The Reform of Social Housing (P.33/2013): second amendment.

STATES OF JERSEY

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THE REFORM OF SOCIAL HOUSING (P.33/2013): SECOND AMENDMENT

Lodged au Greffe on 16th April 2013 by Deputy G.P. Southern of St. Helier

STATES GREFFE

2013   Price code: C  P.33 Amd.(2)

THE REFORM OF SOCIAL HOUSING (P.33/2013): SECOND AMENDMENT

PAGE 2, PARAGRAPH (a)(iii) –

For paragraph (a)(iii) substitute the following paragraph –

"(iii)  a rent policy of returning rents to a maximum of 82% of private

sector  rent  levels,  with  the  annual  financial  return  by  the  new Company to the States being capped beyond 2015 at the 2015 level".

DEPUTY G.P. SOUTHERN OF ST. HELIER

REPORT

The Housing Transformation Plan, which is a response to the Review of Housing conducted by Professor Whitehead in 2009, sets out to achieve a number of apparently laudable aims, namely –

1. That a new Strategic Housing Unit be established to co-ordinate a long-term housing strategy.
2. That a new Social Housing Regulator is established to ensure that tenants' best  interests  are  protected  and  that  public  investment  in social  housing delivers optimal value for money.
3. That  a  new,  not-for-profit,  wholly  States-owned  Housing  Company  is established to improve the States-owned social housing stock and with the financial  capacity  to develop  new  social  housing  when  required  on  a sustainable basis.
4. That social housing rents are returned to near market fair rent levels to ensure that tenants who can afford to do so, pay a fair rent.

This amendment is only concerned with the proposals which address the setting of rent levels and the business model proposed. The figure of 82% of private sector rent levels is chosen because it is the level to which the current "fair rents" is currently funded.

What is social housing?

I take my definition from Shelter UK.

Social housing is housing that is let at low rents and on a secure basis to people in housing need. It is generally provided by councils and not-for-profit organizations such as housing associations.

A key function of social housing is to provide accommodation that is affordable to people on low incomes. Rents in the social housing sector are kept low through state subsidy. The social housing sector is currently governed by a strictly defined system of rent control to ensure that rents are kept affordable.

In a relatively recent decision, local authorities and other social housing providers have been required to move to "affordable" housing provision, following a reduction in central government grants.

What's the difference between social rent and affordable rent?

Market rent is the rent that private landlords charge in an area. Social rent is set at between 40% and 60% of market rent levels and residents have a lifetime tenancy. That means they can stay in their home for as long as they want, providing they don't break the terms of their tenancy agreement, which could lead to them being evicted.

Affordable rent is set according to market conditions – up to 80% of market rent levels. Most new residents will also have a fixed-term tenancy, usually for 5 years. In

most cases it will be renewed. All residents in sheltered and supported homes will still have lifetime tenancies.

UK Social rent levels

By way of illustrating the range of rent levels in the changing UK market, I reproduce here weekly rents from UK providers for comparison with Jersey (Jersey rents in brackets).

Notting Hill: Housing has introduced caps that are fixed below the 80% level to make sure that residents can afford them –

• One-bedroom homes – £220 (£162 – £183)
• Two-bedroom homes – £225 (£203 – £240)
• Newly built three-bedroom or larger homes – £230 (£231 – £267).

Lambeth: The planning committee approved the plans from Barratts Homes to change  the  provision  of  48 homes  at  their  Coldharbour  Lane  development  from "social" housing provision to "affordable". The change means that the flats will cost Lambeth's poorest residents about 20% more. Under the changes, a four-bedroom flat will go from £166.39 to £202.70 per week (Jersey £245) and a two-bedroom from £149.74 to £192.88 (Jersey £203).

Cambridge: A government proposal that new social housing tenants should pay 80% of market rents in Cambridge has been condemned by the city council. Currently the city's council tenants pay 40% of the market rent, while its social housing tenants pay 60%. "80% of a market rent for a two-bedroom house is over £700 (Jersey £960) a month," said John Marais, who represents council tenants.

Basingstoke: Social housing might not be as affordable for you as it used to be as rents are likely to increase – for example –

• affordable rent on a three-bedroomed house £165 per week – the social rent would be £110 (Jersey £267.05) per week
• affordable rent on a two-bedroomed house is £128 per week – the social rent is £85 (Jersey £239.40) per week.

It  is  worth  noting  that  in  most  cases  rents  (including  those  in  London)  are  set significantly below the levels of rents in Jersey.

In moving from social rent levels to "affordable" rents, the UK government has set a cap of 80% of local private market rents. This level is designed to meet 2 criteria –

1. to be affordable to tenants, and
2. to be financially sustainable.

One has to ask why the Minister, given Jersey's high rent levels, is proposing a cap of 90% of market rents. If the UK authorities can produce sustainable provision of rental housing at 80%, then Jersey should surely be able to come up with a model that delivers at those rates.

