A SUBMISSION TO THE SPENDING ROUND

A SUBMISSION TO THE SPENDING ROUND 2015-16

02 The headlines Invest in affordable housing as an economically valuable industry Recognise the building of affordable housing as an economically valuable activity and offer an investment programme beyond 2015-16. Invest 2bn a year to deliver 55,000 to 65,000 new affordable homes, within a wider programme of investment-boosting measures. Certainty vital for future borrowing Give housing associations and their lenders clarity and confidence over long-term income streams by confirming that social rents will continue to be set by the existing rent formula, increasing by RPI + 0.5% (+/- 2) for the next ten years. Understand the impact of current welfare reforms before considering further spending proposals Exclude social security spending from the cap on Annually Managed Expenditure (AME) as an unacceptable risk to the economic and social stabilisation it offers. Reforming health investment At least 300 million in capital investment for new and remodelled supported and specialist homes for older and vulnerable people. Incentivise investment in preventive services unlocking small proportions of spending on acute care to deliver early-interventions in the community. Maintain Disabled Facilities Grant funding in real-terms to enable disabled and older people to live independently in their own homes.

03 Single Local Growth Fund Government capital investment in social and affordable housing development should continue to be administered at a national and London level (through the HCA and GLA respectively). Assess the suitability of other housing funding streams for inclusion in the Single Local Growth fund (known as the single pot ). Making public investment go further Fast-track the release of small parcels of public land. Encourage the release of surplus NHS land. Extend the affordable homes guarantee programme beyond 2017 and allow it to be used for refinancing. Extend the Build to Rent Fund and market rent guarantees. Make better use of Recycled Capital Grant Fund (RCGF) for estate regeneration and refurbishment. Reduce the VAT rate from 20% to 5% for the repair, refurbishment and renovation of affordable housing. Housing associations should retain the right to manage their assets.

04 Introduction Housing as a driver of economic growth The Government has recognised that housing drives growth with a speed and effectiveness that few industries can match. It has a crucial role to play in this country s economic recovery. The statistics speak for themselves the macroeconomic benefits of investing in affordable housing are enormous. Every affordable home built creates 2.3 jobs in England and generates an additional 108,000 in the wider economy. Every affordable home built creates 2.3 jobs in England and generates an additional 108,000 in the wider economy. For every 1 of Gross Value Added (GVA) as a result of investment in new affordable homes, an additional 1.41 of GVA is generated in the wider UK economy 1. The total GVA multiplier of 2.41 represents one of the highest multipliers in the UK economy. For every one Full Time Equivalent (FTE) job supported by investment in new affordable housing, an additional 1.51 FTE jobs are supported in the wider economy. This employment multiplier of 2.51 produced a total employment impact of 110,000 FTE jobs in 2010. 2 Affordable housing is economically valuable Housing should be formally regarded as an economically valuable area of capital expenditure 3, and steps taken to ensure that investment is available for as long a term as possible. This would offer the highest value for money and maximise the number of homes delivered. The current context 11.5bn savings are sought in this Spending Round, but alongside a stated ambition of protecting services 4. The Chancellor has said he wants to get our deficit down and focus on our nation s economic priorities. 1 Centre for Economics and Business Research, The economic contribution of building new affordable homes and of housing associations at the national, regional and local levels: Report for the National Housing Federation, January 2013 2 Ibid 3 Budget Report, para 2.10, March 2013 (HC 1033) 4 Budget statement: Chancellor s statement, 20 March 2013

05 For many years, the country has not built enough homes to keep up with demand. We need at least 240,000 new homes each year. Last year, just 111,250 new homes were built less than half the number needed. The failure to address this gulf is not a recent occurrence. Since the 1950s, the private sector has built an average of 138,000 new homes each year, but in 2010/11 this fell to 83,210. Housing associations began developing homes at scale in the mid-1970s. In 2011/12, there were 51,665 affordable housing completions, with over 90% delivered by housing associations 5. From 1982 to 1990, England saw a jump in births to nearly six million - over roughly the same period, just 2.1 million homes were built. Figure 2: Housing completions by sector 400 Homes built (1,000s) 350 300 250 200 150 100 Local authorities Housing associations Private enterprise 50 0 1946 1954 1962 1970 1978 1986 1994 2002 2008 Source: DCLG (Live table 244) Demographic change homes for the new generation From 1982 to1990, England saw a jump in births to nearly six million. Over roughly the same period, just 2.1 million homes were built. Over the next decade, as those babies approached their teens, the number of new homes dropped by 13%. Many are now in their late 20s and early 30s and struggling with housing costs. England experienced a further baby boom between 2001 and 2011, with 7.3 million births. By 2018, another generation of ambitious young men and women will need to leave home, putting massive strain on an already beleaguered housing market. 5 HCA, National Housing Statistics 2011/12, June 2012

