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CWAG General MeetingHRA Business Planning EnvironmentBen Taylor31st January 2014

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Agenda

• Business planning– Self-financing– Rents– Ring fence– Right to buy– New Build and debt cap


Business planning framework


LAs HRA under self-financing

• Let us not forget…• Self-financing made all authorities are better off

1. Increase in assumed major repairs allowance • Rise to £1.726bn = increase of £460m

2. Retaining rent income as rents increase• £300m+ underneath target rent which will be made up over time

3. Ability for many to borrow up to the borrowing cap but unevenly spread• Headroom total £2.87bn

4. For debt take-on authorities, a ‘cheap’ debt gain• 85bps on £13.5bn = £100-125m

• A small number struggling in short term – decent homes• A larger minority with medium term pressures• The vast majority with some borrowing and potential revenue to

invest


The start of the journey• A positive picture...

• Sensible prudent decision making to get the deal done

• Some LAs pushing ahead straight away with new build programmes

• Many taking time to review asset management in more detail

• Most have resources to invest


BP research: some headlines

One year in…• Council housing has responded

appropriately• Councils are making prudent

and sensible assumptions• The sector is investing wisely• Financing programmes is

primarily a ‘revenue’ undertaking

• New build an increasing priority

• Survey now being repeated – how will it have moved?


Rents


Legislation

s24 of the Housing Act 1985(1) A local housing authority may make such

reasonable charges as they may determine for the tenancy or occupation of their houses.

(2) The authority shall from time to time review rents and make such changes, either of rents generally or of particular rents, as circumstances may require.


Rent restructuring

• A central rent policy ‘Rent Restructuring’ introduced in April 2002• Prior to this a variety of approaches• In principle rents for the same property in the same area will be the same if

Council or Housing Provider• Voluntary(!)• Each property has a ‘formula’ or ‘target’ rent based on a formula• This formula rent increases by Inflation (RPI) plus 0.5%• Rents assumed to converge by April 2015 (built into the self-financing

settlement)• Actual rent not to increase by more than RPI plus 0.5% plus £2• “To cover ‘Bricks and Mortar’ only”• Service charges assumed ‘de-pooled’


How are rents ‘controlled’?

Voluntary but legislative andfiscal controls…

Subsidy system Rent Rebate Subsidy Limitation

It is for local councils to decide what rent to set


Under subsidy

• Rent collection assumed guideline less 2% void• Maximise subsidy position – charge rents at

guideline• Caps and limits adjustment (per property

control) Cap – maximum rent for property Limit – unable to charge at guideline due to RPI +

0.5% +£2 cap (constrained rent) Adjusts average guideline – built into settlement


Rent rebate subsidy limitation• RRSL introduced (1996) via a limit rent mechanism• Incentivise council’s to control cost and hence rents• If a Council’s average rent is higher than the limit

rent then the council (i.e. tenants) will have to fund a proportion of any rebates above the limit.

• The limit rent was set to converge with formula rent in April 2015

• RRSL does not apply in the Private Registered Provider sector – rent standard


How have rents moved?

2001.02 2002.03 2003.04 2004.05 2005.06 2006.07 2007.08 2008.09 2009.1 2010.11 2011.12 2012.13 2013.140.00

20.00

40.00

60.00

80.00

100.00

120.00

Formula rent Guideline Rent Limit rent Actual


Business planning as it was..

• Under rent convergence Declining rate of increase in the run up to convergence RPI+0.5%+’negligible’ Smoothing the path to convergence is not uncommon Increase locked into settlement

• Spending round announcement and subsequent consultation RPI + 0.5% to CPI + 1% from 2015/16 (for ten years) End of rent convergence


Impact of rent changes• CPI change moves rents in line with benefits/pension

uprating but link broken in short term• CPI forecast to be lower in the long run leading to lower

rent increases Hold cost base to CPI + 0.5% = no change to current

assumptions for many• Removal of convergence is a loss (significant in some

cases) of revenue to business plans Is it affordable? What needs to change?

• What happened to equity between social renters?• National rent policy incoherent – affordable rents v social

rents v benefit bill


What can be done?

• Time for a more fundamental review of rent setting approach? What could that look like?

• CIH tried to open the debate We need to talk about rents

• http://www.cih.org/resources/PDF/Policy%20free%20download%20pdfs/We%20need%20to%20talk%20about%20rents.pdf

http://www.cih.org/resources/PDF/Policy%20free%20download%20pdfs/We%20need%20to%20talk%20about%20rents.pdf






What we still don’t know

• CLG consultation gives some pointers but not all• How will convergence ‘end’?

Average level or property level? Actual rent or limit rent? re-lets at formula

• The big unknown (still) What ‘control’ mechanism

• after 2014.15 limit rent?• under UC?


What have others been doing?

• One last shot at reaching target Why plus £2? Why not plus £4? RPI 3.2% - how big would the rise be to reach

target? To target with cap on maximum increase

• Model BP impact giving options• Informed conversations with members and tenants

in light of the self-financing regime• Greater transparency – link between rent and

services/investment is now explicit


HRA Ring-fence


Inside Housing


Ring fence issues• 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


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 landlord services assist in this debate?– HRA reserves– Cross-subsidisation of services - transparently

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


Right to Buy


Right to buy – National picture


RTB progress

26

GROSS RIGHT TO BUY RECEIPTS

Transaction

allowance

LA share cap

Government share cap Buy-back allowance

used Amount for reinvestment

Attributable debt on

additional sales

LA Retains Paid to Government Subject to agreement

• 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...


New build


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 growing


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’: ongoing

– Changing borrowing rules– Abolishing the debt cap– Raising the debt cap – on a formula- or bid-basis

1 3 5 7 9 11 13 15 17 19 21 23 25 27 290

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

With investment Existing system

• “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+


Debt cap budget announcement

• Significant attitude change even if not significant money

• Role for the LEPs in distributing funds– Encourage LEPs to think about housing (!)

• Detail not yet known– Process - How onerous?– Available to who?– Links to selling high value stock?– What vfm tests?

• Risks of not delivering…


Are we still all better off?


Questions and debate

Ben Taylor – Assistant Director CIH consultancy

e-mail: [email protected]: 07974724041

32

mailto:[email protected]

learn with us. improve with us. influence with us | cwag general meeting hra business planning...

Documents

target rent

rent income

time review rents

rents increase300m

particular rents

local housing authority

housing providervoluntary

housing act