As is demonstrated below, the inability of the Housing Transformation Plan to match the level of the cap in the UK, and the need for rent levels as high as 90% of the market,  can  largely  be  put  down  to  failure  of  the  Minister  to  address  the  issue

identified by Professor Whitehead as the central flaw in the provision of social rental housing – the return of significant sums to the Treasury.

The prime task of the Minister for Housing, as set out in the Strategic Plan 2012, is to ensure that "All island residents are housed adequately." In adopting this aim, the minister has accepted that "The provision of housing is a major challenge for the island in the face of increased demand."

The growing demand for social rented housing in particular is reflected, not only in the 2013 – 2015 Housing Needs Survey, but also in the increase in the Housing Gateway waiting lists recently. It is somewhat surprising then to discover that the Housing Transformation Plan (HTP), which contains projections for the next 30 years, fails to give any space to discussion of population and immigration levels that will have a direct impact on demand for housing over this period. The absence of any attempt to make proper use of the extensive population modelling produced by the Statistics Unit in the HTP to discuss potential demand is lamentable. This was noted by the Scrutiny Sub-Panel in its key findings (S.R.6/2013) –

"The  present  reforms  are  not  sufficient  to  make  any  meaningful contribution to the future provision of affordable and social housing. The demand for social housing has increased in recent years, yet the proposals do not explicitly state how this need can be met by the proposed Housing Company or any other Social Housing Provider." Section 9

Apart from this failure to produce any realistic projections of housing demand and the means  to  meet  potential  need,  the  content  of  P.33/2013,  The  Reform  of  Social Housing, and R.15/2013, States of Jersey Housing Transformation Programme: Full Business Case, contains 2 interlinked and fundamental flaws, namely –

• the failure to address the historic requirement to fund rental subsidy schemes, which in turn results in –
  • the inability to produce a sustainable business plan for affordable housing at a rate less than 90% of market rents.

Rental subsidies

Prior  to  the  introduction  of  the  Income  Support  System  in  2008,  the  Housing Department  was  responsible  for  administering  rent  rebate  and  rent  abatement  to tenants on low incomes. When the Income Support System was brought in, in January 2008,  the  Housing  Department  which  operated  the  Rent  Abatement  and  Rebate schemes  subsequently  had  the  budget  (and  cost)  for  them  transferred  to  Social Security.

This amounted to £24 million, turning the Housing Department into a net income budget which was effectively then "redirected" through the Consolidated Fund to Social Security to part-fund the cost of Income Support. The Treasury maintains that, as a result of these changes, the direct link between the Housing element of support and funding has been broken (i.e. there is no explicit link between the amount of money paid to States' tenants for housing costs through Income Support and the payment made from the Department to the Treasury). Nonetheless, many still regard the  "return  to  Treasury"  as  funding  the  Income  Support  rental  component.  The inexorable growth of rent abatement and private sector rebate is illustrated here in Table A.

Table A: Growth of rental subsidies 1991 – 2011

Data extracted from States Financial Reports and Accounts

Many thought that the Housing Transformation Plan presented the opportunity to address the growing expenditure on housing subsidies, which form a significant part of the total Income Support bill, as can be seen below in Table B.

As is demonstrated below in this report, not only has this opportunity been ignored, but the measures proposed by the Minister in his plan significantly increase the level of rental subsidies needed to protect social rental tenants from hardship.

Table B: Income Support: rental components

The problem with the maintenance of the "Return to Treasury" policy is demonstrated by the figures given in the HTP Financial Business Case presented on page 45 of the report attached to P.33/2013, produced here as Table C.

Table C: Financial Business Case: Summary

This table demonstrates why the model proposed is not viable, let alone sustainable. The "return to States of Jersey", at £1,472 million, amounts to almost half of the £3,000 million rental income of the housing company over the 30 years presented.

P.33/2013 presents several of the key points made by Professor Whitehead in her review of Social Housing in 2009. I highlight here just one of these –

• "the  current  balance  of income  and  expenditure  is  only met  by running down the condition of the(States housing) stock";

The viability of housing finance was further explored by Professor Whitehead thus –

"2.12.  Professor Whitehead considered that the Property Plan was a response to the

constraints of a situation created by the combination of the policy of only funding  investment  from  revenue,  rather  than  from  borrowing,  and  the requirement  for  the  Housing  Department  to  make  a  significant  annual return to the Treasury which left insufficient revenue to address the annual repair needs of the stock [my emphasis]."

The Housing Department budget

"The vast majority of Housing Department income comes from tenants' rents. Gross rent income in 2008 was £33m. The annual expenditure on the running costs of managing  and  maintaining  the  housing  stock  are  £11m.  As  a  result,  there  is  a substantial surplus of gross rents over costs of £22m. This is paid into the States' central budget.

The States have recognised that annual expenditure of £11m. is insufficient to ensure the adequate repair and modernisation of the States' housing stock, and this has resulted in the backlog identified in the Property Plan."

