Strategic Review of Housing Management Options. Report

Transcription

1 Strategic Review of Housing Management Options Report October 2017

2 Contents 1. Executive summary Introduction Context Methodology Findings: operational and financial performance Findings: Stakeholder Consultations Options for future delivery of Housing services Legal, Staffing, Legislation Conclusions and Recommendations Appendix 1: THE COUNCIL S BRIEF Appendix 2: DOCUMENTS REVIEWED Appendix 3: POOLE HOUSING SERVICES DELEGATED AND RETAINED SERVICES Appendix 4: HOUSING STATUTORY RESPONSIBILITIES FRAMEWORK Appendix 5: HCA STANDARDS FRAMEWORK ANALYSIS Appendix 6: STAKEHOLDER INTERVIEWEES Appendix 7: STAKEHOLDER VIEWS BY GROUP Appendix 8: RESIDENT WORKSHOP VIEWS Appendix 9: RESIDENT SURVEY VIEWS Appendix 10: LEGAL CONSIDERATIONS October 2017 Page 2 of 139

3 1. EXECUTIVE SUMMARY Introduction The Borough of Poole (BoP) ( the Council ) established their Arms-Length Management Organisation (ALMO), Poole Housing Partnership (PHP), to manage the Council s stock of 4,200 rented homes. The management agreement was renewed in 2014 for a 30-year term. BoP, in common with every other local authority and social housing provider, is moving forward through a difficult operating environment and one that is subject to an ongoing phase of fundamental reshaping driven by changes in Government policy (rent cap, Right to Buy (RTB), end of lifetime tenancies etc.) and market forces. The Grenfell Tower fire will inevitably drive fundamental changes. Responding effectively will require not only sustained operational focus but innovation and agility in equal measures. An overarching business priority of the Council is to increase the supply of affordable homes, and it has a need to deliver 14,200 additional homes by 2033 (with a target of 710 affordable homes per year), including over 3,000 homes to match specialist needs. Whilst the original reason for creating an ALMO has passed, and many others have been wound-up, the councils who retain the 35 remaining ALMOs have forged new strategic relationships to enable them to fulfil a wider remit. ALMOs have a combined development pipeline of over 9,500 homes, they manage over 1,700 private rented sector properties on behalf of landlords, and many fulfil a broader social mission by running programmes for troubled families and training unemployed people to help them find work. Others offer IT, human resources and legal services, and the facilities management of schools and corporate properties. In this context, this review considers the most cost-effective model for the Council to deliver housing management services, considering the Council s financial sustainability, long term viability of the Housing Revenue Account (HRA), and the priorities and strategic direction of the Council. The two options being considered are: Retaining the ALMO; Returning to direct Council control. The review has comprised the following principal elements: (a) A review of statutory responsibilities against the Homes and Community Agency (HCA) Regulatory standards; (b) An assessment of the performance against targets set by PHP Board, and relative performance against a benchmark peer group; (c) A review of the long term of the HRA, reflecting the 30-year stock funding requirements; October 2017 Page 3 of 139

4 (d) Meetings and interviews with a range of stakeholders, including: tenants and leaseholders; Council Members and Officers; PHP Board Members and officers; housing partners and contractors; (e) Preparation of this final report. PHP operational and financial assessment PHP is a strongly-performing housing management organisation which meets the majority of its performance targets. The only area of weaker operational performance has been a decline in lettings performance, which needs attention within the scope of a wider service review with the Council. Tenants are broadly satisfied with the service, with the overall satisfaction level of tenants at 89% and of leaseholders at 65%. On average, eight out of ten service users are satisfied with individual service elements. PHP benchmarks well with its peer group against a range of performance and satisfaction measures. The HRA has been managed effectively (a statutory requirement), achieves annual surpluses and has balances that provide headroom for future borrowing. PHP achieves surpluses within the management fee, against which it will offer future annual savings ( 0.5m from ). The Poole Standard is fit for purpose and is not overly generous; it does however need clarifying for stakeholders. The 30-year repairs and maintenance model is also fit for purpose and appropriately resourced. Benchmarks for repairs, health and safety are also comparable with other providers, and the cost of rent collection is comparatively low. However, the cost of resident involvement is comparatively high. Most overhead costs are comparable with other providers, but some reflect provision by the Council under SLAs that help support the General Fund and have not therefore been market tested. Benchmarks must be viewed in the round as they partly reflect service priorities. Higher inputs in one area may result in lower costs in another (planned maintenance and repairs, or tenancy management and rent collection for example). The housing service delivered in partnership by BoP and PHP meets the required outcomes and specific expectations of the four HCA Consumer Standards. However, there are underlying themes that need further review. They are, the alignment of strategic, policy and operational objectives; the definition of a clear service specification and resetting of the balance of customer expectations and responsibilities; and the definition of a value-realisation framework, that clearly demonstrates service outcomes for residents and communities. PHP can point to an extensive range of community engagement initiatives, innovative schemes such as the photo-voltaic panels, and nascent development initiatives; whilst all have involved a learning curve, they position it to support the Council in delivering a wider range of services. October 2017 Page 4 of 139