06 Spending review in context The 2010 Spending Review saw capital investment in housing reduced from 8.4bn for the period 2008-11 to 4.5bn for 2011-15. This represented a 63% cut in real terms the biggest single cut to any capital budget across government. The only way to maintain the supply of affordable homes was to increase rents, supporting building by relying more heavily on future housing benefit expenditure. As a one-off response to dire economic circumstances, it was a challenge to which housing associations rose. They are on track to deliver 170,000 new affordable homes between 2011 and 2015. However, this scale of investment cannot be sustained further without pushing housing associations towards unacceptable levels of risk and impossible borrowing levels. The 2010 Spending Review saw capital investment in housing cut by 63% in real terms. Rebalancing investment towards capital The recent rise in the housing benefit bill is a result of the recession and higher unemployment. However, the long-term trend appears more structural than cyclical. With the housing benefit caseload remaining largely consistent, the dramatic increase in housing benefit spending can be attributed to claimants increasingly being housed in the more expensive private rented sector. The consequence is that, of every 1 of government expenditure on housing, 95p is spent on housing benefit and only 5p on building new homes 6. This ratio is unsustainable in the long-term and should be reversed. The simplest and most effective way of redressing the balance and reducing the housing benefit bill is build more affordable homes. This makes government support for new affordable homes absolutely critical and below we outline steps which will ensure it is best targeted. The Government needs to rebalance a programme more towards capital investment. Without taking a long-term view of how we deliver the homes the country needs, we are in danger of aggravating the housing crisis, increasing the housing benefit bill and ignoring the needs of future generations. 6 IPPR, Backing benefits to bricks : our big cities need deal-wheeling housing powers, May 2013

07 Future capacity There is undoubtedly further capacity across the house building sector private developers, housing associations and local authorities to increase housing supply. It has been suggested that demand-side measures to assist private developers (such as Help to Buy) have increased appetites to boost supply by between 20% and 30% from current levels. This would mean private developers building between 115,000 and 130,000 new homes a year over the next five years 7. This still leaves housing supply some way short of the 240,000 homes needed each year. It remains to seen what the level of appetite for the housing guarantees programme will be this is likely to be dependent on the extent to which it is able to reduce borrowing costs and stretch capacity. Nonetheless, it is clear that further government intervention is needed to bridge the supply gap. Of every 1 Government expenditure 95p Spent on housing benefit 5p Spent on building new homes 7 Savills, Additionality of Affordable Housing, January 2013

08 The case for investing in affordable homes Housing associations in England provide two and a half million homes for more than five million people. They invest in a diverse range of neighbourhood projects that help create strong communities. Each year they build tens of thousands of new affordable homes. Housing associations in England provide: Government investment in new affordable homes not only helps tackle our growing housing crisis, but also has a fundamental role to play in: Economic growth, including the green economy Boosting the number of new homes across all sectors Improving employment mobility 2.5m homes for Improving health outcomes and reducing health costs Economic growth Housing has a crucial role to play in this country s economic recovery. 5m people Every affordable home built creates 2.3 jobs in England and generates an additional 108,000 in the wider economy. Public investment offers greater benefit to those on lower incomes than those who are well-off. This is especially relevant for investment in affordable housing. It can mean that people have more disposable income after housing costs, which in turn boosts spending in the local and national economy. Boosting new homes in all sectors There is a strong positive link between affordable and private housing completions. Affordable housing can help developers access sites, facilitate agreements with local authorities and help improve the financial viability of schemes. It also has a role to play in development finance, by providing early and certain cash flow. Without this, the financial capacity of the typical private developer (particularly at a time where sales volumes remain low) would be reduced. It is a catalyst to much of private developers current output. Arguably, investing in affordable housing could complement and improve the effectiveness of the Government s recent housing

09 announcements. These demand-side measures, such as Help to Buy, are designed to boost consumer appetite, primarily by helping prospective home buyers overcome the problem of finding a deposit. Increasing the supply of affordable housing alongside these measures could further boost the capacity of private developers to increase house building, whilst increasing the overall housing supply allaying concerns that Help to Buy risks a rise in house prices. Increasing the supply of affordable housing could help boost building of all kinds of homes. Boosting employment mobility Increasing housing supply can also improve labour market dynamics, allowing people to move home to take jobs, improve skills and widen employment opportunities. This is especially true of affordable housing, which allows employers to recruit and retain lower paid workers in higher value areas many of these jobs are in public services essential to keep the economy running. Reducing health costs Affordable housing can help reduce wider social and health costs. By offering homes less likely to cause health problems, and offering vital support to tenants, housing associations reduce the need for crisis services, such as acute care. Frontier Economics analysis of capital investment in specialist housing with care and support 8 concluded that 1.7bn of investment delivers net savings to the Exchequer of 639m each year. Joined up approach To ensure that government support for the delivery of affordable housing is effective, and to fully realise the economic benefits, it is crucial to take a whole-system approach. This means having clarity over the relationship between capital investment, rent setting and the impact of welfare reform. The relationship between these three elements is such that a failure to deliver the most appropriate outcome for one would severely undermine the potential of the other two elements. 8 Homes and Communities Agency (2010) Frontier Economics - Financial Benefits of Investing in Specialist Housing for Vulnerable and Older People, www.homesandcommunities.co.uk/sites/default/files/financial_benefits_of_investing_in_specialist_housing.pdf

