In the fourth part of our series on contract management pitfalls, we look at the risks arising out of varying the terms of construction contracts.
Whilst the Housing White Paper provides a welcome shift in emphasis, away from solely focussing on home ownership, it is not as radical as expected and sometimes reads more as a research paper than a policy paper, concentrating primarily on housing supply. Several areas where we were expecting proposals are left for further work to be done, previous policy announcements are repeated, and the Government has stepped back from announcing other, more contentious, policy initiatives.
The biggest direct impact is for local authorities and developers, but there are also some helpful statements for housing associations. It is, however, the emphasis on the proposed definition of 'affordable housing' that shows the continued shift away from focussing public resources on housing those people most in need; and indeed, poses a threat to some of the innovations councils have been pursuing.
2. Local Authorities: The Essential Read
The White Paper’s stance is that local authorities will now have the tools they need to get building homes, but they will be under increased performance scrutiny from the Government:
- The Government will insist that all local authorities have an up-to-date local plan, which is reviewed every five years; where authorities fail to comply then the Government may decide to intervene.
- The Government is to consult on a new standard methodology for calculating objectively assessed need in local plans, and will 'encourage' local authorities to adopt this rather than their own methodologies.
- A new housing delivery test will be introduced to measure performance against housing targets in local plans; it will have the potential for the presumption of sustainable development to automatically apply where performance drops below certain levels, increasing year-on-year.
- The default timescales for implementing planning permissions are to be shortened from three years to two years, and the existing completion notice process will be strengthened and shortened.
- There will also be the addition of extended compulsory purchase powers for Councils over stalled sites, alongside a proactive role for compulsory purchase being given to the Homes and Communities Agency (HCA).
- Compulsory purchase arrangements will be reviewed to make the process clearer, fairer and faster.
- Local planning authorities are going to be required to collaborate, by publishing Statements of Common Ground to meet housing needs.
- There are a significant number of announcements that will result in changes to the National Planning Policy Framework, including encouraging affordable homes for local people, the prioritisation of windfall sites, increased densification proposals, smaller sites development and a review of space standards for new build.
- A review of the perceived complexity of Section 106 planning obligations will take place, with an announcement based on the conclusions of that review in the 2017 Autumn Statement.
- A £45m Land Release Fund is going to be launched to free up surplus public sector land, coupled with a new Accelerated Construction programme where the Government will partner with SME organisations to bring forward and build on that land.
- The Government will consult on the changes to the general consents for disposal of land at less than best consideration, with a view to increasing flexibility for local government.
- Local authorities are going to take a lead role in land assembly for development.
- From July 2017, planning fees could face an increase of up to 20%, but only where the funding will be used to invest in the authority’s planning department.
- The Government welcomes the innovative approaches that local authorities are using, such as local housing companies and joint ventures, to build housing where the market is not providing. However, the Government has, once again, signalled expectations around the application of ‘right to buy’, where affordable housing is delivered by council-owned companies.
- The Government is going to explore bespoke housing deals with local authorities in areas of high demand, who have a genuine ambition to build additional housing.
- The £2.3bn Housing Infrastructure Fund will be available to local authorities for the next four years and will be targeted at areas with the greatest housing need. Infrastructure projects could include transport and utilities.
One key message that doesn’t appear is where the funding, and other resources required to achieve these goals, is coming from.
3. Housing Associations: The Essential Read
Whilst a significant number of the other policy proposals will impact indirectly on developing housing associations, there was little that was announced that was new and directly affects housing associations. There is an explicit recognition that, in order for housing associations to borrow against future income beyond 2020, the long-term Government rent policy for general social housing needs to be settled. However, this can be only of limited value given that the last long-term rent settlement (albeit by the then Coalition Government) was abandoned after only 18 months.
There are several statements highlighting the Government’s expectation that housing associations will make best use of their development capacity: their encouragement for the sector to adopt a single set of metrics to compare respective efficiency levels; and how additional resources should be released from housing associations for house building. We expect further emphasis on value for money under the new HCA Regulatory Framework that is yet to be published.
There is support for attracting institutional investment to establish a ‘build to rent’ model and, bearing in mind the progress housing associations have made in accessing institutional funding, we think there are opportunities here. In particular, institutional investment into shared ownership and shared equity through emerging models is an area where we consider housing associations can tap into additional financial capacity that is already on their balance sheets.