5 Stakeholder findings Through stakeholder interviews and resident engagement, we have formed the opinion that stakeholder perceptions of PHP s operational performance and engagement with customers are positive, with tenants expressing satisfaction with the repairs service and the quality of customer care in particular. However, Members and Council Officers have expressed concern that the level of service provided is not sustainable and goes beyond what is required. Council officers also highlighted the need for PHP to provide greater support in delivering strategic priorities and delivering housing solutions for future tenants. Service delivery partners and contractors were very positive about working with PHP. The governance and clienting of the ALMO have emerged as areas of concern, with the composition and effectiveness of the Board in fulfilling strategic lead and challenge roles. It has also emerged that the clienting arrangements lack strategic focus and while no serious relationship management issues are apparent, it is clear that the shared aims and sense of purpose have diverged, and that the sum efforts of the two organisations are not delivering optimal value. Facing the future In deciding the best way forward for providing housing services in Poole, the operational challenges and local housing needs any delivery model or vehicle will face must guide the selection of the chosen approach. This review raises fundamental questions as to the future viability of the current universal nature of the service offer, and the sustainability of the high-levels of customer demand and service response offered when matched against income generated. To address this imbalance there will need to be a reset in customers expectations of the service that can be provided, a rebalancing of customer responsibilities, and in managing contentment against a more sustainable level of service. The housing service faces clear challenges moving forward, and has also to deliver against significantly raised expectations. The foundations for meeting demands must be rooted in a laser-like focus on collecting rent and managing stock effectively. This will require both strategic direction and oversight, but also experienced housing professionals to deliver the outcomes. Assessment of the two delivery options Analysis of the two options confirms that both are valid paths for the Council to select. Each has associated strengths and weaknesses, opportunities and risks. Option 1: Retain the ALMO with service reviews Through the course of this review it has become apparent that this option cannot be seen as a steady-state or do-nothing option. There is a groundswell of sentiment October 2017 Page 5 of 139

6 across all stakeholder groups that reflection as to the purpose and goals of PHP is needed, and that a course reset is required to ensure PHP can meet the objectives set for it. A misalignment of expectations (both actual and perceived) has arisen as to the remit of PHP and the expectations of its role in delivering the strategic objectives of the Council. There is also a lack of shared clarity in delivering operational policy, and therefore business processes are not delivered seamlessly. This in turn means the service does not make best use of resources or achieve the best outcome for Poole. To reinvigorate the role of the ALMO and to make it a viable option for all stakeholders it is proposed that the Council and PHP undertake a set of joint reviews that address legislative, financial and operational risks and from these rebuild the remit of PHP around the following four cornerstones. Strategic alignment to restate the remit of PHP within the strategic objectives and policy framework of the Council, with clarity of objectives and targets; Service specification to agree a sustainable set of service standards that deliver value-add services at an agreed price point; Governance to provide strong leadership and challenge for PHP within a model that dovetails effectively with the Council governance framework; Clienting to develop an intelligent clienting framework that maximises the value of each organisation for the other. To realise the goals, it is further proposed that a series of focused thematic reviews and resultant plans are used to set and track the following. Best use of resources to make best use of the HRA and General Fund, realise proposed cost savings, maximising efficiency and moving to a lower cost base of service provision; Service alignment to optimise the organisation and delivery of service provision to create a seamless service for residents at an optimised cost; Affordable housing to agree a remit for PHP in contributing to the delivery of affordable housing solutions; Value-added services to agree a remit for PHP in contributing to the wider delivery of service objectives. The strength of this option is that it maintains continuity and avoids any possible loss of operational focus, whilst accelerating efficiency gains and aligning the strategic aims of the Council. PHP has a strong service delivery and community engagement record on which to build on and has the necessary operational and HRA management and development expertise. PHP has identified savings that can be realised through management efficiencies and service offer rationalisation ( 0.25m in and again in , and 0.5m p.a. from ), equating to 12m over the remaining 25 years of the HRA business plan. October 2017 Page 6 of 139