This backlog was estimated at £75 million in 2006, but has been reduced by several fiscal stimulus projects to around £48 million today. The chronic shortfall is described as £2.5 million for responsive repairs and £5 million for planned maintenance and improvements annually. The mechanisms available to meet this shortfall are –

• Reduced payment to the centre
• Rent increases
• Sales of properties
• Borrowing.

It is notable that the proposals brought forward by the Minister for Housing pay no attention to the first of these 4 solutions, and yet the leakage of £26 million (and rising) from the Housing Department's rental income has surely been a fundamental block to the creation of a viable and sustainable plan for housing in the past, and remains so now.

The income and expenditure figures, along with the contribution of Income Support, are illustrated in Figure A.15 of the Whitehead report as follows –

Rent income and the Housing Department budget

"In 2007, the Housing Department expended a total of some £32.3 million, of which some £10.3m was spent on the management and maintenance of the housing stock. The balance, a surplus of some £24.3m, was transferred to the States Treasury.

Figure A.15 clarifies where the income came from, and what it was spent on.

The Figure shows that of the total income from rents of £32.3m, some £17.5m came from Income Support, and some £14.8m was collected from tenants.

The total payment of Income Support to tenants, of £17.5m, was less than the surplus of income over expenditure on managing or maintaining the housing stock that was transferred to the States Treasury. Therefore, there was no net contribution by the taxpayer to the cost of Income Support for States tenants.

In  addition,  the  equivalent  of  some  £4.5m,  collected  directly  from  tenants,  also contributed  towards  the  surplus  of  income  over  expenditure  on  managing  or maintaining the housing stock, and was transferred to the States Treasury."

This essential problem with the financing of the Housing Department's capacity to deliver housing and to enable a proper maintenance regime is at the heart of historic failings in housing. It forms a major part of Professor Whitehead's report. This issue has been ignored in the proposed HTP.

The figures which enable us to examine the financing of the HTP in detail are given in Appendices 1 – 3 of this report.

Return to Treasury

The growth of the return to the Treasury as proposed by the Minister is shown in Appendix 1. This effectively reduces the income of the new housing body by almost 50%. Unsurprisingly, we are told that such a reduction in income results in the need to raise  rents  to  90%  of  private  market  rents  to  make  the  business  model  viable. Appendix 3 shows that maintaining the return to the Treasury in a repayment schedule at 80% of market rents requiring 28 years to be repaid, whilst at 90% the repayment period is reduced to a much more manageable16 years.

If, however, we allow the Housing Company to retain more of its rental income by capping the return to Treasury at the level contained in the MTFP for 2015, that is, £29.4 million, then the cumulative income generated over the 30 year period of the plan amounts to nearly £600 million additional revenue. This would appear to make the business plan viable, with a rent set of 80% of market rents, as shown here in Table D –

Table D: Impact of capping "return to Treasury"

The overall impact of these changes on the business plan and the borrowing required can be estimated from the figures presented for rents in Appendix 2, and summarised here –

Income Support

We now come to examine the impact of the new rental policy on Income Support. The proposed rise of States social rents from its current average of 69% to 90% of market rents will have 2 significant impacts. One will be on the 67% of tenants claiming the rental component of Income Support, which will require additional funding from taxation; the other will be on the one third of tenants who do not currently claim Income Support.

The figures for the impact on Social Security funding given on page 52 of the report are reassuringly small, growing by a mere £2 million (15%) from £13.7 million over the 30 years of the Plan. One has to examine these figures carefully.

The figures are presented in "real terms" with inflation stripped out. The relatively slow accumulation is presumably due to the mitigation put in place for all tenants that only new tenancies (at a rate currently of 7% annually) will be charged at the full 90% rate. Other changes, such as new builds coming of line or demolitions will cause further variations. However, all other rents, including those in the private sector, are subject to inflation at RPI (3.5%) + 0.75%, or 4.25% in total.

To compare real terms figures with those in the business plan which do contain inflation is to compare apples with pears. It is meaningless. The reality is vastly different. The effect of increasing rents on existing tenancies by inflation + 0.75% (4.25%) is shown in columns 2 and 3 of the Table in Appendix 2. This shows an increase of rental income over the first 10 years of £19.5 million. This 50% increase will result in a near doubling of Income support to £26 million.

If one includes all measures in the plan (taken from the Total Rental Income in Appendix 2) –

• Increase on existing tenancies
• Re-lets
• New builds
• Uplift on refurbishments
• Less sales, decants, voids and demolished properties,

then this produces a very different picture. The actual projected additional rent is given in Table E here. The additional rent generated amounts to £35.2 million. This, in turn, will add £26.3 million to the Income Support bill over the 10 year period.

Table E: Impact of new rent policy on Income Support

Financial and manpower statement

There are no manpower consequences. The amendment caps the return to Treasury at the level of £29.4 million annually, enabling an additional £593 million funding over the 30 year period of the Housing Transformation Plan. It requires the Treasury to find funding for rental support schemes by 2016.

Return to Treasury: Growth

APPENDIX 2