Invest in affordable housing as an economically valuable industry 10 Recommendations Recognise the building of affordable housing as an economically valuable activity and offer an investment programme longer than the 2015-16 spending year Invest 2bn a year to deliver 55,000 to 65,000 new affordable homes, within a wider programme of investment-boosting measures (see later sections) Background The Comprehensive Spending Review in 2010 saw capital investment in housing cut by 63% in real terms the biggest single cut to any capital budget across government. Despite this, housing associations have committed to and remain on track to deliver 170,000 new affordable homes over the period 2011 to 2015. Investment in affordable housing Housing associations 6 Government 1 This has, in part, been made possible by the Government requiring housing associations to derive higher revenues by charging higher rents on new homes and a proportion of re-let properties. More significantly, housing associations have accessed greater levels of private finance and taken on much higher levels of debt. For every 1 the Government has invested in affordable housing over the current spending period, housing associations invested 6 of their own resources. That they are able to do so is testament to their financial strength and the confidence that lenders and investors have in their business, ability to innovate and management of risk. This investment model is not sustainable in the medium-to-long term. Whilst it is arguable whether it could be repeated over the next spending period, continuation risks completely exhausting housing associations long-term capacity. It is likely to result in many housing associations being forced to suppress their development plans to rebuild their financial strength.

11 By requiring higher levels of borrowing, the current Affordable Housing Programme (AHP) has pushed many housing associations towards the upper limits of their gearing covenants, and taking on more debt is simply not possible. Whilst interest cover is less of a constraint, perhaps the most significant challenge is around asset cover. There is little remaining housing stock against which to secure additional borrowing. Without redressing the balance between capital and revenue based support for the development of new affordable homes, the Government risks fundamentally undermining its own aspirations for a house building-led recovery. Housing associations are well-placed to lead short-term economic stimulus, but this must be accompanied by longterm stability of capital investment to be most effective. The NAO highlighted that a capital-based approach to investing in affordable housing represented greater value for money. Whilst a revenue-based model, similar to the current AHP, may have lower up-front costs, it leaves government with a long debt legacy. This is recognised in the Government s own Impact Assessment of affordable rent and the National Audit Office s (NAO) subsequent analysis of the AHP. The NAO highlighted that a capital-based approach to investing in affordable housing offered the highest ratio of benefits to costs, so represented greater value for money. This was largely the result of expected housing benefit savings made where people move from the private rented sector, which more than offsets the initial capital cost. Capital investment is crucial in allowing housing associations to charge lower rents. It is also gives government its most effective policy lever to enable it to shape the nature of affordable housing delivery and target support in areas and markets of most need, according to its priorities.

12 Our offer Housing should be regarded as an economically significant investment and steps should be taken to ensure that capital investment is available for as long a term as possible. This would ensure that public investment can be used in the most effective and efficient way, offer the highest value for money and maximise the number of homes delivered. Housing associations are keen to work in partnership with government to deliver the new affordable homes this country desperately needs. The Federation believes there are three main options for affordable housing investment. All may support further innovation in the sector s relationship with government. Option 1 The Government invests 2bn a year to deliver 65,000 new affordable homes. This is based on a mix of 75% Affordable Rent and 25% Shared Ownership. Decent, affordable rented housing gives families the opportunity to thrive in mixed-income and mixedtenure communities. Shared ownership continues to be the most affordable and well-understood way of meeting the home ownership aspirations of low-to-middle income working households. Over a four year period, government investment of 8bn, matched by an investment of 28bn from housing associations, would be sufficient to deliver a total of 260,000 new affordable homes. This would help create and sustain almost 150,000 jobs each year and contribute an additional 28bn to the economy over four years. Option 2 Government invests 2bn a year to deliver 55,000 new affordable homes. This is based on a more balanced housing mix of 50% Affordable Rent, 25% Social Rent and 25% Shared Ownership. This would ensure a more comprehensive delivery of mixed-tenure and mixed-income communities and allow housing associations to meet a wider range of housing need. Over a four year period, government investment of 8bn, matched by an investment of 23bn from housing associations, would be sufficient to deliver a total of 220,000 new affordable homes. It would help create and sustain over 125,000 jobs annually and add a further 24bn into the economy during the four years.

