Shaping Housing and Community Agendas

Transcription

1 CIH Response to: DCLG Rents for Social Housing from consultation December 2013 Submitted by to: This consultation response is one of a series published by CIH. Further consultation responses to key housing developments can be downloaded from our website Shaping Housing and Community Agendas

2 1. Introduction The Chartered Institute of Housing (CIH) is the professional body for everyone involved in housing and communities. Our goal is simple to provide housing professionals with the advice, support and knowledge they need to be brilliant. Our work is driven by a passionate belief that our contribution as housing professionals is vital to making communities great places to live and work and that everyone is entitled to a decent, affordable home in a thriving, safe community. CIH is a registered charity and not-for-profit organisation. This means that the money we make is put back into the organisation and funds the activities we carry out to support the housing sector. We are a membership organisation with a diverse and growing membership of over 22,000 people who work in both the public and private sectors, in 20 countries on five continents across the world. CIH contact: Gavin Smart Director of Policy & Practice gavin.smart@cih.org 2

3 2. Summary 1. The CIH very much welcomes government s proposal to provide certainty about the social rent framework until A long term, index linked, settlement of this nature provides certainty and confidence to landlords, lenders and tenants alike. CIH asked for such long term certainty in our submission to the 2013 Spending Round and we are very pleased government has responded in this way. 2. We are disappointed that government is proposing to end rent convergence by removing the 2 per week rent convergence element from the new rent framework. We believe that this will significantly reduce sector financial capacity for investment. We estimate the impact for local authorities alone to be 2.09bn of lost income in the period to And the impact for some individual organisations could be severe enough to cause viability concerns. 3. We understand the logic of moving the basis for inflation based rent increases from RPI to CPI and believe that on average this is unlikely to produce significant reductions in income, although the relationship between the two variables is hard to assess. 4. We understand government s commitment to the principle of allowing landlords to charge higher rents to households deemed to have particularly high incomes and strongly welcome the decision to allow individual landlords to decide whether or not to implement it. But we remain to be convinced that the legislative and administrative burden likely to be created by the policy is a good use of government and landlord resources when set alongside the relatively small number of social tenants whose incomes are likely to be in excess of the 60,000 income threshold set out in the consultation paper. 5. Despite this in principle concern the broad approach taken to the definition of households and income in the consultation and the arrangements for repayment of grant all appear sensible, although we are concerned at the time lag of two years between the period for which a household s income is assessed and the period for which the rent is set. 6. The proposal to require tenants to self-report income is administratively simple, but there may be some problems with compliance with the duty to self-declare for households who may not be aware of the duty, may not understand the duty or may chose to ignore the duty. 3

4 3. Full Consultation Response Question 1: What are your views on the government s proposed policy on social rents from ? 7. CIH very much welcomes government s proposal to provide certainty about the social rent framework until A long term, index linked settlement of this nature provides certainty and confidence to landlords, lenders and tenants alike. CIH asked for such long term certainty in our submission to the 2013 Spending Round and we are very pleased government has responded in this way. 8. A long term framework will allow landlords and lenders to plan with greater certainty for the future and will help to support the provision of desperately needed new homes. We are also comfortable with the small change to rent flexibility which will enable rents that are above target level to be brought in line with targets over time. 9. We had hoped that government might also take the opportunity of a new rent settlement to address some weaknesses in the current rent formula. For instance its reference to 1999 property values can make social rents unresponsive to housing market trends. The introduction of affordable rents has also created growing disparities in sub-market rent levels and arguably led to a less coherent rent structure. A more thoroughgoing review of the current rent framework could have addressed some of these concerns. Rent Increases 10. Despite welcoming long term certainty overall we retain significant concerns about the decision to abandon the rent convergence factor of 2 per week. Although we recognise that government still plans for homes to move to target rent at re-letting we are conscious that re-let rates are dropping across the social housing sector and the decision to end convergence for existing tenancies will have significant financial consequences for the sector in terms of reduced income streams and lost financial capacity. 11. Not all lost income is a viability issue for either local authorities or housing associations, but even so it reduces their ability to invest in homes and neighbourhoods across the board. This appears to run counter to government s stated policy intention to see an increase in the numbers of new affordable homes delivered. Limiting convergence on grounds of affordability also appears to be in contradiction to the introduction of affordable rent as government s new sub-market rented product with rent 4

