Oral evidence: Housing Associations and the Right to Buy, HC 370Wednesday 4 November 2015
Oral evidence, 4 November 2015.
Witnesses
Stephen Javes, Chief Executive, Orwell Housing, Diana Kingdon, Chief Executive, Greenoak Housing Association, Hugh Owen, Director of Policy and Communication, Riverside Group, and Tony Stacey, Chief Executive, South Yorkshire Housing Association, gave evidence.
Chair
We now move on to our second panel of witnesses. Thank you very much for coming. If you just begin by saying who you are and the organisation you represent. If you just go down the row, thank you.
Tony Stacey
I am Tony Stacey; I am with South Yorkshire Housing Association. Up until very recently I used to chair the PlaceShapers group.
Diana Kingdon
Diana Kingdon; I am Chief Executive of Greenoak Housing Association based in Woking, the only small association represented here today.
Stephen Javes
I am Stephen Javes, Chief Executive of Orwell Housing.
Hugh Owen
I am Hugh Owen, Director of Policy and Communication at Riverside.
Chair
Thank you very much for coming. Tony and I so know each other reasonably well as we come from the same part of the world, and we have regular chats about housing issues, so this is just a continuation of those. As I began with the previous witnesses, the ONS made a decision earlier in the week that you are now part of the public sector in their view from a statistical point of view. Has that made any significant change? Are you comfortable with it? What do you want to do to change it if you are not?
Tony Stacey
If I go first on this, as at today it has not made very much change at all. We will carry on with an organisation run by a board that sets our strategy and has no control over our funding. Practically speaking, it has not changed things. In the medium term it has changed things very significantly. Personally, I welcome the reclassification because I think it will require the Government to make up their mind about whether or not housing associations really are independent organisations. The Prime Minister only a few weeks ago mistakenly called us public sector organisations. I thought it was very helpful that Greg Clark put out his written ministerial answer on Monday this week saying that he wanted to get us off the balance sheet just as quickly as possible. If that happens then I think it gives us the opportunity to have clarity about our role, our independence and our mission in a way that has really been fuzzy over the last decade or so. My final point on this is that I think if CLG and the Minister are going to do that, one of the first things he will need to do is have a look through the Housing and Planning Bill. There are an awful lot of centralising and controlling measures in the Housing and Planning Bill that will need to come out if housing associations are going to be reclassified as independent organisations.
Diana Kingdon
As this is a financial assessment, I was advised that it should have very little impact on us for the time being. I think that if it went wider than that then there would be greater concerns, but we have received some reassuring statements, and we hope that the classification will be changed.
Stephen Javes
I have no real concerns at the moment. I would echo some of those thoughts and welcome the interventions from the Secretary of State.
Hugh Owen
While we have seen the reassurances, instinctively we feel quite uneasy. There is a psychological issue here in terms of how we are regarded by politicians and our partners. The reassurance from the Secretary of State in particular is really welcome, but, while we have seen that reassurance, in a sense the fact that Government want to put ONS in a position to reverse that decision would imply that in the longer term there are significant issues there. As Tony said, the decision was based upon things that happened seven years ago. There is a whole series of things happening through both the Housing and Planning Bill and the Welfare Reform and Work Bill that potentially could make things even worse. There is a sense that there is incremental change here. It is a time to step back and fundamentally re-examine the relationship between the sector and the state, and resolve this once and for all.
Chair
If you cannot give all the examples, it might be helpful to put something else in writing. There is a clause in the Housing and Planning Bill that says the Secretary of State can take action to bring in regulations to give greater freedom to housing associations, so the power is there. What would you like to see the Secretary of State do to enact that and what would you like to see taken out of the Bill that you think complicates the issue even further?
Tony Stacey
I will take the most obvious one: pay to stay. Pay to stay is a centralising, controlling measure, which certainly at SYHA we would never adopt. It will cost us far more to administer pay to stay than it will generate additional income for us. That decision should be left to individual associations to decide in consultation with their tenants and local authorities to come up with the right solution for that particular housing market. The other obvious example that is not in the Bill but has been suggested very recently, is that housing associations should only be able to give five-year tenancies; we should not be able to give permanent tenancies anymore. My general message is that Government should back off on that kind of thing. This is up to independent organisations’ boards to make those strategic decisions based on the places that they are working in.
Hugh Owen
The fundamental test of an independent organisation is control over income and assets. Where there is government grant that has been given there are terms and conditions around that, which I do not think any of us would argue with. Fundamentally, looking at those issues, rent-setting and control over disposals would be pretty much top of the list. Having said that, there is a little bit of beware of what you wish for here, because there are the lenders as well. We need to be really wary of that. Some of the comfort that the lenders have from a regulator who stands behind the sector and is prepared to intervene in extremis is clearly part of the credit worthiness of the sector. It is a debate that needs to be quite open and needs to involve lenders as well as associations and government.
