21 March Development Update

Transcription

1 21 March 214 Development Update Contact: Charlie Blagbrough Job Title: Policy Assistant, Investment Team Direct: Reference: 1

2 Summary Development Update provides housing associations with the latest investment news and analysis. This edition provides a round-up of key housing investment news including the HCA Affordable Homes Programme prospectus; the London Housing Strategy; the GLA funding prospectus; the National Housing Federation s response to the 214 Budget; changes to the Capital Funding Guide; an update on the rent settlement; impairment; the Housing Standards Review and Preserved Right to Buy. It also contains analysis of the delivery of the Affordable Homes Programme in the latter part of 213 and a wider overview of the housing market. 1. Housing Investment News 1.1 HCA Affordable Home Programme prospectus, The Homes and Communities Agency s (HCA) affordable homes prospectus was published on 27 January 214. A full copy of the prospectus can be found here: The HCA has 1.7bn of capital grant funding, outside London, for bids over the three year programme. The HCA seeks to: Increase new affordable housing for affordable rent or affordable home ownership. Maximise the number of new affordable homes delivered. Build housing that meets demographic needs, including more one or two bed properties. Maximise delivery within the programme period and deliver new homes by March 218. Encourage providers with the capacity to begin or increase development. The key changes from the current Affordable Homes Programme (AHP) are: The approach towards bidding through either the firm only or the mixed route. The retention of a proportion of funding for future market engagement. A new focus on ensuring the homes built meet the need of households. An increased focus on efficiency and cross-subsidy. The Federation welcomes the HCA s response to feedback from the current programme. However, we are concerned that aspects of the new programme may discourage housing associations from making ambitious but deliverable bids for more funding to build homes. Some housing associations may decide not to participate at all as the grant on offer does not warrant the restrictions and expectations set out in the prospectus. The confirmation of scheme-specific grant rates, start-on-site payments and that there will be money available for future bidding rounds is good news and will encourage the participation of new social housing providers. Encouraging local authorities to make land available for affordable homes is positive, but clarity is needed on how this will be incentivised. It is also disappointing that there is no mention of how central government land could be used to build more affordable homes. 2

3 The focus on value for money and cross-subsidy is expected, but the greater level of scrutiny is concerning. While conversions and disposals will be important, housing associations and their boards are the only ones able to determine the social and economic value of their homes and how this meets their business objectives. Whilst the Federation agrees that building new affordable homes, including one- and two-bed properties, should accurately reflect what is needed in local communities, this must be informed by robust assessments, not Government policy. For the Federation s full response and member briefing visit: prospectus For more information please contact: laura.kavanagh@housing.org.uk 1.2 Homes for London The London Housing Strategy The Draft Housing Strategy 213 sets out how the Mayor intends to use his housing powers until the next Mayoral election in 216. The consultation period closed on 17 February 214. You can view the draft strategy at: The Federation welcomes Homes for London and supports the Mayor s ambitious targets for increasing the numbers of much-needed homes of all types and tenures across London. Housing associations own and manage over 43, homes for Londoners from all walks of life, and are also key partners in the delivery of new homes. However the Federation recognises that the target of 42, new homes annually in London will not in itself meet housing need in the capital. The Mayor s own Strategic Housing Market Assessment (SHMA) suggests the target should be around 49, homes. Consideration needs to be given to how the Mayor will work with boroughs and the sector to deliver all the homes London needs. The London Housing Strategy sets out various options outside the investment programme that the Mayor will explore to meet this additional demand, which we look forward to hearing more detail on. Our key recommendations are that the GLA should: Maintain a flexible and open dialogue on the new investment programme which will help our members to deliver the maximum new affordable homes for London. Continue to pursue positive discussions with the boroughs on nominations to ensure the system is fit for purpose. Commit to supporting affordable housing requirements in the planning system. Recognise the housing needs of young people and vulnerable groups in London. Hold a focussed discussion of how best to deliver unprecedented levels of housebuilding via the London Housing Bank, housing zones and other innovative forms of development finance. You can read the Federation s full response to the Mayor s housing strategy here: For more information please contact: rhona.brown@housing.org.uk 3