13 Option 3 Government invests 2bn a year to deliver 60,000 new affordable and market homes. This approach is not predicated on a pre-determined tenure mix. Rather housing associations would have the appropriate freedoms and flexibilities to negotiate and determine the precise nature of their programme within a funding envelope. This process could be structured to meet both national and local priorities, ensuring that housing delivery is genuinely responsive to the needs of local housing markets. Investment could be used to support the delivery of rented homes at a range of price points including social, affordable and market levels. This may allow housing associations to better address affordability challenges, match rents according to the market and the need, and manage risk. It may also be used to help people into home ownership via rent to save, shared ownership or shared equity. Funding would better reflect the cost of delivery and incentivise the development of hard to build homes. For example, increasing the supply of housing in rural areas, of specialist and supported housing and of larger homes, where delivery costs are greater but deliver higher economic and social benefits. Assumptions We have assumed that the cost to government would not be affected by the estimated 3.5% rise in the cost of building homes driven by increases in the cost of labour and materials. Housing associations continue to make efficiency savings and we are confident they are well-placed to absorb these higher costs. Delivery is also dependent upon a robust mechanism that brings affordable homes through the planning system via on-site developer contributions. Even through the downturn, Section 106 agreements have delivered half of the affordable homes completed. Without a robust on-site mechanism for developer contributions we are unlikely to deliver the number of affordable homes we desperately need.

14 Certainty vital for future borrowing Recommendation Give housing associations and their lenders clarity and confidence over long-term income streams by confirming that social rents will continue to be set by the existing rent formula 9, increasing by RPI + 0.5% (+/- 2) for the next ten years. Background The Government s commitment in the 2013 Budget to outline a social rental policy until 2025 was welcome. It is crucial that this ten-year rental settlement gives housing associations the confidence and resources to plan for future development. It should allow them to secure long-term finance, at competitive rates, and invest in muchneeded affordable housing. The Government s commitment in the 2013 Budget to outline a social rental policy until 2025 was welcome. In the short-to-medium term, the need for continuity and certainty outweighs any immediate need for freedoms and flexibilities. With significant uncertainty and change in almost every area of housing, most notably the unknown implications of welfare reforms, rental policy offers much-needed stability. Lenders and investors place great value in the stability and predictability offered by the current approach to social rent setting, which helps housing associations to access competitively priced finance. Index link Retaining the Retail Price Index (RPI) for the index-link is also crucial. Moving to the Consumer Price Index (CPI) would have significant implications for the business plans and capacity of a large number of developing and non-developing housing associations. Indicative analysis of the 25 largest housing associations shows that a move from RPI to CPI between 2011 and 2015 would have cost 290m sufficient to support the delivery of 15,000 new affordable homes. 9 Accounting for the relative value of the individual home compared to the national average property value (30% weighting) and local manual income levels relative to the national average (70% weighting)

15 Future review Confirmation of a ten-year rental settlement, based on the existing approach with increases of RPI + 0.5%, could provide the certainty needed to facilitate a more fundamental review of the way rents are set in the future. The Federation would welcome the opportunity to work with the Government to identify the most transparent and effective approach to rent setting, whilst maintaining revenue stability in the medium-tolong term. This might include: Establishing what government and housing associations want from affordable housing and what constitutes affordable Designing a rental system around this, assuming there is a shared understanding Revising existing rents to better reflect affordability, for example rebasing the level of target rents and gradually migrating rents upwards for working households, within the boundaries of affordability Establishing an affordability threshold to identify minimum and maximum rent levels that could be charged and giving housing associations freedom to set rents between these in a way which best meets the needs of their local housing market Establishing a rent envelope, with the freedom to offer rent levels at a range of price points. Though the implications of this, in relation to existing rents, are likely to vary around the country, this is likely to significantly boost development capacity across the sector.