Stephen Javes
I have nothing to add to that.
Chair
Coming on to right to buy, are you in favour of the voluntary agreement and are you likely to use your discretion not to sell in certain circumstances?
Stephen Javes
I am in favour of it, and we will certainly look at removing stock from the sales canvas. For example, we operate in East Anglia, Norfolk and Suffolk primarily, and in rural housing it will be very important to sustain rural communities. We also have a significant portfolio of supported housing with care and we would argue very strongly that that should be exempted in the very broadest sense.
Diana Kingdon
My association did not support the Federation’s voluntary offer. We did understand that the Federation had a difficult task to do in representing associations across the country with very differing circumstances. Our board did have the opportunity to meet and it had a very vigorous discussion. We were very conscious of our own charitable objectives, but in particular we were concerned about the implications for our sheltered housing stock and for our rural developments. Around one-third of our housing is sheltered with support. We could obviously exclude them ourselves, but the difficulty would be in re‑providing. We do not see why we should be giving a portable discount for people who are in the most suitable housing for them at the current time with the support that they need. The concern is that they could be persuaded by family members to move out of somewhere where they do have adequate support. We are very concerned about rural developments as well and we would have preferred to have seen it go through the legislative procedure so that we could have had exclusions rather than it being a voluntary act.
Tony Stacey
Our board voted in favour of it, but it was a split vote on the board with the Chair and two other members voting against it. I remember Helen in the last hearing used the phrase, “It was like being asked to shoot yourself in the knee before somebody else shot you in the head”, and it did feel like that. Even those board members who voted in favour of it, the majority of them did so with a heavy heart. The reason we did support the Nat Fed with it though is that in the north, where we work, there is a particular issue with regards to the replacement costs for the homes that we will need to build in the future. Our average open market value is £80,000; the average cost of replacing new build will be about £125,000. We must have the flexibility that the Nat Fed was able to negotiate with Greg Clark. That is the reason we went for it. It retains our sovereignty and it gives us the flexibility to be able to make it work. A compulsory scheme would not necessarily have done that.
Hugh Owen
From a Riverside perspective, we were in favour given the context within which our board was asked to make the decision. We also spoke to our tenants, three‑quarters of whom were in favour. We were attracted to the voluntary deal partly because we felt it was an opportunity to examine some of the fundamental flaws of what you might call “right to buy 1”. Whilst some of the detail is yet to be worked through, we would like to look at the issues such as leakage into the private rented sector and explore whether there are solutions to that. We do that with shared ownership. We apply affordability tests within shared ownership and clearly the whole issue around one-to-one replacement is very significant as well. We felt that a voluntary deal would give us the opportunity to examine some of those issues. It is interesting to see that Ian Cole’s report to this Committee picks up on those issues of whether we can deal with some of those inadvertent consequences of right to buy with a better form of right to buy that will give our tenants opportunities. We support that.
Julian Knight
Did you say two-thirds of your tenants were in favour?
Hugh Owen
Three-quarters.
Julian Knight
Because we had a tenants’ representative body in here a few weeks ago and, listening to the evidence she gave, you would imagine that this was the worst thing that had ever happened. Frankly, all they were concerned about was the potential for a devaluing of services. It seems that your experience is that you have seen from your tenants that they do welcome the idea of right to buy.
Hugh Owen
That was not quite the question that we posed to them. In a sense, we described the circumstances we faced and asked whether they thought it was best for us to support a voluntary deal in those circumstances. Having said that, many of our tenants aspire to buy and we support them in doing that already. We actually have a voluntary product that we use. Our concern is whether we can we replace the stock and whether we can prevent unsustainable home ownership leakage into the private rented sector and some of the consequences of that?
Julian Knight
Just to follow up on that point—you say you have a voluntary product already in place. What lessons can you learn from how that has played out that perhaps the rest of the industry could learn or you will learn going forwards?
Hugh Owen
For example, with the voluntary product, we both apply an affordability test and we restrict sub-letting in that product. It can be a way to do that, or we can restrict sub‑letting without consent. We understand there are circumstances where it is perfectly legitimate. Indeed a mortgagee in possession, to give them confidence to continue lending, may need to be in a slightly different position anyway. However, if we are in the loop there and are required to give consent to that and can examine those circumstances, which is exactly what we do for many of our shared ownership schemes, we think that is probably the best thing worth exploring at least.
Kevin Hollinrake
Is it possible to share with us that survey that you did—the questions you asked and the original responses?