4 1.3 GLA Funding Prospectus, The funding prospectus for the London Housing Strategy was published on 13 December 213. The bidding round closed on 1 March 214. The full prospectus can be found here: %2Programme%2prospectus.pdf The Greater London Authority (GLA) has 1.25bn to deliver affordable homes in London for the investment round. The programme aims to meet two principle challenges: building new homes and putting greater priority on working Londoners priced out of the London market. Key points: Of the affordable homes delivered, 4% will be low cost home ownership and 6% Affordable Rent. Affordable Rent is expected to be equally split between discounted rent and capped. There are allowances in the programme to vary rent levels. Most of the grant will be allocated during summer 214 but smaller providers will be able to bid on an on-going basis from winter 214. Grant will be scheme specific and payment will be split 5% start on site and the remainder on completion. The GLA encourages smaller and larger providers to form consortiums to deliver schemes. There is a drop dead date of March 218. However there will be the opportunity for trusted partners to extend completions into the next financial year. Except for very small/specialist providers, all are expected to provide some market housing. Providers are also encouraged to sell high value stock to support delivery of new housing. The compulsory sharing of nominations between boroughs will no longer apply. It will be replaced by the GLA taking a share of nominations on affordable housing developments. Housing associations that choose not to participate in the 215/218 programme will be required to pay recycled capital grant fund (RCGF) back to the GLA. Revolving investment fund organisations are invited to submit expressions of interest for innovative ways of delivering affordable housing in the programme funded through a revolving investment fund. In principle, the GLA have secured up to 2m for the London Housing Bank from the new Affordable Rent to Buy programme. This funding would enable a pilot to be run. For the Federation s response and member briefing visit: For more information please contact: laura.kavanagh@housing.org.uk 4

5 1.4 Response to the 214 Budget The Chancellor s Budget on 19 March set out plans designed to secure the recovery and build a resilient economy. The Budget sets out the next steps in the government s long-term economic plan: continuing to reduce the deficit and debt, promoting growth, including increasing housing supply, and focusing on fairness. The Budget included a number of measures that have implications for the housing market and housing associations: An extension of the Help to Buy equity loan scheme to 22 A new garden city in Ebbsfleet A cap on welfare spending Other smaller scale measures designed to increase housing supply. Responding to the Chancellor s Budget, National Housing Federation chief executive David Orr said: We welcome the Chancellor s focus on housing and the announcement of a new garden city, but we think the budget is a missed opportunity. Measures like Help to Buy are likely to stimulate demand for housing but the Budget does not go far enough to boost the supply of homes needed to meet that demand. To read our full member briefing on the Budget 214, please visit: In February we sent the Chancellor our budget submission, outlining a small number of recommendations for three key areas where progress could be made to ensure the delivery of affordable housing: 1. Release more land for affordable homes 2. Increase borrowing capacity of housing associations to help them build more homes 3. Extend Government guarantees to increase housing associations access to finance for new development While the Chancellor did take some steps in the Budget to increase supply, like a new garden city, we were disappointed that he did not include measures designed to deliver homes more quickly at little or no cost to the tax-payer. Taken together, our proposals would have led to a significant and immediate boost to the supply of affordable homes. Combined, the measures in the budget are intended to deliver 2, new homes by 22, but we believe this is largely accelerating planned housing supply rather than generating additional homes that would not otherwise have been built. For more information please contact: Catherine.ryder@housing.org.uk 5

6 1.5 Capital Funding Guide The HCA has recently updated the Capital Funding Guide: (i) The start-on-site definition has been updated to include infrastructure works such as excavations to install drainage or highways infrastructure works. The Federation welcomes this clarification, as it is important for members to be clear on what constitutes start-on-site. In our submission to the Autumn Statement the Federation asked for housing associations to be able to use 25% of Recycled Capital Grant Fund (RCGF) receipts for remodelling or refurbishment work. This would provide greater flexibility for housing associations that need to regenerate their stock rather than develop new homes. Following this lobbying from the Federation, the HCA has updated the Capital Funding Guide: (ii) The section detailing the priorities for reinvestment RCGF has been updated, clarifying that Affordable Rent can be used to convert larger homes to smaller properties to better meet the needs of households under-occupying their current social rented properties. Although this clarification of the RCGF falls short of our recommendation, the Federation nonetheless welcomes the explicit reference to the conversion of larger to smaller homes. The full Capital Funding Guide can be found here: For more information please contact: 1.6 Rent Settlement As part of the 213 Spending Round, the Chancellor of the Exchequer announced a new social housing rent settlement from 215 onwards. In October 213 the Department for Communities and Local Government (DCLG) published a consultation on Rents for Social Housing from and a draft Direction on the Rent Standard 213, also for consultation. The consultation sets out the changes to the current rent policy that Government is proposing, namely: Moving from annual increases in weekly rents of Retail Price Index (RPI) +.5% to increases of Consumer Price Index (CPI) + 1%. Removing the flexibility available to landlords to increase weekly rents by an additional 2 per week where the rent is below the rent flexibility level (i.e. the target rent plus the relevant tolerance) and rent cap. Making clear that rent policy does not apply where a social tenant household has an income of at least 6, a year. The Federation s response to the consultation can be found here: Whilst the Federation welcomes the certainty that the ten-year settlement brings, there are concerns that removing the +/- 2 rent flexibility could threaten the viability of some housing 6