Understand the impact of current welfare reforms before considering further spending proposals 16 Recommendation The Government should exclude social security spending from the cap on Annually Managed Expenditure (AME) as an unacceptable risk to the economic and social stabilisation it offers. Background The Welfare Reform Act brings in the most radical shake up of welfare in a generation, the negative impacts of which could be intensified by a cap on AME. More than a third of housing associations believe the introduction of direct payment to tenants will make it harder to build new homes. The cumulative impact of planned welfare changes will reduce the already stretched incomes of households across the country. They are also likely to have a major impact on housing associations operating costs. The Department for Work and Pensions is running a series of demonstration projects to test direct payments. The initial findings show a significant rise in rent arrears - 8% of rent is going unpaid, a 60% increase on normal levels. The full impact will not be known until the projects finish in June 2013. Similarly, recent research by Ipsos MORI showed that housing associations expected rent arrears to increase by 51%. Between 2010 and 2012, rent arrears across all housing associations averaged 5%. In 2012, housing associations net rental income totalled 11.5bn. So if arrears rise as expected, this would equate to over 288m in cash terms across the sector or sufficient to support the delivery of over 15,000 new affordable homes. Such a significant increase in arrears would undermine housing associations ability to access funding, resulting in fewer new homes being built. More than a third of housing associations believe the introduction of direct payment to tenants will make it harder to build new homes. The credit rating agency Moody s has indicated that further reductions in welfare spending and the risks associated with universal credit could have serious implications for housing associations credit profile by endangering their principal income stream through rents. Whilst we are confident of housing associations ability to manage this, it further highlights the fact that welfare changes could lead to unforeseen and unintended consequences for both landlords and tenants.

17 In the meantime, there remain important questions about how the Government could operate such a cap. It would need to reconcile a spending limit with allowing the automatic stabilisers, such as housing benefit, to support the economy and protect pensioner benefits. Cyclical spending, such as housing benefit, has risen in recent years because of the deterioration in our economy. As economic activity picks up, this spending will fall. Placing restrictions on these automatic stabilisers may endanger the economic recovery. The initial findings show a significant rise in rent arrears - 8% of rent is going unpaid, a 60% increase on normal levels. Any cap on AME that includes housing benefit risks damaging the principal income stream of housing associations and the future delivery of affordable homes. We would ask the Government to explore the impact of any cap on AME robustly.

18 Reforming health investment Recommendations At least 300 million in capital investment for new and remodelled supported and specialist homes for older and vulnerable people Incentivise investment in preventive services unlocking small proportions of spending on acute care to deliver early-interventions in the community. This could involve a range of methods, including a community budget approach involving acute trusts and health and wellbeing boards and exploring impact bond models for health Appropriate housing with care and support enables people to remain independent in their own home. Maintain Disabled Facilities Grant funding in real-terms to enable the vital home adaptations that assist disabled and older people to live independently in their own home and reduce demand on health services. Background Safe, settled homes that maximise people s independence are a vital health and care intervention. Strong partnerships between housing associations and health providers are needed deliver the housing we need. Appropriate housing with care and support enables people to remain independent and receive support in their home rather than have to move to more institutional settings, including hospital. Delivery of preventative services reduces the need for more intensive and expensive interventions. Housing associations can: Provide early intervention that reduces demand on the rest of the care system Support earlier discharge from acute to recuperative care, or adapted homes Create new supported housing that ends the need for expensive outof-area placements and enables people to return to their home areas with a suitable and more cost-effective package of care and support. The need for supported and specialist housing cannot be met by the market. Current supply is not keeping pace with needs. By 2030, it is estimated that the number of people aged over 85 will have doubled. 10 The House of Lords Select Committee on Public Services and Demographic Change s report Ready For Ageing? found that the NHS needs to transform to meet the increasing demand for health and social care in the population overall, and particularly for older people 11. 10 Office for National Statistics, 2010-based Population Projections for England 11 Select Committee on Public Service and Demographic Change, Ready for Ageing? Report, March 2013, www.publications.parliament.uk/pa/ld201213/ldselect/ldpublic/140/140.pdf

19 Frontier Economics analysis of capital investment in specialist housing with care and support concluded that 1.7bn of investment delivers an annual net benefit to the exchequer of 639m 12. Government investment in specialised housing for older people and adults with disabilities or complex needs is cost-effective, with positive impacts across a number of high-cost areas of health and care spending: Early provision of support at home can decrease expensive institutionalisation by 22%. The NHS currently spends 600 million each year treating people due to severe hazards in poor housing, mainly from fall-related injuries 13 Analysis of the impact of extra care housing, suggests residents achieve better outcomes compared to regular housing 14 A study by the Tyneside Cyrenians shows that providing a package of help including drug treatment, support for health and other needs and training leads to sustained employment for vulnerable people. The annual average cost to the public purse is reduced by 89%. 15 Specialist housing, care and support is also integral to improving health outcomes for people with dementia. The Prime Minister s challenge on dementia has set out the scale of the task ahead, with a likely one million people living with dementia by 2021 16. Two-thirds of people with dementia live in their own homes or specialist housing, while one-third live in care homes 17. Early provision of support at home can decrease expensive institutionalisation by 22% 18. Most people do not need to move into specialist housing, requiring only minor adaptation of their existing home. It is essential that Disabled Facilities Grants continues to be funded. Around 1.5 million older people have a condition requiring special adaptations. 70% of demand for adaptations comes from older people, and the number of disabled older people is set to double over the next 30 years 19. 12 Homes and Communities Agency (2010) Frontier Economics - Financial Benefits of Investing in Specialist Housing for Vulnerable and Older People www.homesandcommunities.co.uk/sites/default/files/financial_benefits_of_investing_in_specialist_housing.pdf 13 Integration: a report from the NHS Future Forum, 2012 14 www.housing.org.uk/_library/resources/housing/research_evaluation/pssrusummary.pdf 15 Clare Wigmore, Virginia House Self Build Economic Cost Benefit Analysis, Tyneside Cyrenians, 2009 16 Alzheimer s Society (2011), Support. Stay. Save. 17 Ibid 18 Gaugler JE, Kane RL, Kane RA & Newcomer R (2005), Early Community-Based Service Utilization and Its Effects on Institutionalization in Dementia Caregiving. The Gerontologist, 45, 177 185. 19 Commission for Social Care Inspection (CSCI), The state of social care 2006-07, CSCI, 2008; MORI/Housing Corporation, 2001, cited in HABINTEG Housing association guide to disability equality schemes and action plans, HABINTEG, 2007