Hugh Owen
Absolutely. I will forward that.
Jo Cox
What assessment have you all made of the potential take-up by tenants of the right to buy policy, and over what timeline?
Tony Stacey
We estimate that 1,000 of our tenants, which is about 25%, could afford to buy. On a daily basis now we are ringing people up and saying, “How was the repair to your ball valve?” and they say, “Great—when can I buy my home?” It is popular in our area. I have mentioned to you that our average value is £80,000. If you start to get very sizeable discounts on top of that it really does open up access for people.
Diana Kingdon
As a small association, it is very difficult for us to assess the impact. We do not collect the income figures for our tenants, and because we have got a large proportion of sheltered housing and we have a large proportion of one-bedroom units, I do not think we can gather much useful information from other associations.
Stephen Javes
It is something around 10%.
Hugh Owen
We have modelled a slightly higher figure. We have come at it in two directions. We looked at income figures, some of it modelled and some of it surveyed income figures and, not dissimilar to Tony’s figures, we think around 20% could theoretically afford to access a mortgage in their own name. We also know that with right to buy there are often other people stepping in to help people purchase. We have looked at our historic experience because quite a few of our tenants already have the preserved right to buy. We have looked at our sales figures and we have gone for a figure of about 15%. Having said that, we have had to do that for business planning purposes, but who knows? We do not know what the latent demand is sitting out there. What we feel is that the profile will be very heavily weighted to the early years and that is exactly what happened under the statutory scheme, so it will not be even. We would expect to see a flood of sales in two or three years and then a tailing off, and then probably a variation according to the housing market.
Jo Cox
Is that your planning on timeline as well—a flood and then a pause?
Stephen Javes
Yes. When you look at the local authorities and right to buy you see exactly that. You see that large hit early on that lasts for about 10 years and then you see it tailing off.
Mr Prisk
Your figures, I am assuming, incorporate the impact of the Mortgage Market Review, because they radically change affordability and practice for many people, particularly, I suspect, many of your tenants. Certainly in the debate about whether the additional 800,000 out of the 1.3 million would or would not be able to exercise this, the brutal reality is it is more likely to be 200,000 or 15-20% depending on where you are geographically. You have all reflected that with figures between 10% and 25%. Do your figures specifically model the current standards that are expected through the MMR?
Tony Stacey
They do, Mark, but they are relatively broad brush, because the data on our tenants’ incomes has to be a guess. We have to do it by coming up with a distribution curve based on statistics around incomes of tenants who have moved in recently. We do not go back as a matter of routine and collect incomes for tenants who have been there for a while.
Stephen Javes
We are very fortunate in having a very high level of profiling up into the late 1990s. I would say that the figure that I have given you reflects that and takes that into account.
Hugh Owen
I would not want to over-claim the sophistication of our calculations. However, our observation based on experience is that 80% of our purchasing in the preserved right to buy last year were cash buyers, and elderly cash buyers. That is quite a distinct segment, because to be in a position where you have got a preserved right to buy years and years after a stock transfer, given the new tenants do not get that, means that they are likely to be quite elderly and have not previously exercised their right to right to buy. Having said that, that does illustrate the potentially significant impact of cash purchases through others helping. It would be very hard to devise a scheme that outlawed that but, at the far end of that, there are some unscrupulous individuals and companies who would be very tempted. We have seen this happen before and we need to find a way of absolutely preventing that happening.
Chair
How?
Hugh Owen
By offering to buy the property, allowing someone to live in it rent-free and then when they pass on—
Chair
No, how do you stop it?
Hugh Owen
Potentially through some form of vetting. Ultimately, we can apply some sort of affordability test. This is to be worked out in the detail of the voluntary scheme, but at least a voluntary scheme means that we can have these discussions.
Jo Cox
What happens if that assumption of between 10% and 25% take-up becomes 50-75% take-up? Is there a viability question or a concern you would have if we did in any bit of the country start to hit that kind of take-up level?
Tony Stacey
I think there certainly would be. The speed with which we can replace properties is relatively slow; it is slower than we would like. The typical progress from starting a scheme to finishing it is way over two years. It is two, two-and-a-half, two‑and‑three‑quarter years, so just getting it replaced within three years, bearing in mind the Government want to do it within two, is going to be a real challenge. However, my understanding is that the real way in which this is going to be rationed and tapered is because government will not have the kind of funds in year one to meet the demands. There must be some tapering process that will come from government rather than from us.
Stephen Javes
There is no doubt that is you went to those staggering figures it would have a massive impact on viability because you have lost that rental income.
Hugh Owen
In some ways though, that is another merit of a voluntary deal, because none of us do really know. We have all tried to model, but if the unexpected happens, in the context of a voluntary deal you can turn the tap down. You can turn it up as well. In a statutory solution it is very difficult.
