

  

£100k

  

£200k

  

£375k

  

£375k

RVH Mitigations•Reduced capital programme by 30% of the difference between the Decent Home Standard and the RVH standard

•Removed speculative development from our Business Plan

•Reduced staffing costs

Our approach to the challenges ahead

•We can resist, whinge, find problems and harp back to the good old days.

OR• Get on board, look for solutions and make

tomorrow better.

Striking the Balance•Public or Private•Commercial•Social Purpose – our reason for being•Help those in greatest need•Understand our markets existing and new•Operate in the real world

RVH believes in• High quality, low cost landlord services• Delivering on aspirations• Making the best use of our assets (Housing Stock and People)

• Providing choice• Building more homes • Working with the right partnerships

Questions?

Right to BuyImpact on RVH

Background to the Right to Buy

• The RTB was introduced under the Housing Act 1980, a voluntary scheme had operated in the early 1970’s but it was this act that really kick started Right to Buy

• Discounts initially started at 33% up to 50% (60% for flats)with number of years tenancy determining the size of discount.

• 1 million properties were sold between between 1980 and 1987

• When the Labour Government came to power in 1997 they didn’t abolish the RTB as was anticipated but they severely curtailed the discounts capping at £26k outside London.

Continued

• In 2005 the rules on RTB were changed again which had a dampening effect, any tenant who took a tenancy after 2005 now had to be a tenant for 5 years before exercising the RTB this had previously been 3 years.

• It also introduced the Landlords Right of First Refusal.• RVH and the Preserved Right to Buy • A change of Government in 2010-11 resulted in a revitalising of the

Right to Buy. Maximum discounts were increased to 75K (100k in London)

• The maximum % discount was also increased to 70% this is achieved following 40 years tenancy

Continued

• A cost floor exists which means the discount received must not reduce the price sold at to below what has been spent building, buying, repairing or maintaining it.

• Repayment of discount applies on a sliding scale for 5 years after a property is purchased.

• In the Conservative manifesto for the 2015 elections they announced they would extend the RTB to Housing Association properties if they were elected. (previously only a small number of HA tenants who had secure tenancies had the Right to Buy)

• The Conservatives were duly elected and the sector awaited details of the new RTB

The new Right to Buy

• Housing Associations are extremely unhappy about the extension of the RTB to their properties and there were initially lots of rumblings about the rights of the Government to impose this, Housing Associations are in the main private charitable organisations run by a Board. The proposals by the Government essentially meant that Boards would have no say in what was best for their business.

• However the objections have fallen away and on the advice of the National Housing Federation Housing Associations have agreed to sign up to a voluntary extension of the RTB. The Government as a result are not now looking to legislate.

Continued

• The details of the extended RTB are unclear but some of the things being talked about include.

Housing Associations being able to argue that some properties will not have the RTB. In our case we would make a strong argument for properties in the very expensive rural villages to be exempt.

If a tenant lived in a property that was exempt from the RTB the landlord would have to help them purchase another property that had the RTB should they want to exercise this right

Any discounts will be fully funded by the Government with 30% being withheld until start on site with a replacement unit or purchase of an additional unit

Continued

• Housing Associations are expected to replace sold properties on a one for one basis but this doesn’t have to be of the same type, tenure or even in the same locality.

• Details of whether the new Right to Buy will operate in the same way as the existing (same discounts and qualification periods) has not yet been clarified.

• The funding of discounts will come from the selling off of high value Local Authority assets, again the mechanics of this are not yet clear.

• As the discounts are being fully funded it is likely that there will be a limited pot of money available so tenants may need to go onto a waiting list.

How will this impact RVH

• Until the detail is available it is very difficult to do any detailed modelling.

• However over the next few slides I have attempted to try to model the impact based on past sales and the financial circumstances of those tenants who will have this right extended to them

RVH Right to Buy History

• Since the transfer in 2008 we have sold 12 properties • 11 of these were sold post 2012 following the

revitalisation of the RTB• 43 Standen Road Clitheroe• Average market value of the 10 houses sold was £126k• Average discount was 61K.• Average % discount 49% reflects 20 years tenancy.

Continued

• Average market value of the 2 flats sold was £90k.

• Average discount was £53k.

• Average % discount 60% reflects 10 years tenancy

• Very little increase in valuations since 2008

• Always been a concern that at purchase from a LA/HA properties are valued much lower than on future resale's.

Preserved Right to Buy Extended Right to Buy

Numbers of tenants in each category

345 215

Of which in receipt of full HB

99 53

Number over the age of 55 who pay rent

119 38

Numbers most likely to exercise the right to buy

127 (37%) 124 (58%)

Length of tenancies for those most likely to buy Less than 5 years6-10 years11-15 years15 +

10 45 33 39

113 (can’t buy) 10 1

Average actual sales pa 3

Predicted sales pa 3 1

Predicted average discount 50% 40%

Conclusion and Issues for RVH

• The likely impact for RVH over the next 5 years is likely to be negligible in relation to increased sales.

• However where we do sell we will be expected to replace on a 1:1 Basis.

• RVH needs to consider how best it will do this options include Purchase of existing units New build for rent or sale Purchase within or outside the borough

Questions?

Pay to StayProposals and Consultation

What is it?• The Conservative Government announced in its Summer

Budget that it was looking to introduce Pay To Stay from April 2017 for Local Authority and Registered Provider tenancies.

• The idea behind the policy is to make sure that people who can afford to pay more than a social housing rent do so without having to move house. The policy should increase revenue to the treasury and contribute to the provision of new affordable housing.

How it will work?• The government is currently consulting on the proposals and

asking Social Landlords for their feedback and ideas.

• Pay to Stay will affect tenants with an income of greater than 30k (40K in London)

• The salaries of joint tenants will be included as will the salaries of sole tenant’s partners. If there are several people in the household the top 2 salaries in the household will be taken into consideration.

• These households will be expected to pay the market rent for the property.

Continued

New regulations will be introduced which will;

• Set out the rent level and the meaning of high income, including what is counted as income and how it should be calculated and verified

• Allow HMRC to share information with landlords for the purposes of verifying tenants incomes

• Income means taxable income in the tax year ending in the financial year prior to the year in question.

Continued

• Additional income collected will be dealt with in two ways, Local Authorities will be expected to return additional income to the treasury to contribute to deficit reduction, RP’s can keep the additional income but will be expected to use it to contribute to new affordable housing

• Social Landlords will administer the system with the Government expected to consider bringing in additional powers to force tenants to provide relevant information.

• The Consultation is currently running until the 20th of November with views being sought specifically on;

• How the scheme can support incentives to work • Evidence of administrative costs

How the Scheme can support incentives to work ?• Would a taper system be the best option where rent increases

as income increases

• Changes to rents need to balance additional income with simplicity for both the tenant and landlord

• The Government wouldn’t expect to see rents changing frequently

• How would Landlords respond to a sudden and ongoing loss of income.

• Dunsop Bridge Example

Administrative Costs• Social Landlords will be required to administer the Policy

• Local Authorities will be allowed to keep reasonable administration and set up costs.

• RP’s are expected to absorb the additional admin and set up costs as they will be keeping the additional income.

• The Government is to publish an impact assessment in due course on admin costs for housing associations

RVH Concerns

• How will this scheme work in a high value area like Ribble Valley where even a 30k income makes it difficult to compete in the market.

• The administration of such a scheme will be resource intensive

• What additional income will it bring in ? – this will be dependent on the divergence between affordable and market rents.

Questions?