7 associations. Others could lose the capacity to develop new homes or to fund existing community services because of the lost rental income. The Federation is disappointed that in the consultation the Government has confirmed their proposal to end rent convergence. Responding to the consultation, the Federation is recommending that rent convergence should be retained. However, if the end of rent convergence is pursued then the HCA should grant time-limited waivers for housing associations facing viability issues until they are in a position to be able to comply with the change of policy. These waivers should be framed in the widest possible terms and should also be granted to associations whose loss of rent could lead to them breaching loan covenants, mean that they delay or exceed peak debt, require them to take on more borrowing, or to re-profile debt repayments The Federation continues to make the case with DCLG and the HCA. The Government consultation closed for responses on 24 December 213 and DCLG is due to announce the final policy. The Federation will inform members when this happens. For information on the rent settlement contact: adam.morton@housing.org.uk 1.7 Impairment In March 213, the Financial Reporting Council (FRC) introduced a new international-style accounting framework, Financial Reporting Standard 12 (FRS 12). FRS 12 comes into effect for the financial statements of all organisations and limited companies with accounting periods commencing on or after 1 January 215 The housing association-specific guidance which interprets FRS 12 for the sector includes a proposal from the FRC that would require housing associations to impair the value of social housing stock in their balance sheet. Specifically, the FRC requires housing associations to write down the figure for the cost of developing social housing shown in accounts to value. The concern is that this technical rule change would lead many financially healthy associations to either report financial losses or breach loan covenant agreements when practically there had been no change to the economics of the business. Housing associations are currently in the process of bidding for the next three-year round of investment. It is likely that many will be reluctant to bid as, if impairment comes into force, they will know that each new development will create a significant deterioration in their reported finances. Consultation on the impairment rule changes closed on 14 February 214. The Federation s briefing for members can be found here: If impairment is an issue for your housing association please contact: joseph.carr@housing.org.uk 7

8 1.8 Preserved Right to Buy The Federation is aware that in many parts of the country the increased Right to Buy discount is starting to have an impact and that sales of Preserved Right to Buy (PRtB) are picking up. For some housing associations this could have a real impact on the supply of affordable housing, and for a very small number it could call long-term viability in to question. The Federation has written to DCLG asking the Government to put in place a robust system for monitoring the number of homes sold through PRtB. The Government should also establish a robust plan to ensure that the stock of affordable housing is not severely reduced by the Right to Buy policy, by setting out a robust plan to deliver one-to-one replacements. Despite continued lobbying, DCLG are planning further changes to the PRtB policy, which they announced in January 214. In short, the changes will increase the maximum percentage discount for houses to 7% in line with flats (the maximum cash discount will still apply) and uprate the discounts annually in line with CPI. These changes have yet to be agreed by Parliament but we understand that DCLG will be setting this process in motion shortly. Once again these changes are being made without any consultation with the sector. Government have yet to address the sector s previous concerns about their failure to monitor the number of homes lost through the PRtB and the lack of a coherent plan to replace them. The proposed changes could make it even more difficult for housing associations to replace the homes lost. While the Federation is fully supportive of measures that help people to own their own home, we are continuing to look for opportunities to express our concerns about the impact PRtB is having on affordable housing supply and housing association businesses. The Federation intends to use these further proposed changes as an opportunity to engage with politicians on our issues with the policy, as we did with the Deregulation Bill. This is designed to reduce the burden of legislation for businesses and individuals. As currently drafted it would reduce the eligibility period for the PRtB from five years to three years. Our recommendations called for the Government to put in place a system to monitor the sale and replacement of homes through the PRtB and the impact on overall affordable housing supply. They also called for an effective mechanism to replace the homes lost. The Federation is currently looking at the Parliamentary work we can do to help the Government to better understand housing associations concerns about certain aspects of the PRtB policy and we know there are a number of MPs who are particularly interested in this. We will continue to press Government to ensure we are kept informed of these new proposed changes as they move through the parliamentary process. We have also sought reassurances that Government will effectively engage with housing associations on the impact these proposals may have. If for your housing association is being impacted by PRtB please contact: catherine.ryder@housing.org.uk 8