Mary Robinson
Larger and smaller housing associations seem to be affected by this and are dealing with it in different ways. I am interested in looking at how the effects of the 1% per annum cut to rent is going to impact on your housing associations. Would you agree with David Orr, who said that the cut is an existential threat to many housing associations?
Stephen Javes
It is certainly a threat, but then it is caveated with how you deal with that, which we have been discussing. There is no doubt about that. It is making people rethink their positions in very many ways, and we can continue to discuss that. It is all about where you start from and if you have a very healthy organisation it will see this through and come out at the other end. It may not climb back to the aspirations it had at the beginning, but it may come some way back. It is certainly no bad thing to make people and organisations have a look at themselves. We, as an organisation, build as an agent for the HCA; we partner with other housing associations and local authorities. We are seeing that some of the people we build for are relatively embryonic stock transfers and we are seeing significant pain in those areas with those organisations. Others that have been around longer are more readily able to deal with what is ahead.
Diana Kingdon
For many small associations that I have spoken to, they will be able to cope with the 1% rent cut. It will have an impact. You have to be very resourceful as a small association, and many of the small ones have a lot of voluntary input. Our association is developing; we have trebled our size in the last 10 years and we currently have a development about to go onsite of 18 units. However, it will affect our future capacity. We do not feel that we should be cutting our services to tenants. We feel that they are at an appropriate level. However, it will cut our future development capacity after our current scheme onsite by about one-third.
Tony Stacey
I mentioned the PlaceShapers group earlier on. There are 116 of them with 800,000 homes, so it is a very significant body of stock. PlaceShapers are large, medium and small associations. None of the PlaceShapers that I am aware of are actually going out of business as a result of the 1% cut over four years. What they are doing is adapting in very different ways. Do not assume that it is just the largest associations that are coming out of this relatively healthy. I used to work for London and Quadrant. It made a surplus last year of £200 million. It is about the financial structure of the business rather than size necessarily. One of the things that has not come out so far either in the first hearing or today is the impact on supported housing schemes. The vast majority of supported housing rents are going to be cut in the same way as the general needs rents are going to be cut. The problem there is that 80% or more of costs in supported housing schemes relate to staff salaries. There are only so many times that you can go around the block with regards rationalisation and trimming overheads. That means that a lot of supported housing schemes will close. Therefore, there probably is not an existential threat, but I am aware of one association that is thinking of closing over 100 schemes. Greg Clark knows about all of this; he understands this issue. The problem is that the Treasury calculated the full impact on the whole rent take from the sector, and, therefore, it is very difficult now for us to make exemptions and start to claw out some of the supported housing issues. In terms of a campaigning issue, the National Housing Federation feels very strongly about it, I know that Riverside does and certainly PlaceShapers does.
Hugh Owen
I would absolutely echo what Tony says. It is not an existential threat to Riverside. It is very difficult and I would not want anyone to be under any illusions that this is an easy set of circumstances to deal with. We have quite a significant supported housing element called Riverside Care and Support. If you look our supported housing in purely financial terms, their operating margins are very slim to say the least. The rest of the organisation, effectively, cross-subsidise. We think that it is a really important part of what we do and we are dedicated to continuing to do that. However, when you apply the rent cut as well, effectively it becomes a loss making part of the organisation. We are going to have to make some really difficult decisions. I work for an organisation where we see this as a fundamental part of our core mission. We know a lot of other housing associations that probably have smaller supported housing businesses where I think it would be very tempting, looking for the less efficient areas of the business, to quietly stop doing supported housing. I think there is a real threat of death by 1,000 cuts and a real shrinkage in supported housing as a result of this, and there is a very strong case for seeking an exemption. We are very much supporting PlaceShapers and the National Housing Federation in making a case for an exemption on the face of the Welfare Reform and Work Bill.
Stephen Javes
I would echo that. We have very substantial exposure in supported housing care with young people, older people and people with learning difficulties. There is no doubt that in terms of housing management the fundamental, simple functions of signing up a tenancy in family housing may take X amount of time. If you are dealing with somebody that is in crisis in a women’s refuge, if you are dealing with somebody who has a learning difficulty, or even potentially an older person, you may spend two, three or four times X of management time just dealing with that person. It is as basic as that, in that you do need that time. It costs you more money for a similar sort of rent and, therefore, there is a very strong case for saying the minus 1% should not apply.
Mary Robinson
It seems to me that there is consensus around the supported housing schemes. In terms of an exemption, how would you frame that and what other partners would you involve in doing so?