5 levels typically significantly higher than those produced by converged social rents. 12. Even where landlords are close to convergence the compound effect of lost income over time can be significant, as demonstrated by the aggregate modelling of the effect on the local authority sector set out below. For some local authorities and recent stock transfers the overall effect of the premature ending of convergence will have a more fundamental effect and is likely to lead to viability concerns which will need to be addressed through either significant re-working of business plans, reliance on waivers from the Social Housing Regulator, or both. We discuss the issue of waivers in more detail below. 13. We believe that government has given both housing association and local authorities reasonable expectation that rent convergence would continue until achieved. Stock transfer arrangements, the Housing Revenue Account (HRA) self-financing reforms and the current rent regulation standard for the housing association sector have proceeded on this basis and many organisations business plans have reflected this. In many cases either the Department for Communities and Local Government (DCLG), or the Social Housing Regulator or both have been actively involved in signing off these business plans. 14. For the local authority sector self-financing settlement an estimate was made for each landlord about the value of the rents for properties which could not move to the formula by 2015/16 without breaching the RPI + ½% + 2 limit on individual rent increases. The assumed income in the valuation for the settlement was reduced to compensate for that. DCLG s guidance note Implementing self-financing for council housing 1 deals with the issue of unconverged properties quite clearly in Paragraph 3.4(iii) where it states that The self-financing valuation will assume that local authorities will follow national social rent policy, before going on to explicitly refer to: A limit on individual rent rises of RPI per cent + 2 each year. This limit prevents excessively high increases in the rents of individual properties as they are moved over time to the formula rent. It will prevent some rents converging with formula rent in An estimate will be made for each landlord about the number of tenants whose rents could not move to the formula by without breaching this element of rent policy. We will then reduce the assumed income in the valuation 1 Implementing self-financing for council housing, DCLG, February

6 by this amount. As this shortfall in income will be reflected in the settlement price, all landlords should apply the rent limit in setting actual rents and pass this benefit on to their tenants. 15. In following DCLG guidance many local authorities will not have been able to reach full rent convergence at the time of the HRA settlement and indeed have been encouraged to expect that they will be allowed to continue to apply the 2 per week convergence increase until rents are fully converged. 16. We estimate that across all local authorities the loss of the convergence element of rent increases amounts to 1.2bn between now and even allowing for a re-let rate of 5% per year with re-lets moved immediately to target rent. With a local authority contribution of 100,000 for each new home this would have been sufficient to provide 12,000 additional new homes over the period to The situation for housing associations is similar with the current rent standard guidance 2 clearly stating that: The Rent Standard places limits on the amounts by which rents can be increased each year within the allowed flexibility of target rent levels. Those limits might mean it is not possible for a particular PRP to achieve target rents by 31 March 2012 (or 2013 as appropriate). Where that is the case, the PRP s rent plan should demonstrate the date by which, taking into account the allowed flexibility of target rent levels, target rent will be achieved. The consequence is that this date could be beyond April 2012 (or 2013, as appropriate). In such cases, this will be the date for achieving convergence with target rents. 18. In our view government should not now change the terms of these agreements after the event. As a result of government guidance both local authorities and housing associations have a legitimate expectation that the process of rent convergence will be allowed to continue until all properties are converged. Waivers 19. The decision to allow the system of waivers to remain in force is welcome. Some landlords will continue to need to set rents at levels above rent flexibility in order to maintain financial viability whilst others will need to make continued progress towards convergence for the same reason. 2 The Regulatory Framework for Social Housing in England from April 2012, Annex A: Rent Standard Guidance, Homes & Communities Agency, March

