John Bibby

Chief Executive

Association of Retained Council Housing

Future Shock: Economic implications for future housing

Shock is here now for stock retained councils

• Government has effectively reneged on 2012 self-financing settlement

• Mandatory 1% cut in rents over next 4 years

• Enforced sale of “high value” council stock with receipts pooled nationally & uncertainty about council’s ability to replace stock sold

• Linked to extension of RTB to HAs with costs of discounts effectively borne by stock retained councils

• Introduction of mandatory “Pay to Stay” on reduced income thresholds with extra income going to Treasury (unlike equivalent arrangements for HAs)

• End of lifetime tenancies

Shock is coming for council tenants & prospective tenants!

• Investment in existing stock will need to be curtailed • 1% rent cut looks attractive but of no advantage to those

in receipt of full Housing Benefit • Rent cut of marginal benefit to those in receipt of partial

housing benefit • Rent cut equivalent to average of 68p per week for those

in work with household incomes of less than £30,000pw • “Pay to stay” will hit 540,000 social housing tenants

earning over £30,000 by 2017 • Those tenants will be paying over £1billion in additional

rent • Mandatory sale of “high value” council stock will reduce

availability of stock, increasing waiting times for those living in temporary accommodation and those on council housing waiting lists.

• Any replacement dwellings for those sold may not be in local area – especially “high value” areas

• New tenancies likely to be offered on mandatory fixed term basis

2012 Self-financing settlement

• Little more than 3 years old

• Enshrined in legislation with all party support in the Localism Act

• Principles of localism and decentralisation are no longer regarded as of key importance

• Feedback from councils is that in most cases the Housing Business Plans they adopted in consultation with their tenants are now invalid

• Will impact on both investment in existing stock and housing services

• Likely to bring to an end the renaissance in council housebuilding seen in the last 3 years

2012 Self-financing settlement

“This deal brings to an end a centralised system which meant council’s didn’t know what funding they would get for housing from one year to the next and were unable to take key decisions about their housing stock. It prevented them from delivering the best possible services for their tenants in the most efficient way” (Grant Shapps, Conservative Housing Minister, DCLG Press Release 1 February 2011)

• What price the NHF voluntary deal in the future and assurance of 100% re-imbursement of RTB receipts?

Social Rent Reductions - impact

• Councils will lose £2.4 billion in rent by 2020

• And £30 billion more over 22 years if CPI + 1% reinstated after 2020

• £6-10 billion wiped off the value of council housing stock – case for reopening the self-financing settlement?

• Housing Investment Plans will need to be reviewed

• Revenue savings will need to be found

• 20,000 fewer council homes will be built

• Average LA rent £82.44p* pw – tenants not in receipt of Housing Benefit will save around 68p pw.

* DCLG housing statistical release 11 Dec 2014

Sale of high value council housing - impact

• Definition of “high value” not yet clear but conservative Manifesto said councils will be required to sell homes “that rank among the most expensive third of all properties of that type in their area” as they become vacant.

• Estimated that 210,000 homes meet this criterion, of which 15,000 would be sold each year at an average price of £300,000 yielding £4.5 billion a year.

• After paying off outstanding debt, this would be used to fund extension of RTB and replacement of sold homes (RTB and council) and to establish a Brownfield Regeneration Fund.

• Sold council homes would be replaced “in the same area” with “normal affordable housing”.

Percentage of homes above regional thresholds

Turnover of social housing

Sale of “high value” council housing • Loss of lettings will impact on councils’ capacity to meet

homelessness responsibilities, including 6-week limit on B&B

• Households displaced into private renting likely to increase benefits bill, cause financial and reduce disposable income

• Loss of rent income from sold properties (even if replaced within 2/3 years) will add to problems caused by 1% rent reduction

• Local replacement likely to be difficult in some areas because land is in short supply or too expensive; replacement further away will undermine employment, disrupt family and support networks

It makes economic sense – right? Region High value

threshold Cost of replacement

Transaction costs

Difference

North East 125,266 103,208 9,807 12,251

North West 132,508 116,507 9,838 6,163

York & Humber

132,360 103,208 9,733 19,419

East Midlands

148,098 123,794 10,003 14,301

West Midlands

148,119 123,794 10,460 13,865

East 222,941 160,259 11,326 51,356

London 425,113 200,000 15,551 209,562

South East 255,633 131,090 11,352 113,191

South West 206,061 131,090 10,221 64,750

Pay to Stay will affect few tenants – Right?

• 350,000 social rented tenants with incomes over £30,000pa

• Estimated caseload by 2017/18: • LA = 200,000 • HA = 240,000

• Estimated admin costs:

• Transitional costs circa £45million • Annual admin costs circa £28million

• Additional rental income:

• LA = £0.51billion by 2020/21 • HA = £0.54 billion by 2020/21

• Tapers:

• 80% market rent for earnings £30k to 40K (40k to 50K in London)?

• 100% market rent for earnings over £40k (£50k in London)?

Pay to Stay will affect few tenants – Right?

• National Living Wage of £7.20 per hour from April 2016

• Hardworking dual earning household both working 40 hours per week earning NLW of £7.20 will have gross annual earnings just £48 short of £30,000 threshold

(40hrs x £7.20 x 52 = £14,976pa x 2 = £29,952pa)

• National Living Wage to rise to over £9.00 per hour by 2020

• Combined impact of Budget changes mean typical renting household - dual earning family with 2 children each working 35 hrs pw will have a net (cash) income of £33,730 by end of this parliament*

• Impact in one Eastern region town: • Average council rent (2 bed house) = £94.89pw • Average market rent (2 bed house) = £155.00pw

* Source Table 1.8 pg 40 2015 Budget

Pay to Stay - Impact

• Policy will increase administrative burdens • Identifying households above minimum threshold

• Applying tapers (if required)

• Adjusting rents and tenancy agreements

• Rent recovery & debts

• Managing changed circumstances & fluctuating income

• For some landlords costs could outweigh additional rental income generated.

• Could create disincentive to work as tenants choose not to increase working hours or take better paid employment

• Impact on mixed and sustainable communities as more economically active tenants are forced to commit more of their income to pay higher rents or move to avoid paying higher rent.

• Likely to see increase in RTB

The result of these changes!

The result will mean more housing – right?

Contact… John Bibby CEO ARCH Email: john.bibby@arch-housing.org.uk Tel: 07511 820750 www.arch-housing.org.uk