Diana Kingdon
One of the opportunities you could look at is the right to acquire. Right to acquire was introduced in the late 1990s, and that allowed for the exclusion of rural properties. There is a precedent that could be used for rural, as well as supported housing.
Stephen Javes
I cannot remember, and I do not want to sound too much of an anorak either, but in answer to the question, somewhere in the 2015 Rent Standard—and I am probably going to get it about right; I think it is paragraphs 321 through to 326—there is the specialist definition. It is so narrow it is worthless, frankly, but further on in there there is a much broader definition of supported housing that perhaps could be looked at. I am pretty sure it sits in there. You might even move that into sheltered housing as well.
Hugh Owen
The definition that has formed the basis of an amendment at Committee stage within the Commons is around the definition of specified accommodation. That is a definition that belongs to the DWP, which is why it seems very logical. Notwithstanding the fact that it is actually used as a definition already, we know that one of the issues with that is there is question about how much accommodation that captures. The DWP has commissioned research to examine that that does not report until next year. Whether that is a credible definition, given the timescales now—we know that the Government are pushing this Bill through very quickly. There are other definitions. There is a regulatory definition, which is audited, of supported housing. We all tell the regulator, at pain of death for getting it wrong, how much supported housing we have. It strikes us that it is not beyond the wit of the sector, working with DCLG and DWP, to come up with an adequate definition that would frame an exemption.
Stephen Javes
Just if I may, there is some rhetoric around waiting until the DWP report is published. I would say do not wait; let’s make the presumption that you make the change now. If, after the DWP report is published, there is a different conversation to be had, let’s have that then. There will be a lot of pain in the meantime if you wait.
Mary Robinson
If housing associations go down the route of letting go of that sector in favour of concentrating on core responsibilities, how would that conflict with your philanthropic duties?
Stephen Javes
It is fundamental to our organisation and what we believe in, and our board would never want to let go of it. It would be something they would let go of with a great deal of angst.
Tony Stacey
You are seeing a parting of the waves at the moment where some associations, as Stephen said, typically where it is a small part of the business, are saying, “This is far too risky. We’ll let go of it”. Other associations just see this as core business. We have always done it; it is absolutely the heart of what we stand for.
Mary Robinson
Just one more final view. We talked earlier about surpluses that have been built up. The Minister has suggested that those surpluses should be used to offset the reduction in the rent. Is that something that could be done?
Stephen Javes
I just wonder whether this is an opportunity to dispel some myths on this. People also talk about reserves and they are two very different things. Surpluses are about the cash that comes onto the profit and loss or I and E in a given year. That money stays in the sector. It is used for development and for delivering good quality homes, programme maintenance, community work etc. It does not go anywhere. The reserves part that people talk about—the billions and billions of reserves sitting in housing associations—are not cash. They are not something you can take out in a wheelbarrow and spend. They are an accounting practice that just happens to suit them. They are our investment in our properties over the lifetime of our organisations, and they are two very different things. You may not be doing it, but I would just say be very careful about the surplus you see on the I and E and the reserves that you see sitting on the balance sheet. They are two very different things. The reserves have already been invested in those homes. In terms of offsetting, I do not think that is what housing associations are about. Housing associations are still about taking those surpluses and using them to develop, provide new homes and provide quality homes in quality communities.
Mary Robinson
I thought the Minister was specifically mentioning surpluses rather than reserves, so it would be set aside and be intended to be used for other purposes. Surpluses seem to say that that money has been put aside that could be used. Are you saying that that is not a possibility?
Hugh Owen
That money is used. That was a great explanation. There was another great explanation in the written evidence that g15 submitted to the Committee: “Any housing association that builds homes is a net borrower”. Notwithstanding what our income and expenditure accounts say—because they do not fully take account of the cost of building homes—if you look at the money that comes in and the money that goes out, certainly in the case of Riverside, last year, notwithstanding that our accounts showed a £50 million surplus, we had to borrow £20 million worth of funding. We have to do that every year to build homes. If we are going to have a sustainable development programme not just for one, two or three years but for five or 10 years, given that we now operate in an environment where there is very little grants—that is quite a significant issue as well—then we are required to generate surpluses to reduce our borrowing requirements. g15 explains it far better than I do, but that is the position.
Diana Kingdon
I really want to correct my previous answer because, with our sheltered housing, we actually feel we can absorb the 1% cut. However, our remaining concern is over right to buy. That is a much bigger concern.
Jo Cox
I have a few questions on how the right to buy policy might affect your capacity to build. Generally, do you think the extension of right to buy and the income from sales will allow you to build more homes in the future?