7 The main risks associated with retaining the ALMO are both inherent in the model and in the ongoing delivery of the service through the model. There will remain a layer of management and negotiation between the Council and delivering its objectives and there is a management overhead in excess of 300k. The proposed strategic realignment and strengthened governance and clienting arrangements may fail to embed the Council s objectives, and the savings may fail to materialise. The ALMO may also fail to contribute effectively to delivering wider service goals. Option 2: Return the service to direct Council control Most of the activities outlined for retaining the ALMO must also be delivered within this option, namely, redefining the strategic vision and service specification, developing plans for managing resources, and delivering more affordable housing and value-add service. Financially, bringing the service back in-house should accrue savings in the region of 313k. These are primarily staff savings: management, Board, and support staff costs directly related to the operation of the ALMO. There may also be more efficiencies made in non-staff costs, through reduced need for accommodation, external audit, IT, HR and payroll services. Returning the service to Council control could enable the Council to reshape services more widely and enable more joined-up delivery and development of affordable homes. It will also potentially yield management savings. However, due consideration must be given to creating the optimum service model, how the transition will be managed, and how residents would be engaged in the process. Engaging with residents will be critical and should be facilitated on the basis of an 'offer' to residents, with clarity regarding the structure and operational arrangements proposed for delivery of the in-house service and the alternative structures proposed for tenant and resident engagement at high level, to replace the present arrangements operated by PHP. This level of engagement and the coproduction of an offer may well be a feature of the post-grenfell world. The transition back to the Council will also require careful management with a clear action plan, setting out key milestones, timetable, and lead responsibilities identified for implementation, as well as an organisational design and management-of-change plan for staff that will maintain focus on operational delivery and performance management. The strengths of returning the service to the Council is that it gives the Council direct control over the service at a time of considerable operating challenge and the background of uncertainty with the potential Local Government Reorganisation (LGR). A layer of management would be removed and an annual saving of 313k (potentially more) would accrue a full saving of 7.8m over the remaining life of the HRA business plan. The main risks with returning the service to Council control is the loss of momentum gained by PHP and loss of focus, when it needs to achieve demonstrably more. October 2017 Page 7 of 139

8 Considering the options In considering the cost-effectiveness of both service models, the annual cost of delivering the service could be reduced by 313k (and potentially more) if it were returned to the Council. PHP state that if the ALMO is retained, they could deliver savings of 500k. In addition to these structural savings, we have proposed that a reset of the service specification would reduce the unit cost at which the service is delivered. A profile of structural and service savings can therefore be achieved through either option over and above the headline figures identified with savings identified by PHP potentially achievable with the Council model and the change to the service specification addressable by both. However, careful consideration must be given to how, when and to what level these savings can be realistically achieved, particularly if undertaken in parallel, without jeopardising services performance. The ongoing effectiveness of the service under either model will depend on the ability of the service management team to: maintain the focus on rent collection, repairs and compliance, both during transition, and over the long-term; remodel the service and to deliver the anticipated savings; maintain an appropriate level of customer contentment. While both options could potentially yield significant annual savings, the choice between the two options hinges on which of the strengths and risks associated with retaining the ALMO or those associated with returning to the Council are more likely to enable or hamper the delivery of the service priority. There is also a timing issue in the case of returning to the Council, where there would be a period of transition, whereas in the case of a retained ALMO proposed changes can be started immediately. Longer-term savings can be achieved by re-setting the service specification, which can also be achieved through either approach, but started now would yield savings sooner. Whilst the land available to build new homes within the HRA is extremely limited, projected HRA surpluses and balances based on existing projections could fund the creation of an estimated 13 new homes per annum, and create a further 25 using borrowing within the HRA borrowing cap. The potential savings identified under both options could be used to make a further contribution to the supply of new homes. For the retained ALMO, the potential saving of 12m over the remaining 25 years of the HRA Business Plan could deliver around 60 additional homes. The potential saving of 7.8m for the in-house service could deliver an additional 39 homes over the life of the HRA Business Plan. The backdrop of uncertainty around the LGR will make it difficult to assess the relative merits of the options, as it is the key determinant in shaping broader strategy, policy and delivery mechanisms for Poole within Urban Dorset, if or when it comes into being. If the service is returned to the Council, followed by LGR, there will be two periods of change and disruption that will require careful management. October 2017 Page 8 of 139

9 In the final analysis, the Council and PHP are accountable to the residents of Poole. We recommend that the opportunity is used to engage effectively with as many residents and stakeholders as possible, seeking to draw people into a debate about the nature of services delivered and the priorities for the future. The consultation process should be transparent, inclusive and, so far as possible, representative. Sufficient time should be allowed for the exercise to enable such informed engagement with the largest possible number of residents. October 2017 Page 9 of 139

