Affordable Rent Product

Tim Bostridge Stephen Heatley

Affordable Rent

Offered by developing housing associations from agreement of delivery contract, initially on a proportion of empty properties and then new homes in due course Rents of up to 80% of market rents - linked to the delivery of new supply Affordable Rent tenancies are intended to provide an alternative to social rent Tenancies for at least two years, although HAs have option of offering longer or lifetime tenancies Eligible for housing benefit (as long as it lasts!) Will be added to definition of affordable housing (PPS3)

Principles - Less Grant goes further

Increased rents = more money to service loan = more development for the low level of grant

(150,000 homes over 4 years) (Grant was £100k/unit, now £20-30k) 2008 11 NAHP £8.5bn

2011 15 £4.5bn of which £2.3bn committed

£210 £180 £150 £120 £90 £60 £30 £0

How do rents compare?

Indicative 2 Bedroom Weekly Rent Levels - SE28

£196 £157 £184 Market 80% Market Local Housing Allowance £95 Extra income to service borrowing Target Rent and service Service Charge

How Do Rents Compare?

SE28

Market 80% Market or 80%LHA 60% Market or 60%LHA 50% Market or 50%LHA LHA Median 30th percentil LHA New Charge 1 Bed £156 £125 £93 £78 £156 £150 2 Bed Bedrooms £196 £157 £118 3 Bed £242 £194 £145 £98 £190 £179 £121 £230 £208 4 Bed £277 £222 £166 £138 £300 £277 Target rent Service charge Target and service £74 £11 £86 £85 £11 £95 £103 £3 £107 £104 £6 £111 Current charge

Are they affordable?

Gross Annual Income

1 Bed £23,143 Bedrooms 2 Bed £29,181 3 Bed £36,000 80% Market or 80%LHA 60% Market or 60%LHA £17,357 £14,464 £21,886 £18,238 £27,000 £22,500 50% Market or 50%LHA 4 Bed £41,143 £30,857 £25,714 Single under 25 Single over 25 Couple with no dependants Couple with 1 child Couple with 2 children Couple with 3 children Couple with 4 children Couple with 5 children Couple with 6 children Single parent with 1 child Single parent with 2 children Single parent with 3 children Single parent with 4 children Single parent with 5 children Single parent with 6 children Lone parent under 18 Lone parent over 18 Bedrooms required 2 2 3 3 4 4 1 1 0 1 3 4 4 1 2 2 3 above universal benefit level Balance for Rent Bedspaces required 3 3 4 5 6 7 2 2 1 1 6 7 8 2 3 4 5 Total benefits claimed excluding Housing costs £51.85

£65.45

£102.75

£184.11

£248.09

£312.07

£376.05

£440.03

£504.01

£146.81

£210.79

£274.77

£338.75

£402.73

£466.71

£51.85

£65.45

Remainder of benefits available for Rent & Service Charge £298.15

£284.55

Suffiient balance for rent at 50% yes yes £403.25

£321.89

£257.91

£193.93

£129.95

£65.97

£1.99

yes yes yes yes yes no no £359.19

£295.21

£231.23

£167.25

£103.27

£39.29

£454.15

£440.55

yes yes yes yes no no yes yes Suffiient balance for rent at 60% yes yes yes yes yes yes no no no yes yes yes yes no no yes yes Suffiient balance for rent at 80% yes yes Suffiient balance for average target rent plus s/c yes yes yes yes yes yes no no no yes yes yes no no no yes yes yes yes yes yes yes no no yes yes yes yes no no yes yes = residual income insufficient to cover rent

What are HAs doing?

Assessing what rents to charge Assuming higher turnover Increasing voids and bad debts Increasing void maintenance costs Increasing discount rate to allow for increased risk Allowing for level of internal subsidy Assuming 20-30k per unit grant Assessing level of void conversion to deliver development programme Disposals

14000 12000 10000 8000 6000 4000 2000 0

What happens to the stock profile?

Stock Assuming 6% turnover and 25% conversion

Affordable Rent Properties Target Rent Properties

14000 12000 10000 8000 6000 4000 2000 0

What happens to the stock profile?

Stock Profile at 6% Turnover and 50% conversion to Affordable Rent

Affordable Rent Properties Target Rent Properties

What happens to the stock profile?

Stock Profile at 6% turnover and 100% conversion to Affordable Rent

12000 10000 8000 6000 4000 2000 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Affordable Rent Properties Target Rent Properties

The Right Balance?

The package

Costs of package

(years 1-2 detailed) (years 3-4 indicative) £xxx

Less

Borrowing new rents on dev’t programme £xxx Borrowing - voids at new rents £xxx Income from Sales and disposals £xxx Recycled Grant Other reserves £xxx £xxx LA contribution £xxx

GAP = HCA Grant Required

£xxx

£ xx

Timescale

Milestone

Publication of the Framework inviting offers for the 2011-15 Affordable Homes Programme Providers developing offers Deadline for submission of offers Assessment/negotiation of offers National aggregation and analysis of programme HCA London Board (London part of proposed programme) and Ministerial and national HCA Board sign off of aggregate programme (subject to provider contracts) Initial contracts signed

Date

w/c 14 February 2011 March and April 2011 3 May 2011 May and June 2011 20 June – 4 July 2011 w/c 4 July 2011 July 2011

Implications – Housing Policy

      SPoT – Strategic Policy on Tenancies  broad objectives to be taken into consideration by individual social landlords in the area regarding their own policies on the grant and reissue of tenancies  government prescribe who local authorities should consult in preparing the policy  regular reviewed and consistent with the local allocation scheme and homelessness strategy Rents in larger dwellings – affordability for working households and challenge of Universal Credit What about people who we want to downsize? Unattractive to move unless protected rents are in place. How to incentivise moves. Rent is determined by the tenant not the property ? Working households – build in a quota in allocations plans?

Need information on households income = difficult to evidence mix of products required and affordability.

Implications - Planning

Affordable Rent to be added to PPS3 Definition of Affordable Housing Revisit affordable housing requirements and viability assumptions in their local planning documents?

Change Affordable Housing SPD and tenure breakdown for S106 Agreements Vary existing S106 if scheme becomes affordable rent? Larger homes far less viable under the new model = likely increase in small-size properties?

Implications – AH Delivery

         Strong partnership working crucial to ensure we coordinate with housing providers Estate renewal - difficult to achieve without substantial grant funding New focus on asset management - Providers to make informed decisions about the proportion of stock they decide to convert to affordable rent and financial implications A new level of risk from linking affordable rent to market rents. Rental income could fall because local private rent levels Have housing associations the financial capacity and will banks fund developments as greater financial risk in the model?. Accept that schemes with existing allocations for social rent remain or move to affordable rent basis on initial letting?

Assumed borough contribution on sale of LA land Expectation of no grant on S106?

Standards - London