Tony Stacey
In terms of the northern issue, which I mentioned earlier on, if all we are getting back is £80,000 and the cost of building new is £120,000, it does not work, does it? It does not stack up. That is why those flexibilities are so important for us. One of the flexibilities in there that we will undoubtedly have to use is that we should be able to go out into the open market and buy in second-hand properties, which we could buy for that sort of figure. It will lead to more new building. We definitely will try and do that as much as we possibly can. As Stephen said earlier on, there is a danger of losing cash flow here. What you have to do is get ahead of yourself and anticipate how many homes you are going sell in the year ahead, otherwise you are going to be standing still for that two-and-a-half-year development period. That is where our thinking is going now. We are thinking about how we replace homes that may be sold. The Prime Minister said he wants to see the first homes sold next year. Whether that is introduced across the country is a different matter, but we are starting to think now about how we can replace that and get ahead of ourselves.
Jo Cox
Tony, do you think you will end up building more homes than was in your previous business plan, the same or fewer, and what type?
Tony Stacey
It is difficult to say. What will definitely be fewer is the amount of new homes outside the right to buy replacement than we otherwise would have done. I mentioned in my submission to the Committee that I think it has taken 200 new homes out of our development programme over the next four years. Our real focus will be to make sure that we can replace and I will exaggerate to make the point. If that has to be entirely through second‑hand properties in order to keep ourselves going and to keep the social rented housing going—because that is our commitment: we want to replace. You heard the phrase, “like for like” used by David and Ian earlier on. That is absolutely where we stand. If we are selling a social rented home we would like to see it replaced with a social rented home. That is going to be our starting point. There will be flex around that. If that is the starting point and the only way we can do it is by buying in second-hand properties, that is what we will do.
Diana Kingdon
My association based in Woking is on the boundary of a lot of rural areas and Greenoak has worked with three local authorities and parishes where we have provided rural homes in small villages, often only four to eight properties. Those are primarily built by small associations because of the amount of time, investment and the locality. What we are particularly concerned about is, first, the potential loss of social rented housing in those villages and the almost impossibility of being able to replace them, certainly in that locality, and the very difficult task, if we give portable discounts, of actually finding any replacement homes. We think that it could have a devastating effect on small parishes. They have all been working at their neighbourhood plans. They have identified suitable sites and worked hard at this over the last year or two. I have spoken to two parish councils, the local authorities and some other housing associations and what we fear is, having identified these sites, which are often provided either free or at agricultural values, that land will not be made available if there is a risk of right to buy. Unless they are excluded, there will always be a potential risk that either the association that owns them will use their discretion to exclude them or that, at some future time, that will happen because the key to it has been actually keeping those in perpetuity for local people. It does not exclude building on these sites and mixed developments because that is generally what is now happening. In these small schemes, you may have one low-cost home ownership, a couple of shared ownership and maybe three social housing renting. That is a very good model for local communities and has been very well supported.
Stephen Javes
Our ambition will be like for like, but in the same way that Tony talks about the values, there are large tranches in Norfolk and Suffolk where there are some affluent pockets. There are have large tranches in the coastal strip around the ports of Great Yarmouth and Lowestoft where it will be very difficult to replace properties. There are areas where you would be lucky to make £100,000 on a sale and you still have the similar build costs that Tony has already alluded to of maybe £120,000 or £125,000. The rhetoric is that we would like to do that, but we need flexibility and that flexibility may well be that if we sell for £1 million we spend £1 million. However, that may not provide the 10 houses that are sold; it might provide six or seven. That has its problems, because is usually a maintenance problem for the future. If you are buying spec housing from the market or from the property market, you have not got consistency. The cost of life of that property, going into the future, has its problems because they have all got different boilers and windows, and you cannot buy in bulk. It is not as simple as it looks on the face of it.
Hugh Owen
In our case, in the last five years, we have built about 500 homes a year. That is exactly what we have in our business plan going forward, and even our revised business plan after the voluntary right to buy deal. We suspect quite a lot of those will be right to buy replacement, so that will not necessarily be net growth for Riverside’s affordable housing stock. What happens thereafter may well depend on what happens in the comprehensive spending review or subsequent reviews in terms of the Government’s view about ongoing subsidy to the sector. We still have an affordable homes programme that provides some grant funding, but if that went entirely we would probably see a reduction in provision. While the position may be different down here where land values are much higher and the ability for cross-subsidy is significant, certainly where we work there are limited opportunities for that. The importance of ongoing subsidy and an ongoing programme cannot really be understated.
Jo Cox
What about section 106 and the requirements for starter homes? Again, do you think that is going to lead to fewer homes for affordable rent?