20 Single Local Growth Fund Recommendation Government capital investment in social and affordable housing development should continue to be administered at a national and London level (through the HCA and GLA respectively). The Government should assess the suitability of other housing funding streams for inclusion in the Single Local Growth fund (known as the single pot ) based on whether it would deliver better value for government and tax-payers and deliver the housing this country needs. There are risks that transferring all housing funding to a local level may actually reduce the overall housing supply at a national level. Background In the 2013 Budget, the Government endorsed the creation of a Single Local Growth Fund, devolved to the local level through new Local Growth Deals. Funding will be allocated to Local Enterprise Partnerships (LEPs) and Core Cities on the basis of strategic multi-year plans for local growth. LEPs and their partners will be challenged to leverage private and local funding and commit to governance reform those that offer the most will be more likely to benefit in terms of funding and flexibilities. The Single Growth Fund will be operational by April 2015. There are three areas that the Government sees as critical to the success of the Single Local Growth Fund: transport, housing and skills. The Single Local Growth Fund must include elements of all three budgets if it is to give local areas influence over the levers that matter for growth. Devolving some housing funding to a Local Growth Fund may present opportunities to innovate and increase the number of homes built in some areas. However, there are risks that transferring all housing funding to a local level may actually reduce the overall housing supply at a national level.

21 The Government will apply criteria in deciding which funding streams should be included in a Local Growth Fund, including: whether national or local decision-making best achieves the desired outcomes whether there are significant national level economies of scale or scope, that clearly outweigh any potential efficiency gains from devolution A thorough overview of the homes needed around the country is crucial. whether there is clear evidence that spillovers and allocative efficiency gains operate predominantly at national not local level whether there is clear evidence that there are no efficiency gains to be realised from enabling greater local tailoring and coordination of service provision. The Government s proposal to devolve capital housing investment would fail its own test for inclusion on many counts. A national and London based programme offers significant economies of scale that outweigh any efficiency gains from devolution and we believe national decision making best achieves the desired outcomes. The Government should focus on other housing funding streams, for example Empty Homes and local growth funding, which could deliver potential efficiency gains by being included. A thorough overview of the homes needed around the country is crucial if funding is to be directed efficiently to communities with the greatest need. The Government must also ensure that any devolution of funding provides proper value for money and accountability to communities, without adding more layers of bureaucracy. House building quickly creates local jobs and supports small businesses, so it should be central to ambitions for driving local economic growth. Housing associations, with expertise in development, regeneration and community investment, can help attract significant private investment. They should be involved in local discussions to ensure their communities benefit fully from these proposals.

22 Making public investment go further Recommendations Fast-track the release of small parcels of public land. Encourage the release of surplus NHS land. Extend the affordable homes guarantee programme beyond 2017 and allow it to be used for refinancing. Extend the Build to Rent Fund and market rent guarantees. We support the Government s ambition to release public land with enough capacity to build up to 100,000 new homes by 2015. Make better use of Recycled Capital Grant Fund (RCGF) for estate regeneration and refurbishment. Reduce the VAT rate from 20% to 5% for the repair, refurbishment and renovation of affordable housing. Housing associations should retain the right to manage their assets. Fast-track the release of small parcels of public land The release of public sector land has a crucial role to play in increasing the delivery of new homes. We support the Government s ambition to release public land with enough capacity to build up to 100,000 new homes by 2015. This could make a real difference. However, despite the best intentions, this policy proposal has yet to translate into significant action on the ground. This Spending Round provides an ideal opportunity to build on this pledge and release sites that housing associations can build on quickly. The Federation is therefore calling on the Government to introduce a targeted release of small, non-strategic parcels of previously developed public land. There is a clear benefit to this approach. These sites, which can accommodate up to 100 homes, can be developed at a faster rate than large, complex schemes. Unlike larger sites, they do not require significant site assembly or infrastructure development and do not tend to experience lengthy planning processes. Housing associations are ready and able to build on these sites and could bid for them through an innovative open competition. By fasttracking these sites in this way, we could get homes built this Parliament, driving growth now and creating much needed jobs.

