Councils with ALMOs Group Finance officers workshop

23 rd May 2013 Learn with us. Improve with us. Influence with us | www.cih.org

Agenda

• Self financing, business planning and new build update • Rents: issues and future policy • Welfare reform: update and experiences Learn with us. Improve with us. Influence with us | www.cih.org

Business planning update

• • • • • • Research: summary of findings Right to Buy Ring fence: under pressure?

New build options recap and progress Voluntary Code Other issues?

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Into the second year

A positive picture...

• • • • Sensible prudent decision making to get ‘over the line’ Some LAs pushing ahead straight away with new build programmes Many taking time to review asset management in more detail Most have considerable resources to invest Learn with us. Improve with us. Influence with us | www.cih.org

Business planning research

• • • • Sponsored by ARCH (primarily) plus NFA/LGA/CWAG Objectives – What is in place for business plans and asset management?

– How is the sector responding to self financing?

– Research actual financing behaviour in practice – Link also to NFA-led work on Let’s Get Building Methodology – Survey/research; schedule of visits and potential follow-ups Timeline ‘imminent’: evidence base against which to compare how behaviour moves on...

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BP research: some headlines

• Council housing has responded appropriately – All have a business plan model and plan – Two thirds already updated asset management strategies – Two thirds are planning an annual BP update – Number of non-ALMO LAs have established management boards in various forms Learn with us. Improve with us. Influence with us | www.cih.org

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BP research: some headlines

• Councils are making prudent and sensible assumptions – Rent increases to convergence – Increasing provisions for bad debts – Low interest rates across mixed portfolios which demonstrate flexibility to respond to changing circumstances Learn with us. Improve with us. Influence with us | www.cih.org

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BP research: some headlines

• The sector is investing wisely – Number one priority is securing existing stock via a diversifying asset management programme – 71% also have new build in their top three priorities – 46% regeneration activity / 39% ‘green’ investment Learn with us. Improve with us. Influence with us | www.cih.org

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BP research: some headlines

• Financing programmes is primarily a ‘revenue’ undertaking – 53% of capital programmes financed by depreciation OR...

– LAs are topping up investment programmes by 89% over and above the amounts provided for in the settlement – Nearly a quarter of all investment from revenue over and above MRA – 37% of borrowing headroom drawn down... Is this low?

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BP research: some headlines

• New build an increasing priority – 76% planning some form of programme in 5 years – National estimate 20-25,000 over 5 years – financed by roughly equivalent to around a third from borrowing – Appetite for up to 60,000 – One quarter using up garage/infill sites – 50:50 use of Affordable vs Social rents Learn with us. Improve with us. Influence with us | www.cih.org

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BP research: some headlines

• LAs have the capacity to deliver more – 56% envisaged having additional RTB receipts to reinvest – 39% considering new build outside the HRA • • Basis for future ‘benchmarking’ over time How might things be different if the research was now?

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RTB progress

• • The downside...?

– Increase (doubling?) in activity; initial spike in applications working through the process and more interest in recent announcements The upside...?

– Beyond the self financing settlement numbers, all additional receipts retained...

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Right to buy

• • • • • Further amendment to the Cap Fin Regulations (SI 20134076) A new schedule setting out the calculation of the sub liability More complicated!

Further protection to HMT share by rolling forward shortfalls Changes to pooling arrangements for non-RTB receipts Learn with us. Improve with us. Influence with us | www.cih.org

Right to buy

• • Amendment to the retention agreement – Reflect changes to the Regulations – Attempts to prevent double counting of investment of non-RTB receipts – Attempts to prevent double counting of investment by HCA or GLA Experiences: temporary-permanent & programmes?

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• • • •

Ring fence issues (1)

– – HRA ring fence introduced 1990 Applies to revenue not capital But some sources of capital finance are ring fenced – principally revenue-backed (depreciation) – Increasingly applies to debt - but not in a legal sense – – History repeating itself Early 1990s ‘deflation’ – GF vs HRA relative position Council vs ALMO or Corporate vs Housing or General Fund vs HRA – – Previous government looked to strengthen guidance Around the ‘who benefits’ principle Not taken forward: downside of localism?

Important that the debate now takes place on a rational basis around service delivery Learn with us. Improve with us. Influence with us | www.cih.org

• • • •

Ring fence issues (2)

– – – – – The council housing/ALMO & general services debate Assets and where they are sitting Services on estates and in communities Strategic housing services Sharing and support services Reserves and other resources – – – How can ALMO/landlord services assist in this debate?