9 1.9 Housing Standards Review The Government announced the outcome of the Housing Standards Review on 13 March 214, confirming that they will be streamlining housing standards (reducing 1 standards to fewer than 1) and creating a level playing field for house builders, irrespective of tenure. For the Written Ministerial Statement please visit: The announcement was accompanied by a supporting note, setting out how the Government intends to proceed with each of the standards examined in the consultation, which can be found here: The decision to bring the standards into building regulations will ensure that there is a consistent level of quality and will simplify compliance. As a result it is proposed that the current Code will be wound down to coincide with the new standards coming into force. However, they are also seeking views from the industry as to a voluntary Code. We are pleased that the outcome reflects much of what we asked for in our response. However, there will be scope for some local discretion in adopting higher standards within the new Building Regulations in relation to water and accessibility where these can be justified by local circumstances. Any higher levels will not be universally mandatory. Further work is proposed to develop standards (not necessarily in Building Regulations) for security, sustainable materials and the indoor environment. It will be important to see how the HCA and GLA incorporate these standards in their prospectuses, particularly in relation to those standards that are not to be universally mandatory. We will be liaising with them closely on this because we appreciate how important these standards are for housing associations preparing bids and will keep members informed of any developments. We have already been in contact with the HCA and they have committed to publishing an addendum to the prospectus within a week to 1 days. For more information please contact: andrew.burke@housing.org.uk 9

10 2. Affordable Homes Programme performance, April September Housing Starts and Completions Over all the HCA and GLA combined programmes, there were 12,988 affordable homes started between April and September 213. This is a large increase from only 469 homes started in the same half of 211/12 and 3,722 over this period last year. In terms of completions, the level of 9,322 homes delivered over these six months is down on the number completed in the same periods of 211 and , Affordable Homes Delivery (incl. London) 2, 15, 1, Starts Completions 5, Apr-Sept 9/1 Apr-Sept 1/11 Apr-Sept 11/12 Apr-Sept 12/13 Apr-Sept 13/14 (DCLG, Affordable Homes Delivery, November 213) Performance by operating area London East and South East Midlands North East, Yorkshire and the Humber North West South and South West Starts Completions 1

11 2.2 What type of housing was delivered? Performance by tenure Affordable Rent Social Rent Intermediate Rent Affordable Home Ownership (excl. 1st Buy) First Buy Starts Completions The changing tenure patterns are also reflected at the operating area level. The tables below break down starts and completions by both tenure and operating area between April and September 213. Starts on Site Affordable Rent Social Rent Intermediate Rent Affordable Home Ownership All Affordable starts London East and South East Midlands North East, Yorkshire and The Humber North West South and South West England Completions Affordable Rent Social Rent Intermediate Rent Affordable Home Ownership London East and South East Midlands North East, Yorkshire and The Humber North West South and South West England All Affordable completions 11

12 3. The Housing Market 3.1 House-building DCLG provides statistics on the number of all housing starts and completions across England. This draws together mainly information from local authority building inspectors. It includes housing association development activity; some of which may be homes funded without HCA assistance and therefore not included in HCA statistics on the Affordable Homes Programme. These development statistics are also compared against private enterprise. For further information please see DCLG s website: Starts and completions, Q4 v Q3 seasonally-adjusted PE Starts HA Starts All Starts -2 PE Completions HA Completions All Completions -75 (DCLG, Live Table 222, February 214) 3.2 Planning Permissions The Home Builders Federation and Glenigan produce a quarterly analysis of planning approvals. The level of planning approvals secured reflects in part the confidence that all developers have in the future health of the housing market over the next 3 years. The number of homes granted planning approval rose further to 52,534 in Q4 on the back of an increase in Q3. This represents an almost 42% increase in approvals over the second half of the year. The number of housing association homes granted planning approval increased by 16% on Q3 of 213. At 7,449 homes granted approval this figure is up 19% on the same quarter last year. 12