10 2. INTRODUCTION The Council has commissioned a strategic review of its future housing management options, taking into account the current arrangement between the Council and its ALMO, Poole Housing Partnership. One of the Council s key objectives is to review its expenditure in order to maximise funding for additional homes. This review will assess how the Council s housing management function can be provided to deliver its housing management obligations, achieve value for money and deliver additional homes. The brief for the review can be found in Appendix 1. The review will consider the most cost-effective model for the Council to deliver housing management services, considering the Council s financial sustainability, long term viability of the HRA and the priorities and strategic direction of the Council. This will cover: A review of PHP as a housing manager, in relation to costs and benefits. This will include comparative benchmarking analysis; A cost benefit review of the level of service delivered as compared to statutory responsibility and good practice. Two options being considered are: Retaining the ALMO; The Council taking on the management of the housing management services. The assessment of each option will include: Analysis of the costs, savings, benefits, structures, drawbacks and legal requirements; This will take in to account the strategic priorities and objectives of the Council in relation to the HRA. The review is being undertaken in the context of current proposals for LGR structures across Dorset. Plans for a new council covering Poole, Bournemouth and Christchurch are currently with the Secretary of State for his consideration. If plans progress to implement this option, a new council would come into being in April 2019, though due to the delay in decision making, that date may be pushed forward. Therefore, the review and recommendations would need to take account of any successor council. This is the context but not the driver for the review. October 2017 Page 10 of 139

11 3. CONTEXT Background The Council created PHP in 2004 to manage its housing stock, which currently comprises 4,500 dwellings. Across the country some 70 ALMOs were established under time-limited management agreements to deliver programmes that would bring their councils housing stock up to the Decent Homes Standard. Initially ALMOs focused their activities on management, maintenance and major works. Several later took on a wider range of housing services, such as housing needs and housing options. Some councils like Cornwall and the East Kent authorities established ALMOs as a route to provide quality housing services and promote broader tenant participation, rather than as a means to receive government grant. As decent homes programme works have been completed, ALMOs and their local authorities have been reviewing their future role. There are now 35 ALMOs operating across 38 local authority areas. Some have been brought back in-house under direct Council control and some have transferred and set up as independent Registered Providers. ALMOs that have continued have expanded the range of services that they provide, redefining themselves as local authority trading companies. For stock-owning authorities like BoP, HRA self-financing created a new housing business with all the attendant risks and responsibilities. The reform entailed a redistribution of the national debt amongst authorities. Councils needed to make choices between paying off debt, completing their Decent Homes programmes, long term maintenance, and developing new homes either on their own or in partnership with other organisations or indeed pursuing a mixture of options. National reforms affecting social housing The Council and PHP are operating in an increasingly challenging environment. Two major pieces of primary legislation will reshape the affordable housing landscape over the foreseeable future: The Welfare Reform and Work Act 2016; The Housing and Planning Act In addition, the 2017 Housing White Paper, Fixing our Broken Housing Market, sets out policy aims for the current government. It focuses on the limitations of current housing supply, and various suggestions for increasing the rate of house building. If these suggestions are enacted, they will have several impacts on local authority housing and planning work. They include a requirement that local plans setting out assessments of housing need must be reviewed at least every 5 years, and a proposal to allow local authorities to increase planning application fees by 20% from July As the white paper only sets out proposals, it is unclear if and when these policy intentions will be realised. The commitment to follow through on these proposals is most likely weaker after the snap general election in June 2017 and subsequent loss of majority for the Conservative government. Indeed the 20% planning application October 2017 Page 11 of 139

12 fee increase has already been delayed until the autumn; only time will tell if it will face further delays. The main recent policy changes are therefore as follows: Rents for social housing properties reduced by 1% annually from April 2016 for the next four years; Extension of Right to Buy (RTB) to housing association tenants to be funded by sale of high value void local authority stock; Ending lifetime tenancies; Capping housing benefit to Local Housing Allowance rates; Introducing shared room rate for single tenants under 35; Reducing the household benefit cap to 20k p.a. ( 23k in London); Freezing working-age benefits for four years; Limiting tax credits and universal credit to the first two children in the family; No automatic entitlement to Housing Benefit for year olds; Under Universal Credit, payment of Housing Benefit directly to the tenant rather than the landlord. These changes will reduce the income of all social housing providers, though local authorities will be more adversely affected than housing associations. Under HRA reform implemented in 2012, local authorities assumed responsibility for debt based on the value of the stock, but these new proposals will substantially reduce the rental income to support HRA Business Plans. The social housing rent reduction will contribute to the Government s objective of reducing the cost of the welfare budget, as a substantial proportion of social housing tenants receive housing benefit. The rent reduction means that by year 5, rents will be approximately 13% lower than previous business plan projections. HRA business planning and asset management for the long-term is central, with opportunities and risks in relation to stock investment and improvement. Councils are able to keep the rent collected and use it locally to maintain their homes. Councils still need to maintain a ring-fenced HRA. The debt cap artificially restricts the amount of money a Council can borrow. Providers are reviewing business plans and assessing the impact on development plans, service delivery and their financial strength. Under RTB, council tenants who wish to buy their homes currently enjoy up to a 78,600 ( 104,900 in London) discount. Although councils are able to retain a large proportion of the receipts for three years, the cost of a new home can only be funded 30% from RTB receipts, and borrowing the balance can be restricted by the HRA debt cap. Therefore, in order to build replacement homes, councils would need to raise the balance from other sources such as HRA surpluses, General Fund reserves or prudential borrowing. To date, the number of homes sold far outweighs the replacement homes. October 2017 Page 12 of 139