The White Paper recognises other (pre-existing) policies directly affecting housing associations, including:
- The Affordable Housing Guarantee scheme – this has been popular with many housing associations as a means to raise finance from the debt capital markets for new affordable housing.
- The additional £1.4bn funding announced in the 2016 Autumn Statement for affordable housing, alongside the new flexibilities announced under the Affordable Homes Programme (2016 – 21), to fund affordable homes for rent as well as home ownership.
- The plans for the regulatory function of the HCA to be transferred to the Social Housing Regulator as a standalone body.
- A recommitment to housing associations belonging in the private sector (and hence the current de-regulatory proposals to come into force on 6 April 2017).
- In relation to the current issues over supported housing and the Local Housing Allowance (LHA) cap, the Government simply promises a subsequent Green Paper for spring 2017, to address how this issue is to be resolved.
4. Affordable Housing: The Essential Read
When starter homes were introduced in the Housing and Planning Act last year, there were many concerns that this would cause a significant decrease in the range of affordable housing options available on new housing developments. Nearly twelve months on, the Government has confirmed a significant shift towards supporting a mixed package of affordable housing options, and there is no longer an intention to impose a 20% requirement for starter homes on new developments.
Instead, the proposal is now to amend the National Planning Policy Framework (‘NPPF’) to introduce a clear expectation that new developments will include a minimum 10% of ‘affordable home ownership’.
The proposal to extend the definition of affordable housing is buried on page 100 (out of 104 pages) and is to include starter homes and ‘discounted market sales housing’ (20% below market, with eligibility criteria linked to local prices and incomes). It will also include ‘rent to buy’, alongside shared ownership, equity loans and other low-cost homes for sale.
The definition of intermediate housing for rent will be extended to include ‘affordable private rent housing’, targeted at, but not limited to, ‘build to rent’ schemes. Rents will be 20% below market, with eligibility criteria linked to local prices and incomes.
In addition, in a marked step-down from some heated debates in the draft stages of the Act, the tie-in for claw-back of the discount on starter homes will extend to 15 years, thus addressing some of the concerns around opportunistic investment. There has also been an £80k (£90k in London) household income limit introduced for starter homes. All of the new affordable housing categories referred to above include a requirement for the discount to be maintained or for the subsidy to be re-invested in alternative affordable housing provision.
The consultation also asks whether specific types of development should be excluded from the 10% affordable home ownership requirement, such as purpose built ‘build to rent’ schemes, supported housing schemes and rural exception sites, where the Government considers this should be left to local discretion.
The proposals recognise the reality of the current housing market in the context of local incomes, and local prices and will allay fears that the supply of rented affordable housing on new build schemes will be peremptorily curtailed. However, by emphasising the link of 'affordable housing' to a maximum of 80% of market rents, there is little recognition of the fact that many commentators do not regard a discount of 20% as being sufficient to help those most in need. This may cause a long-term impact on the public purse, due to the necessity to fund higher rents in the housing association sector.
For those looking to provide wider affordable housing products, the introduction of a broader range of options within the definition of affordable housing could provide the opportunity for local authorities, housing associations and commercial house builders to collaborate by focussing on local needs.
There are also opportunities in this for housing associations who are already gearing themselves up for diversification, as long as they ensure that they have appropriate development vehicles and structures to deliver this wider offering.
5. And finally...
There continues to be some Government largesse in terms of helping people onto the housing ladder. The lifetime ISA is being extended so that the 25% bonus will be available on savings of up to £4,000 a year, rather than simply on a total level of savings of £12,000. Alongside the ‘help to buy’ products, the Government has stated a commitment of £8.6bn until 2021, to enable people to own their homes. This can be compared to its capital investment in affordable rented housing.
The widely trailed proposals for longer security of tenure in the private rented sector have been restricted and reduced solely to 'taking steps to promote longer tenancies on new build rental homes'. This appears to mean that there will be no change to the existing presumption of six-month tenancies in the private rented sector for all existing homes and tenancies
For more information about this article, please contact Mark Cook and Olwen Dutton (Local Government) or Jonathan Cox and Jane Trevithick (Housing Associations). If you would like to find out more about the work that we do, please visit our Housing and Local Government website pages.
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