HRA and ALMO reserves Cross-subsidisation of services - transparently Service sharing: back to the future?

Transparency essential – but so is showing the housing contribution to the whole Experiences?

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New build council housing

• • • A landscape with growing diversity and flexibility - already A persuasive narrative...

– Appetite for new build ‘under the cap’ already demonstrated – Stimulated exploration of other options: ALMOs and SPVs, JVCs and institutional investment – Working closely with pension funds, insurance companies, private equity – Self financing has opened the debate: by no means is this just about ‘council housing at social rent in the HRA’ – Range of tenures and flexibility around ‘products’ Capacity and knowledge is also growing Learn with us. Improve with us. Influence with us | www.cih.org

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• • •

Raising or abolishing the debt cap…?

Councils will deliver programmes from the headroom that they have (some borrowing but mainly revenue/reserves) – A three-way ‘lobby for growth’: recent progress Changing borrowing rules – Abolishing the debt cap – Raising the debt cap – on a formula- or bid-basis – “Let’s get building” New build in plans – our estimate 20-25,000 in first 5-10 years – Financial capacity overall up to 200,000-250,000 homes: need land(!) – £7billion capacity and appetite - 60,000+ 70 000 000 60 000 000 50 000 000 40 000 000 30 000 000 20 000 000 10 000 000 0 1 3 5 7 9 11 With investment 13 15 17 19 21 23 Existing system 25 27 29 Learn with us. Improve with us. Influence with us | www.cih.org

New build: overview

PUBLIC • • • • • HRA ALMO/SPV/ 100% CO JVC – 4 potential routes for appraisal HRA always part of the picture?

SPV/ALMO – vehicles to use for development?

JVC/Private deals – more scheme-based?

Be clear on ‘powers’ Can you get grant – will there be any grant?

PRIVATE TRAD. HA MODEL

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Recap: HRA vs ALMO vs SPV (1)...

• • – – – – HRA council housing...

The traditional route, social/affordable rents Rebate limitation in place Part of wider asset management strategy Ranges of tenures – including temporary accommodation – – If via a Subsidiary (which could be your ALMO, not necessarily) Build or acquire through the company Caution on consents – SoS consent required on sub-market transfer to council company, but...

– – RP-route to general consents More flexibility on rents, tenure differential (RTB) Learn with us. Improve with us. Influence with us | www.cih.org

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Recap: HRA vs ALMO vs SPV (2)...

• • • – – – A Special Purpose Vehicle or Joint Venture Partnership in which the LA is a partner...

Need to be clear on inputs Need to be clear on returns What can LAs bring to the table?

LAs have multi-option approaches – nothing mutually exclusive – – – – Some issues that LAs are exploring Market renting directly in the GF? Market renting in the HRA?

What could tenancies look like in SPVs?

Land and asset transfer to ‘off balance sheet’ vehicles Learn with us. Improve with us. Influence with us | www.cih.org

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• •

HRA Acquisition Strategy

– Rationale A ‘core’ level of stock growth that can continue despite risks in scheme completion (eg delays in planning) – Buffer against additional RTB receipts and no shovel ready schemes – Opportunity to reduce costs of management – economies of scale / avoidance of estate issues – – – – Inclusions?

Meeting specific housing needs Specific property types in specific areas Link to empty homes strategy Opportunities when they present Learn with us. Improve with us. Influence with us | www.cih.org

• • • • •

Developing a ‘new market’?

– – HRA new build Social rent, affordable rent, shared ownership Temporary accommodation, hostels – ALMO Handful authorities with ALMO (or a subsidiary) explicitly selected as ‘preferred delivery partner’ – Housing Company/SPV Market and affordable renting, forward funding – Joint Ventures LBBD and others – a range of products and deals Where is the land – appropriation and transfer Learn with us. Improve with us. Influence with us | www.cih.org

HRA / ALMO build checklist

Borrowing Borrowing costs HCA grant?

Use of receipts Rents Other tenure types Tenancy type Taxation Registration Sub-market asset transfer

HRA

HRA – under cap PWLB Yes – via contract HRA/RTB/Other

ALMO

GF – within prudential limits PWLB + a premium?

Via LA (/consortium) HRA/RTB/Other – but not additional RTB Flexible sub-market Flexible sub-market but below Rebate Limitation Yes Secure / Flexible - RTB None No n/a Yes – could include market renting?