13 The Government is proposing to extend this to housing association tenants. It is intended that housing associations will replace these homes and will be compensated from the proceeds of local authorities selling off high value council homes. This could result in the Council being required to dispose of high value properties as they become void rather than reallocate them to households in need, including transfer cases and without having the benefit of the receipt. At the time of writing this report, details are awaited, however this could mean that whilst RTB receipts will stay within the remit of the local authority, the receipts from enforced sales will be divided between administration cost, some form of replacement, and funding housing association voluntary RTB discounts. The full extension of voluntary RTB has not yet been announced and is not likely to begin until at least the financial year, given that the Minister for Housing assured housing associations that they would not be required to make any higher value asset payments in An initial pilot of voluntary RTB was conducted with five housing associations across England, beginning in January There was strong interest in the scheme among eligible tenants from each housing association, although research conducted by the Centre for Regional Economic and Social Research indicates that pressures in local housing markets influence the overall level of demand. Concerns were raised at this stage in two main areas. Firstly, that lenders were prepared to offer mortgages at relatively high multiples of household income by treating the discount as a deposit, especially in areas of higher demand. This highlights the potential risk and financial vulnerability amongst some tenants eligible for Voluntary RTB. Secondly, allowing discretion in the implementation of Voluntary RTB leaves scope for considerable variation for tenants in areas where multiple housing associations operate. This was not an issue in the initial pilot, as geographical overlap was purposefully avoided. However, this will be increasingly significant as and when Voluntary RTB is extended further. This is relevant within Poole, as there are four organisations with at least 500 units in the local authority area. A further large-scale regional pilot of Voluntary RTB was announced in the 2016 Autumn Statement, but further details are yet to be delivered. Overall this issue seems to have slipped from the government s radar somewhat, with the most recent statement from the Housing Minister, Alok Sharma, only promising the announcement of more details in due course. Restrictions on lifetime tenancies currently councils have the freedom to offer properties under fixed term tenancies of a minimum (normally) of five years, as distinct from secure tenancies, although they can continue to offer lifetime tenancies. The rationale for this is that adopting shorter-term tenancies alongside permanent options provides the opportunity to use stock more flexibly and meet need in a more targeted way. Each local authority publishes a Tenancy Strategy setting out their policies. There will be consultation on ending all lifetime tenancies. The Government introduced a fundamental reform of the welfare benefits system in order to simplify the existing arrangements and improve work incentives. The introduction of Universal Credit is integrating a range of existing benefits, including October 2017 Page 13 of 139

14 Housing Benefit. The payment of rent directly to tenants is already putting pressure on collection rates and on the level of arrears where it has been rolled out. Halton Housing Trust has reported that the 17% of tenants receiving universal credit accounted for 47% of the total level of arrears, and Gloucester City Homes report that 85% of universal credit claimants are in arrears compared with 20% of all other tenants. Recent coverage in the national press revealed the extent of the risks already associated with the reform, with councils such as Croydon, Hounslow and Southwark stating that more than 2,500 tenants moved on to universal credit are now at risk of eviction. There is therefore a level of uncertainty surrounding this particular policy reform. There is a limit to the total amount of credit any workless household can claim. Where a household s combined living cost benefits and housing benefit exceeds the cap, their benefit entitlement will be reduced to the cap. There is a disproportionate impact on families with children. The maximum a family will be able to receive outside London has been reduced to 20k per annum ( 23k in London), regardless of the number of children in the household. This could intensify unemployment and poverty in deprived areas and put pressure on local resources. Affordability issues could increase the level of homelessness. There is potential for an increasing number of private tenants losing their homes due to rent shortfalls and presenting as homeless. This will place significant demands on local authorities, especially once the new duties from the Homelessness Reduction Act 2017 come into force. This legislation requires councils to help all at risk of homelessness, not just those falling within a priority need group. Councils will gain two further duties from this legislation: to take steps both to prevent and relieve homelessness. The combination of limited affordable privately-rented accommodation, local council funding cuts and the rent reduction for housing associations will make finding suitable accommodation for all those at risk of homelessness extremely difficult. Finally, the devastating consequences of the fire at Grenfell will have considerable and ongoing effects for all providers of social housing with significant changes expected in building regulations and fire safety measures. Any works will need to be funded from current maintenance programmes and are likely to present a financial challenge across the Major Repairs Reserve that funds the ongoing HRA capital programme. The repercussions of the tragic fire at Grenfell Tower will without doubt change the way social housing is regarded, the way it is managed and what is expected of those who manage it. Whilst new regulation and policy will take time to emerge, it will refocus providers on health and safety responsibilities, and the role of residents in setting priorities. Local Authority Arm s Length Management Organisations The first ALMOs were launched in 2002 as a way of achieving social housing investment (Decent Homes funding) without transferring ownership of stock out of October 2017 Page 14 of 139

