Planning for a deregulated future

Provisions within the Housing and Planning Act that remove the need for housing associations (“HAs”) to obtain consent from the Regulator to dispose of social housing (as well as to merge or enter new group structures) come into force on 6 April. Such freedoms will allow HAs greater flexibility over how they use their assets and, potentially, how they structure their businesses. 

Our expert panel gathered to discuss the possible opportunities the deregulatory measures offer, together with the likely hurdles. It included:

• Jonathan Cox – Partner
• Ranjit Bassey – Partner in our property team
• Jon Coane – Partner in our funding team and leader of our financial regulatory team
• Victoria Jardine – Partner and leader of our housing corporate services team

Solving the housing crisis

Chairing the discussion, Jonathan Cox set the context: “With HAs wanting to show they are part of the solution for the housing crisis, we should focus on how deregulation could increase the housing supply for the UK, especially where this is to be for social rented or affordable housing.”

Jonathan commented on the recent and successful Homes and Communities Agency funding allocations and confirmed these will form the bedrock of many HAs’ development programmes. However, with the limited numbers of social rented homes produced under revised financial models, the team agreed many HAs are deciding to deliver core affordable housing within a wider portfolio of shared ownership, intermediate market rented, market-rented and build-for-sale homes to increase capacity and to meet the different types of demand. 

Deciding on the profile and mix of a future development programme, and therefore the future focus of the HA, is the fundamental decision that a Board needs to grapple with. 

Jonathan Cox.

Current planning constraints

The group accepted that any proposed solutions need to operate within the constraints of reality. Ranjit Bassey highlighted his experience continues to be of a strong pipeline of section 106 sites that have standard restrictions on the ownership and use of the properties. These mean the properties developed need to be owned by registered HAs and rented as recognised ‘affordable’ dwellings in perpetuity, thus limiting some of the opportunities offered by deregulation.

Until HAs work in partnership with local authorities to widen what is being imposed through planning restrictions, it will not be possible to use many sites for wider, flexible asset management strategies. This is fine for many core development programmes, but it does not help to build wider and flexible mixed tenure development schemes. 

Ranjit Bassey.

Partnership working

However, many members of the team shared examples of successful collaborations between local authorities and HAs that were delivering new, mixed tenure developments and wider regeneration.  These were bringing legacy assets and land back into use. Jon Coane commented that the success of many of these schemes was predicated on being able to offer a financial return to local authorities on their contributions of land and/or funding. “With local authorities having borne the brunt of austerity cuts, many are pursuing strategies of developing their own income streams by using their assets and financial capacity” Jon observed. “This is how local authorities in the vanguard are thinking and operating.”

Jane Trevithick reflected on how the Greater London Authority and Manchester City Council have announced their own strategies with wider definitions of ‘affordable’ housing, linked to rent levels and purchase costs being set at 30% of household income. “There is some welcome flexibility here if these strategies translate into a change in approach by planners on pipeline schemes,” she said.  Jane also confirmed that having greater rental freedoms and not needing regulatory consents may make the Cheyne Capital, Rent Plus models she had worked on more scalable. This could also help with models such as the Civitas social housing REIT that had recently raised £350m.

…having greater rental freedoms and not needing regulatory consents may make the Cheyne Capital, Rent Plus models more scalable.

Rent control

“The key to unlocking all of these new flexible models is being able to determine your own rents” confirmed Victoria Jardine. “Whilst I think we all support the National Housing Federation’s  campaign for rent freedoms for HAs, even in the best case scenario, this is some years away. What should HAs do in the meantime? The de-regulatory measures offer an alternative and realistic option for new, flexible and affordable tenures to be set up now.”

Jonathan Cox agreed, “If you were starting from scratch with some of these new housing schemes, why would you partner with an organisation that is going to be restricted over the future rents? I want to champion the role of regulated HAs but long-term rent restrictions, when we are looking to maximise capacity, bring unnecessary risks to the viability of schemes. New models outside of the regulated sector may offer the flexibility to react to local need.”

Victoria said there was considerable interest amongst HAs in setting up new, charitable organisations to pursue similar purposes of charitable housing but outside of rent control. “All things being equal, having the unrestricted ability to set rents and pursue the same mission will be attractive to many,” she said. “With the ability to prime such charitable trusts, with new or vacant housing stock that is not required to meet financial covenants, is a clear way to start. Such projects will not have much impact in the early years, but, incrementally, HAs should not underestimate how much change can be achieved after, say, five years of active management,” Victoria explained. 

 …having the unrestricted ability to set rents and pursue the same mission will be attractive to many.

Early hurdles

With the mention of funders, Natalie Singh commented that she was advising many HAs to negotiate wider on-lending provisions into their funding deals so that unregistered group vehicles could benefit from the wider financial strength of the Group. These amounts may be used for wider commercial activities, but could also be used to fund the development of new stock in unregistered charitable trusts. “The interesting point will be to see what margins will be on offer to these charitable trusts when they become big enough to need their own independent funding. If the underlying assets are sound and there are rent flexibilities, it may be the increased valuations and headroom will negate the call for any additional margin due to these organisations not being directly regulated. This point will gain a lot of attention in the future.”

Victoria Jardine mentioned some of the other hurdles that will need to be negotiated away for many HAs to pursue a deregulatory strategy. “Every HA needs to have answers to the following questions at their fingertips: which properties are free from section 106 restrictions and material Social Housing Grant clawback? Which funding covenants could be triggered and under what circumstances? If they’re a stock transfer association, are there any legacy stock transfer obligations or repercussions?  There are then a number of practical and operational matters that should not be underestimated. Boards will also need to be happy that any proposals add to, rather than take away from, their current focus and that any requirements in the regulatory standards can still be met.”

Jonathan outlined the importance of understanding how current and future tenants would view any such proposals. Appreciating how they view the need to meet the housing needs of their children and the wider community is critical. Whatever happens, with the government embracing deregulation, the HA sector is more able to embrace the opportunities of offering a wider portfolio of housing for different people. 

The question will be whether this can be achieved without it being at the expense of those most in need.

For more information

You can find out more about the services we provide within the housing sector here. If you would like to discuss this round table please contact us, alternatively contact a member of the team directly below: 
Contact Jane Trevithick
Contact Jonathan Cox
Contact Jon Coane
Contact Natalie Singh
Contact Ranjit Bassey
Contact Victoria Jardine

Contributors

For more information on how we support housing providers, please contact a member of our team below, or take a look at the housing part of our website.

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