23 We support the Home and Communities Agency (HCA) acting as a single shop window for the marketing of public land. However, we believe that the HCA should also be given more powers to take a proactive role in central government surplus land disposal where land is not moved towards disposal quickly. The Government should extend the affordable homes guarantee programme. Encourage the release of surplus NHS land Similarly, the Government should take more active steps to encourage the release of NHS land. Research suggests that selling half of the NHS s empty and underused space could make around 1 billion for the public purse 20. We would encourage suitable sites being fast-tracked for disposal to provide the range of homes we desperately need. The rapid disposal of this land could help meet broader NHS policy goals by improving health outcomes and saving money over the longterm if a significant proportion is used for supported and specialist housing. Housing associations are in a position to deliver these homes at speed if given access to affordable land. Supported and specialist housing has been shown to save the public purse 639 million per year, by preventing demand for health and social care services and reducing demand on the NHS 21. If buyers were incentivised to use it to develop a mix of general needs affordable housing, housing for sale, housing for private rent and supported specialist housing, it would help to ensure that there is sufficient specialist and supported housing available to cope with rising demand. It would also be a practical example of integrating health services with care and wider community support. Extend the affordable homes guarantee programme beyond 2017 and allow it to be used for refinancing Last year, the Government announced its proposal to guarantee up to 10bn of housing providers debt, covering both affordable and market rent homes. These guarantees could reduce the cost and increase the scale of housing association borrowing. If these benefits are realised, the guarantee will help stretch capital investment to deliver more affordable and market rent homes. 20 EC Harris, NHS Service and efficiency report: Seizing the opportunity, www.echarris.com/pdf/7950_health%20whitepapers_short%20version_v9.pdf 21 Homes and Communities Agency (2010) Frontier Economics - Financial Benefits of Investing in Specialist Housing for Vulnerable and Older People, www.homesandcommunities.co.uk/sites/default/files/financial_benefits_of_investing_in_specialist_housing.pdf

24 To enhance the effectiveness and reach of the guarantees programme, the Government should consider extending the affordable homes guarantee programme beyond schemes which start by 2015 and complete by 2017. To deliver the greatest number of homes, and help housing associations to restructure their balance sheets and maximise their capacity, housing associations should be able to use guaranteed debt issues for refinancing purposes. As part of the agreement to drawdown funds for this purpose, housing associations would contract with the investment agency to deliver an agreed number of additional homes. Private rented housing is the fastest growing part of our housing market. It now accounts for 17% of all homes in England. Extend the Build to Rent Fund and market rent guarantees Private rented housing is the fastest growing part of our housing market. It now accounts for 17% of all homes in England an increase from 12% in 2001 22. With continued constraints in the mortgage market and changing tenure preferences, especially amongst younger people, this trend is likely to continue. Government has rightly recognised the growing role the private rented sector can play in our housing market; and the role it can play in meeting wider housing need and boosting labour market mobility. Both the housing guarantee programme for private rented housing and the Build to Rent Fund are welcome measures and the Government should aim to build on its success to date. It should increase the Build to Rent Fund by a further 1bn to meet latent demand and deliver thousands of extra private rented homes and large scale investment opportunities. Housing associations are well-placed to ensure the success of such a move and have a strong appetite to increase their involvement in providing homes for private rent. It is seen as an important way of meeting wider housing need within a balanced market and continuing to meet their social purpose. There is strong demand for a large-scale, high quality private rented offer and housing associations, with their existing property management expertise, are perfectly placed to deliver this. Better use of existing homes through recycled grant Recycled Capital Grant Fund (RCGF) arises when an affordable home part-funded with capital grant is sold or put to another use, such as 22 Census 2001 and Census 2011 data