15 council control, whilst ensuring higher quality management, more effective investment and greater involvement of tenants. The rationale for an ALMO being: The split of strategic and operational roles enables the Local Authority to focus on strategic direction and the ALMO on operational delivery; An independent ALMO Board can enable faster decision making and a more responsive service; Tenants can participate directly in the governance of an ALMO at the highest level and help set priorities based on direct experience of local need; ALMOs have the potential to be flexible local vehicles that local authorities can use to deliver wider social benefits to their communities; ALMOs as separate trading companies can provide income generating services that can reduce the Council s revenue support; An ALMO board can provide a focal point or community leadership. Whilst over 30 ALMOs have been dissolved as their original purpose was fulfilled, as a management model the ALMO vehicle still holds appeal for many councils currently 35 ALMOs manage over 470,000 homes on behalf of 38 Councils. 25 ALMOs have had their management agreements extended past 2020, with a number having long term agreements up to 30 years, the remit of others has been broadened, and new ones created. Shropshire Towns and Rural Housing (2013) and Northampton Partnership Homes (2015) were both launched with long management agreements. The broader remit fulfilled by many ALMOs is evidenced by over half of ALMOs managing homes for other social housing landlords, and delivering services to wider markets. ALMOs also manage over 1,700 private rented sector properties on behalf of landlords. Many fulfil a broader social mission by running programmes for troubled families and training unemployed people to help them find work (85% of ALMOs have mechanisms in place to help tackle unemployment). More broadly, others offer IT, human resources and legal services, and the facilities management of schools and corporate properties. With specific relevance to the requirements of Poole in managing supply of homes and homelessness: Increasing Supply ALMOs built 775 social and affordable rent homes in 2016, a significant increase on earlier years. Plans to deliver approximately 10,500 homes over the next five years have been scaled back to under 9,000 as revised forecasts reflect the impact of the 1% rent reduction. Several councils have created Local Housing Companies (LHC) under the governance of their ALMOs, avoiding the set-up of separate governance and monitoring arrangements for a LATC. Nottingham City Homes are setting-up a Registered October 2017 Page 15 of 139

16 Provider subsidiary to build for private rent, and Barnet Homes have a Registered Provider subsidiary (Open Door) who have plans to build hundreds of new homes. Councils and their ALMOs have also been considering and adopting a range of financing models that do not require the level of partnering and procurement activity associated with housing associations or other private sector arrangements: Use of HRA reserves and surpluses; Borrowing against HRA headroom; General Fund prudential borrowing; On-lending from the General Fund; HCA grant (8 ALMOs have RP status with the HCA and some like Barnet are taking HCA grant as part of their mix of financing options); RTB receipts; Cross-subsidy through the building of homes for sale or shared ownership, to fund affordable housing from the receipts generated; Disposal of assets, including land and buildings within the HRA or General Fund; Disposal of current housing stock, as properties become void, or repurposing specialist stock such as sheltered housing, and ringfencing the receipts for building affordable homes. Homelessness Services The Localism Act has enabled Councils to transfer retained (statutory provision) housing services to their ALMO and restore the previous model of holistic housing service delivery. The ALMO can manage all housing services-end-to-end and link in with other Council priorities including improving life chances, caring for Children and Adults, better education, tackling financial poverty and worklessness. Over two-thirds of ALMOs are delivering elements of strategic housing services, such as homelessness assessments and housing options advice. Many run warden and supporting people services on behalf of their Council. The type of services and support provided by ALMOs such as Derby Homes, Homes for Haringey, St Leger of Doncaster, and Wolverhampton Homes, includes: The development of homelessness strategy drawing upon on-the-ground knowledge and alignment with HRA priorities; Provision of housing options advice, particularly through early intervention to prevent homelessness. This will be even more important from April 2018 when Councils take on new statutory responsibilities under the Homeless Prevention Act; Undertaking homeless assessments; Sourcing, repurposing and managing temporary accommodation, private sector lettings and hostel provision. October 2017 Page 16 of 139