Assured / Flexible – RTA if grant involved VAT + CorpTax/StampDuty unless charitable subsidiary Possible RP Yes – if RP and up to £10m pa (according to lawyer advice) Learn with us. Improve with us. Influence with us | www.cih.org

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Voluntary Code: progress

• • • • Steering Group: LGA/ARCH/NFA/CWAG – CIH in partnership with CIPFA Drafting of the Code is complete – Following consultation Launch imminent around 3 confs – CIH, CIPFA and LGA(!) Sign-up!

Principles Provisions Guidance Learn with us. Improve with us. Influence with us | www.cih.org

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Voluntary Code: Overview

1. Co-regulation 2. Financial viability 3. Communications and governance 4. Risk management 5. Asset management 6. Financial and treasury management Learn with us. Improve with us. Influence with us | www.cih.org

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Summary

• • • • Growing sense of confidence and activity Three areas of risk or threat – Right to Buy – rules making it harder to re-provide – Welfare reform agenda roll-out – General sense of ‘not wanting LAs to build too much...?’ Many more areas of option and opportunity – LA powers to provide housing are wide ranging – LA powers to deliver via companies – – Financial capacity in the HRA HRA and GF land, regeneration and redevelopment A bright future – potential now beginning to be sensed Learn with us. Improve with us. Influence with us | www.cih.org

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Rents: issues and future policy

23 rd May 2013 Learn with us. Improve with us. Influence with us | www.cih.org

Business plan and rents

• • • Flexible local responses to greater potential freedoms – Declining rate of increase in the run up to convergence – – RPI+0.5%+’negligible’ Smoothing the path to convergence is not uncommon Future for rents and rent policy – could it change?

– Rent regulation driven by Limit Rent mechanism - what will happen to Rebate Limitation post-Universal Credit?

– Prospects for rent policy across the whole sector?

– Opposing drivers for current and investment spending... balancing investment with affordability and welfare reform – And if changed... What form of regulation?

Announcement expected in Spending ‘Review’ Learn with us. Improve with us. Influence with us | www.cih.org

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Future increases: link to investment

• • Changes to long term rent assumptions could fundamentally affect fundability and viability in the HA sector – RPI only -> retrenchment and dis-investment 9 800 000 9 300 000 8 800 000 8 300 000 7 800 000 7 300 000 6 800 000 1 3 5 7 9 Current 11 13 15 17 19 21 23 25 27 29 RPI only RPI + 1 For the ‘national’ HRA, RPI + 1% -> adds (at NPV) – £5bn to cashflows over 30 years at 6% – £6.5bn to cashflows over 30 years at 5% – Linked to relaxation of the debt cap - new homes potential of up to 50,000 Learn with us. Improve with us. Influence with us | www.cih.org

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Rent policies – towards flexibility?

• • What could happen to the Limit Rent mechanism?

– Introduction of Universal Credit... but includes a ‘housing amount’ – Will government want to cease control of LA rents in the round?

– DWP announcement and policy thinking remains unclear Drivers for rent flexibility?

– Social vs affordable – limit rent issue without HCA grant input – Flexibility beneath limit rent – many £s below – Flexibility within the average rent – Flexibility around welfare reform implications?

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Local policy considerations

• • Two dimensions – Level of rents - compared to market – Affordable, social and anywhere in between – Options to develop differential rent setting policies for different properties (not just for new build) Distribution of rents within a local policy framework – Rent restructuring ‘flattens’ rent differentials – Originally a focus on ‘affordability’ but further away from the market – – Private rented sector everywhere bigger than 12 years ago What are the options?

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Options?

• • • • Social rent formula – Future – could there be flexibility within an envelope? – There already is!

Affordable or other form of link to the market – Basis for assessment, update and review – is RPI+ feasible?

– (NB LBBD approach in the Longharbour scheme) Rent points system – Format linked to both values and amenities Income-based, linked to ability to pay – Pilot and research studies carried out – Linking to welfare reform considerations Learn with us. Improve with us. Influence with us | www.cih.org

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Future regulation?

• • • Current basis across three areas: – – 1985, 1988, 1989 Acts Rent Rebate Limitation – Power to direct the regulator In reality, which of these are actually functioning?

Assuming government will want to exercise some form of control in future...