25 market rent. Normally, these homes have already been used as affordable homes for a significant period of time. The housing association has three years to re-invest the recycled grant, typically by building new affordable homes, and will match the recycled grant with significantly more money from their own resources. RCGF cannot be used to finance estate regeneration or refurbishment of specific housing schemes, even if such projects turn otherwise redundant or hard-to-let housing into high-quality homes that are in demand by the local community. Allow housing associations to re-invest some RCGF receipts in major repairs and remodelling. Lifting some of these restrictions will help deliver the homes people need and deliver economic growth that keeps local firms in business and supports job creation. A significant proportion of RCGF should still be spent on new homes. We would recommend giving housing associations the flexibility to re-invest up to 25% of their RCGF receipts on major repairs and remodeling work. This flexibility could be used for: Refurbishment of hard-to-let houses: changes to the welfare system are driving many tenants to seek out smaller properties. In some places there are few suitable smaller homes, but there may be a significant number of hard-to-let larger homes that could be converted into smaller one and two-bed properties. Repurposing sheltered housing schemes: many housing associations own and manage significant numbers of sheltered housing schemes. As they seek to make best use of these projects and respond to changing demographics and tenants needs, there are opportunities to remodel and repurpose these schemes. This includes providing one and two-bed homes that are more responsive to changing needs from an ageing population. Kickstarting estate regeneration: the need to remodel many older housing estates remains as strong as ever. However, many regeneration projects are simply not viable without a significant injection of public subsidy. A capital injection could turn a scheme around. Lifting the restriction on using RCGF for major repairs could mean that homes in these areas will not need to be demolished, but converted into a more viable range of uses.

26 Reducing fuel poverty and improving energy efficiency: while Pay- As-You-Save improvement mechanisms like the Green Deal may be useful for the sector in some instances, they have more limited relevance for the high numbers of fuel poor households that need to make savings now and hard-to-treat properties that cannot meet the golden-rule. Allowing RCGF funds to be used alongside other funding streams could significantly increase energy improvements. Reducing the VAT rate from 20% to 5% for work done to affordable housing would deliver a rapid economic stimulus. Reduce the VAT rate from 20% to 5% for the repair, refurbishment and renovation of affordable housing Housing associations invest heavily in repairs, renovation and improvement. As a result, they have significantly raised the quality of their homes in recent years. The average energy efficiency rating of social homes is now 7.5 points higher than private tenures 23. The most recent government statistics (for the year 2010), found 600,000 social households in fuel poverty 24. With energy bills rising rapidly and downward pressure on incomes and benefits, this number can only be increasing. More than a million homes in the sector are estimated to be hard-to treat, requiring more complex and expensive measures to improve energy efficiency 25. Facilitating more refurbishment and improvement work can help reduce residents bills, making them more financially resilient and able to heat their homes more comfortably. It will also help housing associations to meet their share of the Government s carbon commitments and provide low-carbon job opportunities. Reducing the VAT rate from 20% to 5% for services provided to housing associations for the repair, refurbishment and renovation of affordable housing would deliver a rapid economic stimulus, in addition to those benefits associated with fuel poverty reduction, energy efficiency and jobs in the green economy. A 5% VAT rate would save the largest 25 housing associations 135m each year. This could leverage additional finance to support the development of up to 7,000 new affordable homes, creating and sustaining over 16,500 jobs and generating an additional 750m in the wider economy. 23 English Housing Survey Headline Report 2011-12, DCLG, February 2013 24 Annual Report on Fuel Poverty Statistics 2012, DECC, May 2012 25 A study of hard to treat homes using the English Housing Condition Survey, BRE, 2008.

27 There is scope to make such a change by applying the reduced VAT rate to the renovation of housing as part of a social policy within Annex III of the EU VAT Directive 2006/112 but this has not yet been implemented in the UK. Housing associations should retain the right to manage their assets There is already a greater emphasis on active asset management, with appropriate property disposals, to increase financial capacity to build new affordable homes. The regulator took steps to allow housing associations to take a more strategic approach to disposal plans, moving away from requiring property-by-property permissions. Housing associations should retain the right to manage their assets independently and in a way which complements their business plans. Housing associations have responded and the level of comprehensive asset management strategies and appropriate property disposals continues to grow. Recently, commentators have suggested that there may be even greater cross-subsidy potential in property disposal, particularly in higher value areas. Regrettably, these suggestions overstate the potential gains and downplay their potential to undermine housing associations wider business viability. There is certainly scope to increase property disposals in some cases, but there are also circumstances where it is justifiable for them to be lower (for example, where portfolios include a high proportion of flats). It is vital that housing associations are free to take an economic view of their stock upon vacancy. In some instances, this may point to retaining homes in high value areas to boost the value of their asset base, in order to secure more competitively priced lending. In others, it might be sensible to sell poorer housing in low value areas and reinvest in new, high quality affordable homes. Crucially, housing associations should retain the right to manage their assets independently and in a way which complements their business plans. It is not for government to direct. To do so risks undermining the 65bn of private borrowing housing associations have already secured to deliver new affordable homes by eroding their security and asset cover. It could also reduce the potential benefits of the Government s affordable homes guarantee programme by damaging housing association s relations with lenders and investors. Fundamentally, a housing association s asset management should not be predicated on or used to drive their development programme.