Tony Stacey
It must do; it has to. Section 106 funding makes up about 40% of our new supply. It need not necessarily, but I think this will be down to individual local authorities. My hunch is that a lot of house builders will see the provision of starter homes as being a more profitable activity for them. What the local authorities need to do is to work out what the implicit subsidy is that is going into starter homes. Just for the sake of example, suppose it is only half that goes into a starter home in comparison with section 106 social rented housing. In that instance, the local authority should say, “You need to provide twice as many then”. In other words, balance up the playing field and then the developer can look at what is the best option for them. That gives us a fighting chance. If it is just a money-making activity for developers by switching into starter homes they are not going to come to us first.
Stephen Javes
You have to let the local authorities take a view. There cannot be a presumption that starter homes sit above the 106 or even the SIL. It has to sit there as part of the mix. The local authorities need that discretion to understand their own market places and, perhaps through liaising with us, decide what they are going to do. There is no doubt about that. With the starter homes, I just wonder whether it is actually just going to help people into home ownership who perhaps were always going to be able to afford to get into home ownership, and you are just discounting it for people. I was looking at some property values in Lowestoft this morning. You could go and buy three-bed house costing £167,000 now. If that were discounted, you are still looking at a mortgage of over £40,000. I just wonder whether it is going to be the panacea that people perhaps hope that it will be.
Helen Hayes
I just have a final few questions on the impact on small housing associations. Diana, I wanted to ask you about the pay to stay policy. Do you think that your own association and smaller housing associations generally would be able to administer it?
Diana Kingdon
I think that most of these proposals are going to have a disproportionate effect on small associations in terms of administration. What were you talking about, sorry?
Helen Hayes
Pay to stay.
Diana Kingdon
On pay to stay, as I said before, we do not have income levels, but our concern is that market rents in the areas we operate are about twice the level of social housing rents. If pay to stay starts at £30,000 outside London, which I think is the figure, that is just slightly over two people on minimum wage. Then, to be faced with a doubling of rent is going to cause either huge hardship or it is going to be a disincentive to work. That really needs to be looked at very carefully. It is one of the areas that I think associations should be able to decide for themselves and not be impelled to do. It is certainly going to have a big effect on our housing management and on our relationship with tenants.
Hugh Owen
Pay to stay is also known as high income social tenants. £30,000 is the threshold outside of London. If you look at a family with two children, that is a lower quartile gross income. I just cannot see how that could be described as high income. Certainly, our view is that the thresholds are wrong and we need to look at a taper to apply to it. We contrasted two areas in which we work, one is Liverpool and the other is Bromley, which is not so far away from here. In Liverpool, for someone earning £30,000 and a penny, their rent will go up by about £38 a week. In Bromley, it would go up by £257 a week. It is hugely inequitable if that is the final scheme and I am not sure it will be the final scheme. There is a consultation happening about that. There is also an issue around existing tenants and the extent to which this is just seen as patently unfair. There is an issue around whether we can increase the rent at will for existing tenants because of their tenancy agreements. That is a practical issue. However, for people who have done the right thing and who have got on but are not in a position to buy all of a sudden to be affected by what feels like punitive increases just strikes us as wholly wrong. I think it is very different for new tenants, where there is a new deal and a new bargain and you can explain all of that, but applying it retrospectively just feels very difficult.
Helen Hayes
In terms of the administration costs of looking at pay to stay, will the additional rent that you receive from having a different profile of properties cover the admin costs of tracking down salary information?
Tony Stacey
We do not think it will. I watched the first session and I thought David Orr described really well: the way that the basic landlord‑tenant relationship will change. The straight answer to your question is we do not think it will. The average income of our tenants now is less than £1,000 a month.
Helen Hayes
A final question. Tony, I think you spoke a little bit about this before, but if could I have just a little bit more detail on what you think the impact of the proposal to limit the use of lifetime tenancies in social housing will be?
Tony Stacey
It will disrupt the relationship. At the moment, there is a conversation between our customers, our local authorities and us about what our offer should be. That is based on the individual circumstances in the housing market. The disruption that a scheme imposed by Whitehall would have would be fundamental. It is a voluntary scheme and within Yorkshire and the Humber there is only one association that I am aware of that has adopted that. Their experience has been that the vast majority of tenants at the end of five years just get a renewal of tenancy agreement.
Stephen Javes
I have nothing really to add.
Hugh Owen
I think geography is a big factor here. We allow our operating divisions to introduce a scheme should they choose. They have to go through an approval process to do so and it has only actually happened in one particular instance. In a lot of neighbourhoods where we work, certainly, there are not enough economically active households. Far be it from trying to move people on, we are trying to actively attract people into neighbourhoods to put down roots and stay. My suspicion is that were we to implement such a policy, I suspect we would just renew the vast majority. When people want to move, they move. Certainly, with right to buy now being a phenomenal incentive for people with means to change their tenure, effectively, I suspect it will be an irrelevance.