– Likely to be focused on overall ‘bill’ – maybe unlikely in current climate to be too prescriptive about local policies Learn with us. Improve with us. Influence with us | www.cih.org

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Welfare Reform: update and experiences

23 rd May 2013 Learn with us. Improve with us. Influence with us | www.cih.org

Introduction

• • • • • Where are we?

Recent developments (and issues) Demonstration projects What are others doing?

Experiences and discussion Learn with us. Improve with us. Influence with us | www.cih.org

Where are we?

• • • • • •

Already here

LHA reforms Increase to non-dependant deduction rates Under-occupation (bedroom tax) Benefit uprating bill Benefit cap (pilot) Council tax reduction schemes • • •

To come

Benefit cap Universal Credit (including direct payment) Further reform?

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The benefit cap

• • • • Start April 2013 in Bromley, Croydon, Enfield and Haringey only Full roll out completed by September 2013 HB for tenants in exempt accommodation will not count towards the cap Concession paid for by reduction DHP budget Learn with us. Improve with us. Influence with us | www.cih.org

Timetable - UC

• •

Original UC/PC plan

New claims universal credit (October 2013) Pension credit housing credit (October 2014) • • •

Revised UC timetable?

Pilots (April 2013) Non-HC only? Selected areas? (October 2013) HC start? Selected areas? (April 2014) Learn with us. Improve with us. Influence with us | www.cih.org

HB eligible services – the law

• • • • Not eligible: ‘general counselling or any other support services’ are not eligible for HB (schedule 1 paragraph 1(f)) Eligible: ‘services connected with provision of adequate accommodation’ provided they are not in respect of services that are ineligible If it is support – it does not somehow become eligible if you re-classify it as ‘intensive housing management’ The law is exactly the same for exempt accommodation Learn with us. Improve with us. Influence with us | www.cih.org

UC service charges

• • • •

Four categories broadly same as before

Maintenance, upkeep and supply of fuel and water supply to internal or external communal areas including reasonable facilities (laundry, children’s play areas) Cleaning of exterior windows on upper floors of multi-storey Maintenance, cleaning and repair of basic services to communal areas (refuse collection, communal lifts, secure building access) Payments for the use of essential items (furniture or domestic appliances) Learn with us. Improve with us. Influence with us | www.cih.org

Temporary accommodation

• • • Subsidy rules for homeless acceptances April 2013 – subsidy levels same as current – – 90% of LHA rate for property £60 management fee (£40 London) Universal credit – – Housing costs paid as part of UC (at LHA rates) Household size not property – Management element paid to local authority probably via DHP pot Learn with us. Improve with us. Influence with us | www.cih.org

• • • •

Exempt accommodation: UC or not UC

Supported housing that is ‘exempt accommodation’ will be ‘outside’ universal credit Outside UC refers to help with housing costs through the housing costs element not the other elements – Housing costs outside UC will continue to be covered (for the time being) by housing benefit All the existing housing benefit payment rules (direct payment of HB to landlord) Does not apply to local authority tenants (!) but being reviewed Learn with us. Improve with us. Influence with us | www.cih.org

UC support services framework

These services will need to develop under UC • • • • Triage and re orientation On-line assistance Money advice Work related support Learn with us. Improve with us. Influence with us | www.cih.org

Demonstration projects

• • • • Jan 2012 – DWP established a programme to test direct payment of housing benefit 6 landlords Testing out key elements – Safeguarding mechanisms (switchbacks, exemptions) – How to support tenants through the process – Engagement with partner agencies and financial institutions Sworn to secrecy Learn with us. Improve with us. Influence with us | www.cih.org

Demonstration projects

• • • • • • • • Key findings from the project evaluation so far: Engagement more difficult than anticipated At least 6 months preparation required Support is resource intensive Good working relationships with HB departments seen as essential Providing multiple payment options key Collection rate average of 92% (82%-97%) after four months Collection rate average of 94% (91%-97%)after nine payments 1,268 tenants switched back (17%) Learn with us. Improve with us. Influence with us | www.cih.org

How are social landlords responding?

• • • • • • • Modelling then monitoring impact Improving customer knowledge base (Re)aligning resources Service reviews/reconfiguration Working in partnership Looking to fill the gaps – Digital – Financial inclusion Back to work programmes Learn with us. Improve with us. Influence with us | www.cih.org

Modelling the impact

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Experiences to date - discuss

• • • Bedroom tax arrears?

Bedroom re designation?

Benefit Cap- how many HRA tenants?

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