7 20. Offering waivers only to housing associations and not to councils will create uncertainty about whether councils can rely on increased rents to help fund investment, although we recognise that the new rents guidance will not be binding on local authorities in the way that it is for housing associations. Given that councils need both to invest in their stock and build new homes, this is likely to create an unnecessary additional uncertainty, on top of the threats to their income through higher rent arrears/higher rent collection costs arising due to welfare reform. 21. We are also concerned that it appears to be likely that waivers will be very tightly drawn potentially excluding consideration of the wider, non-core social housing activities that landlords undertake which provide support to and investment in tenants, residents and neighbourhoods. The narrow focus of waivers may be unavoidable given the Social Housing Regulator s strong focus on viability, but will militate against broader community work and labour market etc. that government has been keen to encourage. Question 2: Should the rent caps be removed? If you are a landlord, how (if at all) do the caps impact on you currently? 22. On balance CIH agrees that rent caps should be scrapped because they bring additional and unnecessary complexity. Abolishing them will allow organisations to charge rent based on local market conditions (albeit as they were in 1999) and make it more likely that rent differentials between smaller and larger properties are maintained. Question 3: Do you agree with the move from basic rent increases of RPI percentage points to CPI + 1 percentage point (for social rent and affordable rent)? 23. We understand that RPI is no longer regarded as a measure of inflation that meets international standards and that government s stated intention is to switch to CPI as its preferred measure for inflation uprating in policy frameworks. 24. Analysis by CIH suggests that the move from RPI to CPI is likely to be absorbed by most landlords. However, estimating the difference between CPI+1% and RPI+0.5% is not straightforward as the relationship between the two measures is not entirely stable over time, but we think that on balance the shift from RPI to CPI is likely to produce rental incomes that are broadly comparable with the previous rent regime or perhaps slightly lower. 25. Should the relationship between CPI and RPI prove to show a greater rather than a smaller differential, landlords will need to amend their business plans to reflect this and government will need to adjust its 7

8 expectations of the levels of investment in new and existing homes that landlords will be able to deliver. 26. Using CPI to uprate both social and affordable rents is a sensible proposition maintaining a consistency of approach for the two products. 27. Previous experience has shown that using a measure of inflation for a particular month to uprate rents has led to a degree of volatility. Although CPI is a more stable index than RPI, government could consider using the 12 month rolling average for CPI as at each September, rather than the figure for an individual month, to smooth out any short term inflation volatility. Policy on rents for social tenants with high incomes 28. We understand government s commitment to the principle of allowing landlords to charge higher rents to households deemed to have particularly high incomes and strongly welcome the decision to allow individual landlords to decide whether or not to implement it. Local authorities and housing associations have the in-depth local knowledge and understanding necessary to establish whether adopting such an approach is likely to be a workable proposition in their individual cases. 29. At a more general level, CIH remains to be convinced that the legislative and administrative burden likely to be created by the policy is a good use of government and landlord resources when set alongside the relatively small number of social tenants whose incomes are likely to be in excess of the 60,000 income threshold set out in the consultation paper. Question 4: Do you agree with the definition of household proposed? 30. The definition of household is broadly appropriate and we acknowledge the level of consultation with the sector that has taken place to get to this position. Although we are conscious that the makeup of some households can vary over time, for instance where tenants spouses, partners or civil partners may be moving in or out of the property (for example, whilst attempting a trial separation) or where employed adult children of a single parent household move out to their own home, staying on top of these changes will introduce administrative complexity to these arrangements. Question 5: Do you agree with the definition of income proposed? 31. CIH agrees that the proposed use of total taxable income appears to be a sensible and proportionate approach to what can become a complex issue. Question 6: In particular, should capital be included and if so, how? 8

9 32. We do not think that capital should be included in the assessment of income. The proposed taxable income definition already takes account of income earned from capital. Question 7: Do you agree with the income period proposed? 33. The income period proposed in the consultation paper appears to introduce a time lag of two years between the period for which a household s income is assessed and the period for which the rent is set. Using data from the tax year two years previously creates a significant chance that the income data is out of date and no longer reflects the current income position of the household. Question 8: What are your views on the proposed self-declaration approach? 34. A self-declaration approach is administratively simple. However, it seems likely that there may be some problems with compliance with the duty to self-declare for households who may not be aware of the duty, may not understand the duty or may chose to ignore the duty. In particular, there is a risk that existing tenants may not be aware that they are now under a new duty to report their income under certain circumstances. 35. The experience of introducing some of the recent welfare reform measures has shown that raising awareness of these kind of changes, particularly amongst existing tenants, can be both administratively time consuming and costly. Given the very small proportion of tenants likely to be subject to the proposed duty, we remain to be convinced that this would represent a good use of valuable landlord resources and time. Question 9: Do you agree with how we propose to treat historic grant? 36. The proposals for use of extra revenue or recycling grant are fair and allow landlords some discretion around best use of any funds raised. We anticipate any contribution to new supply to be minimal, however. 37. There is a risk that the proposals fail to address the situation where a landlord may find themselves expected to charge a market rent on a dwelling which is subject to other controls such as being governed by a section 106 Agreement (or a unilateral undertaking in lieu of a s106 Agreement). Charging a market rent could effectively put the landlord in breach of its planning obligations to provide a requisite number of affordable dwellings. 9