Stephen Javes
I said I had nothing to add, but in terms of the affordable rent tenancies and the five years there—this is where I throw out the banana skin, but I will bring it back—we are seeing real customer resistance in terms of people wanting to take the tenancies. There would not be because it is a home for the next five years at least. There is a communication piece with the incoming tenant around the presumption within the organisation that they are going to renew. There is an overarching thing for me with all of this stuff that you just touched on. In a relatively free market where people can aspire, I still have a belief—a lot of this stuff is right at the edges of making a difference—that if people feel that they can aspire into ownership or whatever they will move on anyway.
David Mackintosh
On this point, a lot of local authorities over the last five years have made those changes around tenancies, going from lifetime tenancies to shorter ones. In fact, when I was a council leader we looked at it initially for three years; we did some consultation and we ended up with five years. It is not wrong to have that presumption that you will renew. I think that is a good thing. However, you talked a bit about the engagement with tenants. This gives you that opportunity at least every five years to have that conversation and to make sure that it is right for you as housing associations and right for them. I would really just say that I would not be too concerned about the process. I think it is actually a very useful prospect if it is managed in the right way. It is worth looking at the experience of lots of local authorities because they have managed a similar process in the distant past.
Stephen Javes
I would not disagree with that. It is about talking to people.
Tony Stacey
Absolutely right. There is one main thing I am resisting though. I heard very recently a chair of a housing association use this phrase: they described tenants as “bed blockers”. I just think that is the wrong way of thinking about this. From my point of view, if one of our tenants, because they have a low income, they are vulnerable or whatever it might be, decides that they want to stay in a social rented house for the rest of their lives, why should they not be able to do that?
David Mackintosh
My view is that this is for you to look at and negotiate with the Government. However, I do think circumstances can change over those five years and, particularly with local authorities where there is a shortage of the housing supply, it is a useful conversation to have at a regular interval and to reassess. It is just part of tenant engagement. I certainly would not describe tenants as bed blockers, but I do think it is an important part of the process. I just think it is a useful exercise to engage in and look at what has been done.
Hugh Owen
I want to think we are having those conversations anyway. I suspect voluntary right to buy has changed the picture somewhat anyway because of the new opportunities afforded to tenants. Tony picked up on the point earlier that reclassification may well have done as well. Assets, income and now tenancy terms as well—rolling back to private sector would be all the more difficult I suspect.
Mr Prisk
Just on the point about high income and where we draw that line, you said £30,000 was the wrong area. Do you accept, however, that there is a sense of unfairness for people where there are two people who are on a similar income, which we will call “high”—we can define what that is—and one is in the private rented sector paying substantially more while the other, by dint of birth or happenstance or whatever, was on a lower income but is now doing very well and is enjoying the benefit of the lower rent? Therefore, there is this need to have flexibility so that that can be represented in what they pay and there is fairness. There are practical problems with it, but do you accept the principle that for two people on similarly “high” incomes, as we will call them, one to able to continue to enjoy a social low rent when the other does not is a problem?
Hugh Owen
It is really hard to disagree with that logic. In a sense, it is about where the threshold is. When this was originally mooted a number of years ago, I can remember writing our consultation response and saying in that that the Government has a tax system that could deal with this as an issue. That would get rid of a lot of the administrative issues as well. We are not the sort of agencies who will be good at collecting real-time income; I can absolutely guarantee you that. We struggle enough with our data as it is and we are trying to improve all of that. The Government have an agency that does that brilliantly, which is HMRC. They have a method of adjusting taxation in accordance with live real-time income information. It strikes me that if the Government wanted to pursue this as a policy, it would not be impossible to identify the benefit of having a high income and having a subsidy, and find a way of clawing that back through the tax system if they really wanted to do it. It is interesting to see that HMRC are actually mentioned in the draft legislation. I am not quite sure what their role will be and how willing they will be to play that role, but it is interesting to see that they are there anyway because they are the people who know incomes, not us. I cannot disagree with the principle. I would agree with you there. I think it is just where the thresholds are set and, at the moment, £30,000 and a penny is a very blunt instrument?
Mr Prisk
Would the logic from your answer be that, therefore, the question is when you change to a higher tax bracket?
Hugh Owen
It might be. Another area where the Government defines high income is around child benefit and they have chosen £50,000 as a threshold there to start withdrawing child benefit through the tax system. There are precedents elsewhere and a bit of consistency might be welcome.
Chair
Thank you all very much, indeed, for coming in and answering a wide range of questions for us. That brings us to the end of our public proceedings today. Oral evidence: Housing Associations and the Right to Buy, HC 370 5