17 Dorset context Local context is also a key determinant in shaping the future delivery option: Poole Local Plan The Poole Local Plan sets out the Council s strategy for the delivery of 14,200 new homes, new jobs and infrastructure in Poole to 2033, facilitating the delivery of affordable housing for local people. The annual target for delivering affordable homes is 710 units. However, in the decade to 2016, only 623 affordable homes were delivered. Poole s demographic profile is generally older, with over 20% of Poole residents over the age of 65 compared with 15.9% in England. Population forecasts for Poole indicate that this could increase significantly (40%) by 2033, with the number of people over the age of 85 expected to nearly double. This demographic change is a recognised challenge for Poole in planning for an ageing population to maximise opportunities for independent living, staying healthy and access to appropriate care facilities and services for elderly residents. The Council has identified a need for 3,425 specialist homes by 2033 to meet the needs of an ageing population as part of the overall housing target of 14,200 homes. In addition to the overall housing target, 816 care home bed spaces will be required (323 residential care and 493 nursing home bed spaces). Future Dorset To protect public services there is a proposal under Ministerial consideration to replace the existing nine authorities with two unitary councils for all of Dorset - a rural authority, and an urban authority (Urban Dorset), covering Bournemouth, Poole and Christchurch. The rationale of the plan is that the two new structures will lower overheads, and will therefore have more resources to spend on frontline services. They will also be better placed for each area to prosper economically and establish a strong sense of place. The planned timeline for the new arrangement is for launch in April 2019, and the proposal was submitted prior to the 2017 General Election to the Secretary of State, Rt. Hon. Sajid Javid, MP, for consideration. At the time of writing this report, the nature and timing of the any changes of arrangement are unknown and therefore this provides an uncertain backdrop for this review. The formation and definition of the strategic priorities will form the backdrop to the delivery of housing service over the next three to five years. Particularly in establishing the priorities for housing within the new authority, and converging the diverse approaches currently followed by the three existing authorities (Bournemouth has directly-manged retained stock, and Christchurch has no councilowned stock). October 2017 Page 17 of 139

18 Poole and Bournemouth Shared Services In June 2016 BoP and Bournemouth Borough Council agreed a policy of creating joint corporate support services and joining up other services where opportunities arose and where it made sense to do so. Roles combined included Heads of HR, ICT, procurement and legal services. This has since developed into a shared joint corporate services programme. The ongoing financial challenge for both councils is significant, with a combined 27.8m reduction in annual spending required over the three-year period between 2018 and 2021, with 10.7m relating to Poole. In July 2017 at a BoP Council meeting, it was agreed, in principle to the development of a single officer structure for all services for BoP and Bournemouth BC with officers requested to bring forward proposals for this in consultation with the Portfolio Holders of the Cabinets of each authority. It was also agreed that the implementation of the proposed shared services arrangements for Corporate Services should proceed. Financial Context The Housing Revenue Account (HRA) The HRA has been in existence in one form or another since the early part of the 20 th century and has been the statutory account within the Council s General Fund in which income and expenditure relating to the provision of council housing must be accounted for. Until 1989, there was less scrutiny regarding what should and should not be accounted for within the HRA, and indeed it was possible for HRA balances to be used for General Fund expenditure as well as General Fund balances to be used to meet any deficits in the HRA. This all changed with the passing of the Local Government and Housing Act 1989, which introduced for the first time the concept of the ringfenced HRA, as well as HRA subsidy the means by which government would provide support for local authority housing so as to avoid any need to subsidise council housing from the General Fund. At that point, the HRA effectively became a landlord account, meaning that only income and expenditure relating to a Council s role as landlord of the properties it owned should be accounted for within the account. Historically, many authorities had until this stage taken a fairly relaxed view regarding what the ring fence meant. It took the Ealing judgement of April 1992 relating to what should appropriately be charged as Housing Management, and the Department of the Environment circular 8/95 to help clarify and strengthen the ring fence, specifically in respect of items which were not seen as being part of the landlord function (such as housing needs and welfare services), and should not therefore be borne by the HRA. There have always been grey areas, particularly where allocations of costs between the General Fund and HRA are a matter of judgement. It has been the case for some years that in respect of these types of costs, there should be in place a robust October 2017 Page 18 of 139