13 7 Homes Granted Planning Approval Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q (HBF, New Housing Pipeline Report: Q4 213, February 214) The rise in housing association approvals is mostly driven by large unit increases in London and the South West. 2,373 units were approved in London, up from 1,413 in the third quarter. In the South West, Q4 saw a 238% increase in approvals. The only other areas to see large changes in the number of approvals were the West and East Midlands. The largest fall came in the West Midlands, at -7% on the previous quarter. The East Midlands saw the second greatest percentage increase at 222% on Q3. The graph below shows the difference in approvals for social homes between the last quarter and the previous quarter: Social housing units securing planning approval, Q4 213 Q3 Q4 (HBF, New Housing Pipeline Report: Q4 213, February 214) 13

14 4. Housing Supply 4.1 New Supply At 124,72 in 212/13, the delivery of net new houses in England continues to fall well short of the 25, needed. Supply reached a peak of around 225, new homes in 27-8 but was severely affected by the economic downturn. Net supply has decreased year-on-year since then, with an 8% decrease in additional houses between and The graph below shows the change in net supply delivered through new build, conversions, change of use and other gains between 2-1 and Net additional houses, 2-1 to (DCLG, Net Supply of housing in England: 212 to 13, November 213) The table below shows how many net new homes were delivered and the % change in new supply on the previous year. Financial Year Net Supply (dwellings) % change from previous year N/A % % % % % % % % % % % % 14

15 However, Savills has reported that homebuilders are responding to increased demand fuelled by the Government s Help to Buy scheme by building more homes and bringing schemes forward. The number of residential units that secured planning approval was up 49% in the second quarter compared to the same period last year. 4.2 Land Values An increased appetite for development combined with a restricted land supply has led to increases in land values over the course of 213. Savills reports that for 213 as a whole, permissioned greenfield land increased in value by 6.5% whilst urban land went up by 6.7%. The 4% increase in greenfield values during Q4 213 was the highest quarterly growth since 21. This was led by a 5.8% increase in the South East. 4.3 Property Transactions Property transactions still remain well below the peak of nearly half a million transactions in Q2 of 27/8. However, the 329, transactions which took place in the second quarter of 213/14 is the highest level since the market crashed. This suggests that the signs of an economic recovery in combination with government policies like Help to Buy are filtering through to the market Quarterly Property Transactions since 29 (HMRC, Table T16.5, September 213) 15

16 5. Right to Buy and Preserved Right to Buy sales Every quarter, DCLG release statistics on the number of dwellings sold under the Right to Buy scheme. They provide statistics on receipts resulting from those sales, and also about starts on site as part of the one-for-one replacement scheme. These statistics relate only to sales by local authorities under the Right to Buy scheme, excluding sales by housing associations under Preserved Right to Buy. Figures are collected from local authority returns to the DCLG. The higher discounts introduced by the Government in April 212 and increased in March 213 continue to drive a high level of sales under the Right to Buy scheme. Sales rose again between October and December 213 to 2,845 on the back of 2,841 sales in the previous quarter. This is 42% higher than the 2,1 sold in the same quarter of 212 to Quarterly Right to Buy sales, /1 Q1 29/1 Q2 29/1 Q3 29/1 Q4 21/11 Q1 21/11 Q2 21/11 Q3 21/11 Q4 211/12 Q1 211/12 Q2 211/12 Q3 211/12 Q4 212/13 Q1 212/13 Q2 212/13 Q3 212/13 Q4 213/14 Q1 213/14 Q2 213/14 Q3 (DCLG, Right to Buy Sales, February 214) Local authorities received over 196 million in Right to Buy receipts. This is 57% higher than the money received in the same quarter of 212 to 213. In Q2 local authorities received approximately 18 million, which is a threefold increase on the second quarter of last year. The lack of replacement homes being built continues to be a major issue. There were only 393 starts-on-site between October and December 213, meaning that house-building is nowhere near the level needed to replace the lost stock, especially considering that this number has fallen from 753 homes started in the preceding quarter. Clearly the Government s commitment to one-for-one replacement of council housing stock is failing to materialise. 16

17 3,5 Annual Preserved Right to Buy sales, , 2,5 2, 1,5 1, 5 27/8 28/9 29/1 21/11 211/12 212/13 (DCLG, Social Housing Sales, October 213) Overall, 5% of social housing sales in 212/13 came from the policies of Right to Buy and Preserved Right to Buy. This proportion is up by 12% on 211/12. The number of homes bought from housing associations through Preserved Right to Buy in 212/13 was 2,458 which is a 122% increase from the 1,16 sales in 211/12. The total discount on properties sold under Preserved Right to Buy came to 123 million. 17