Re-think the roles that local authorities and housing associations play in the housing market

Re-think the roles that local authorities and housing associations play in the housing market

28/10/2015

A series of policy initiatives and new laws on homes and planning is now forcing both local authorities and housing associations to re-think the roles that they play in the housing market.

The Government wants to inject structural change in the sector - saying this is the start of “a national crusade to transform generation rent into generation buy”.

This change in the housing landscape is likely to result in two key outcomes:

  • A significant increase in local authority activity to support house-building and alleviate the deficit in social housing provision among private developers
  • An emerging gulf between developing and non-developing housing associations – leading to a divergence in business plans, possible fragmentation in the sector, and doubts about the viability of some Housing Associations. 

Housing and Planning Bill 2015

The last 20 years of moving housing away from LAs has not worked and there is now acceptance that the tide needs to turn. LAs are coming back as the leaders for driving housing - but in a different way.

The Housing and Planning Bill is the latest staging post on this journey. Its purpose is to give more people the chance to own their own home and increase housing supply.

For LAs, the new model is about having greater power and flexibility to fund housing (and other infrastructure) on a commercial and local basis - e.g. devolution deals, the ability to retain business rates and to borrow against future rates.

 The old centralised system of council housing finance the Housing Revenue Account (‘HRA’), social housing and managing through planning is being replaced.

A key requirement is to dispose of high-value vacant council houses that can help fund the building of more affordable homes. This puts an onus on authorities to provide the necessary statutory framework to support the delivery of entry level properties.

They will be expected to simplify and speed up the local planning system, to support communities meet housing and other development needs, and give effect to other changes that would promote housing growth.

This will include the ‘Right to Build’ – a measure that requires local planning authorities to support custom and self-builders registered in their area in identifying suitable plots of land to build or commission their own home.

To increase the overall housing supply, authorities will also need to introduce a register for brownfield land, to help achieve the target of getting Local Development Orders in place on 90 percent of suitable sites by 2020.

For housing associations, under the ‘Right to Buy’ extension that was agreed with the National Housing Federation, every tenant will be able to purchase at a discount, possibly involving around 1.3 million homes.

Housing associations will use the money to reinvest in new developments. The communities secretary Greg Clark has pledged they will get ‘full market compensation’. They will keep sales receipts in cash rather than grants – and so may help offset the one percent cut in social housing rents ordered in the July Budget.

Other highlights include the change to the definition of affordable housing. The ‘Starter Homes’ scheme, which plans construction of 200,000 homes to be offered to first-time buyers at a 20 percent discount, will now be counted toward affordable home quotas in section 106 planning agreements.

It also introduces “pay to stay” provisions, with those on incomes above £30,000 outside London (£40,000 in the capital) excluded from eligibility for below market rents if they live in social housing – and new mechanisms for tackling rogue landlords in the private rented sector.

New era for ‘affordable’ housing

The new environment is likely to be challenging for both LAs and the housing association sector. The Government wants to see one million new homes built by 2020, and has indicated it will take on new powers to overrule any reluctant authorities.

The new way is likely to be not only a greater role for LAs in making developments happen, but a much greater on-going role in owning housing. Successful projects will be those that not only meet the housing policy – but also critically provide revenue to the general fund and longer-term capital investment.

LAs will end up having a wider role in the housing agenda and own a diverse portfolio of housing. These will necessitate a range of direct ownership, development vehicles and partnerships - managing the problem of affordability through an increased supply of both ‘social’ and ‘market’ units.

Around two-thirds of councils have drawn up ‘local plans’ that set out where they will house the growing population. England is projected to grow by 7 per cent to 57.3m people by 2022, while London will rise 13 per cent to 9.4m. But one in five local authorities – some concerned by greenbelt issues - have apparently not taken any action.

The Local Government Association has predicted that the cost to authorities will be £6 billion over the next four years - and says that by insisting councils sell their social housing, ministers will drive up rents and the housing benefits bill, while lowering their capacity to build more homes and tackle waiting lists.

Housing Associations will need to examine whether or not their business plans can sustain the drop in social rents and the ‘pay to stay’ rules. The income fall may be too much for some, and they may need to start cutting costs. Those associations that are not set-up to develop new homes may enter into agreements with larger associations that can.

Overseeing all this will be the Homes and Communities Agency (‘HCA’). It’s unclear how strictly it will use its new enforcement powers, in particular to the proposed requirement on Housing Associations to charge market rent to any tenants that fail to provide information/evidence of their income.

Inevitably, there will be less available traditional social housing  (homes at below the market rent with security of tenure) as associations are given greater flexibility in how they use or dispose of their stock, and more people own their homes.

For everyone in the sector, the next five years will be a period of considerable change – but it remains to be seen whether or not it’s enough to resolve the so-called “housing crisis”.

Housing and Planning Bill

  • New affordable starter homes – a new legal duty will be placed on councils to guarantee the provision of 200,000 starter homes on all reasonably sized new development sites; these will be offered to first-time buyers at a 20 percent discount on market prices
  • Local Plans – providing the government with targeted powers to ensure that all councils get Local Plans in place by 2017, so they can help provide the homes their communities need
  • Pay to Stay – ensuring that those tenants on higher incomes who are living in social housing have a rent that reflects their ability to pay, while those who genuinely need support continue to receive it
  • Automatic planning permission in principle on brownfield sites – to bring forward more land to build new homes quicker, while protecting the green belt
  • Planning reforms to support small builders – placing a new duty on councils to help allocate land so 20,000 custom and self-built homes a year can be built by 2020
  • Measures to tackle rogue landlords – giving councils the power to blacklist, and in extreme cases ban those who don’t abide by the law, while helping decent landlords recover abandoned homes quicker
  • Ensuring high value assets are managed effectively – ensuring the sale of high value council assets that can be used to support people into home ownership

Extending the right to buy

  • The government reached agreement with the National Housing Federation and housing associations to give their tenants the Right to Buy their own home
  • The government will compensate the housing association for the discount offered to the tenant and housing associations would retain the sales receipt to enable them to reinvest in the delivery of new homes
  • Housing associations can use sales proceeds to deliver new supply and will have flexibility to replace rented homes with other tenures such as shared ownership
  • Approximately 377,000 of housing association tenants will be able to afford to buy their own home and of that figure 24,000 will take up this offer each year
  • 91% of tenants exercising the right to buy will be purchasing their home for under £100,000 and the average national discount will be £63,271 per property
  • Approximately 1% of council tenants are expected to purchase their council home every year over the next four years (an increase from 0.7% in 2013/14).

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