19 methodology for apportioning the respective costs, and that the results should appear reasonable in terms of the relative split of costs. The bottom line has always been that any such apportionments must stand up to audit scrutiny. Whilst this has helped to prevent authorities from blatantly loading inappropriate costs into the HRA, it has not necessarily prevented some authorities from charging what could be perceived as being an excessive share of support service costs to the HRA. The concept of the ring-fenced HRA was effectively taken a stage further as a result of the introduction of HRA self-financing in April It put an end to the previous HRA subsidy regime in exchange for an adjustment to the amount of HRA debt held by a council (increased if the council was previously contributing to the national subsidy pool and reduced if the council was in receipt of subsidy payments from the pool) and meant that council housing would in future be self-supporting. The idea was that a given council should be able to use the income derived from its own property to manage and maintain the housing accounted for within the HRA. It would be able to fund the capital financing charges, as well as potentially deliver new affordable housing using (in most cases at least) the increased resources available within the HRA as a result of the new regime. There have been two subsequent changes to the way rents are treated within the HRA, both of which have reduced rent levels from those assumed in calculating the debt adjustment required for self-financing. The first effectively ended rent convergence where this had not already been achieved, and changed the basis of inflation to be applied to HRA rents from RPI-based to CPI-based. The second has had more of an impact, and is the mandatory reduction of 1% per annum for a period of 4 years commencing April This has had a significant impact on the business plans of many local authorities, some of which are experiencing hardship as a result, and has also impacted on the delivery of new housing by local authorities as a result of reduced income levels. Notwithstanding these changes to the calculation of rents, the HRA ring fence remains firmly in place. The HRA is still a landlord account, and the income and expenditure transactions passing through the account should be solely related to activities undertaken in the council s role as landlord of the properties which it owns, or for which it owns the freehold in the case of properties sold under the Right-to- Buy on a leasehold basis. HRA funds cannot be used to support activities which should properly be accounted for within the General Fund, nor can the General Fund be used to fund activities which should properly be accounted for within the HRA. A general rule of thumb would be to use the analogy of stock transfer: if the stock was to be transferred to a housing association, would the cost being considered transfer with the housing stock or would it remain with the Council? If it is the former then it would be properly charged to the HRA, but if it is the latter, then it should either not be charged to the HRA or should be met by a service charge. HRA resources may be used to fund either revenue or capital activity, with the two provisos that the HRA is not permitted to go into a deficit position, and that once resources have been transferred to capital then they cannot be reverted to revenue. October 2017 Page 19 of 139

20 Decisions on spending are a matter for the Council and/or any Arms Length Management Organisation, in conjunction and consultation with residents. It will be necessary to balance the needs of the service against desirable, though potentially conflicting, outcomes to best meet the Council s objectives. This could mean that there may be differences of opinion in respect of the priorities of residents versus those of the Council. Whilst HRA balances are only for HRA use, they are not necessarily solely for the benefit of existing tenants and leaseholders, and it may be desirable to use balances to help fund new affordable housing for the benefit of future tenants. Additionally, there may be instances where expenditure within the HRA on areas such as anti-social behaviour would provide benefits to the wider community rather than just existing tenants and leaseholders. Both of these examples would still be in line with the concept of the ring-fenced HRA. October 2017 Page 20 of 139

21 4. METHODOLOGY Objective This review has evaluated the options for the provision of landlord services for BoP s stock as the basis of an appraisal report for the Council s Cabinet. Operational and financial performance review A desktop assessment of the performance of PHP has been made against: The Homes and Community Agency (HCA) Regulatory standards (consumer) that contain the required outcomes and specific outcomes that providers are expected to achieve: Tenant Involvement and Empowerment standard Home standard Housing and Community standard Tenancy standard Note: The three HCA economic standards covering governance and financial viability, value-for-money and rent do not apply as PHP is not a Registered Provider and the HCA does not set these standards for Local Authorities. Key performance targets set by the PHP Board ( ), improvements made over time, the quality of services delivered and customer satisfaction with the service; Customer Satisfaction derived from periodic, independently conducted tenant and leaseholder satisfaction surveys (STAR Surveys 2016) that show trends over time and facilitate direct comparison and with a range of similar providers; HouseMark Benchmarking Club analysis ( ) against the benchmark group to which PHP belongs, which consists of 11 non-metropolitan ALMOs including Eastbourne, Blackpool, Cheltenham and Gloucester; Review of key strategy and management documents including the Asset Management strategy, Value for Money Statement and review of the Poole Standard (Ridge and Partners 2016). These snapshots of performance were not taken at the same time, and therefore don t provide a single reference point in time in which to make direct comparisons. Our approach therefore is to establish the direction and speed of travel of PHP and to highlight strengths and weaknesses in its operational performance. We have carried out a financial impact assessment on both the Council s General Fund (GF) and HRA of the two options under consideration through analysis of the Council s HRA and long-term business plan; HRA and PHP budgets and reports; and October 2017 Page 21 of 139