The use of large up-front fees and disproportionate deposits has already resulted in significant cost consequences for one care provider.
Housing Benefit and Local Housing Allowance (LHA) and new tenancies + Universal Credit = a Market Economy
For most housing associations, having LHA as a limit on new rents will not have any effect - after all, even affordable rents should be below the market. But we should think about service charges, the bedroom tax and future rent increases.
Bedroom Tax: With a Housing Benefit claim in the housing association sector, there is a reduction in the amount of benefit received as a result of unoccupied rooms, via the Bedroom Tax. The LHA rate of calculating a benefit claim, instead of reducing the amount of benefit based on unoccupied rooms, is calculated through, and capped at a level, which is suitable for that specific household. This proposal, in essence, carries the Bedroom Tax across all tenancies and ensures that benefit is paid for the household requirements as opposed to being based on the rent of the property with a standard reduction. In essence, this cements in equivalent reductions to the Bedroom Tax without explicitly having to say so.
Service charges: LHA represents an overall limit on the amount a housing association would be able to charge (I assume supported housing will be exempted). With the -1% rent reductions and the “we provide what we must, you pay for extras” narrative, service charges are becoming more and more important. The move means that, in low market rent areas, there is much less room to manoeuvre between what is rent and what is to be a service charge.
Future rent policy: Could we imagine a future, post 2020, where formula rents and the requirement to follow rent guidance (whether this is up or down!) ceased to exist? Moving to LHA makes that a small step closer to reality.
Adding Universal Credit into the mix (thereby making customers focus on what they pay for) equals the foundations for a level playing field on providing housing for those in need. It gives further encouragement for new providers to enter the market who can provide quality, “efficient” (from a landlord running costs point of view) low-cost housing and it sets down a challenge to housing associations, especially where market rents are low, to provide a transparent offer around value for money.
Help-to-Buy Shared Ownership – How to help Generation Rent
With all the bad news about section 106, the only long-term route to development for housing associations looked like turning themselves into a commercial developer. Here, the Government is giving housing associations a key role to play in something that will become a core issue towards 2020. Will the sector be up for the challenge? There are three core questions for housing associations to ask themselves:
Different Mentality: OK, over the years there have been times when shared ownership hasn’t been especially popular. The product will now be competing against starter homes. Housing associations embarking on Help to Buy Shared Ownership need to ask themselves whether it will work in the location they have in mind and, if so, be ready to compete against starter homes. This is about developing a sales mentality, instead of a rationing mentality, which can be the default position for some housing association teams.
Product Package: Given the increased volumes of shared ownership properties envisaged, if housing associations have not got a funding solution for customers then they need to sort one out, and do so proactively. This is again about developing the sales mentality.
Staircasing: Be honest, how many associations actively court staircasing? Customers need to be reminded that they can staircase and be encouraged to do so (funding again) as this is a way of getting new funds for development and reducing the risk of spiralling (unaffordable) rents.
What else? With the likely increase in shared ownership portfolios, there will be a greater need to access (and prize to be won in accessing) the latent value of residual shared ownership stakes to funders that remains on housing associations’ balance sheets. Earlier on in 2015, we acted on behalf of Derwent Living in doing just that – accessing previously untapped equity. There are plenty of pension funds who are looking for such opportunities.
In five years’ time we will look back on 2015 as the year that represented a turning point in government policy and challenged the orthodoxy that has existed for the last 30 years. Who is picking up the Government’s gauntlet?
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Contact Jonathan Cox, "leading figure in the field without question" Chambers & Partners 2016
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