HC 1652 Communities and Local Government CommitteeWritten submission from Hackney Council

1. Summary

1.1 Hackney Council is taking advantage of the Housing Revenue Account reforms by financing affordable housing supply to deliver over the next eight years a total of approximately 2,300 homes for social renting, shared ownership and private sale across 12 Council estates and sites. This replaces 853 homes for social renting, 21% of which are bed-sits and only 10 are family homes with more than three bedrooms. The programme will deliver 626 homes for social renting, and 484 homes for shared ownership, with the remainder for private sale. Of the affordable new build homes, 33% will be family-sized with three bedrooms or more, with 27.5% of the family-sized homes having four or five bedrooms.

1.2 The 853 homes for social renting have been providing accommodation for just over 2,000 people, however the combined total of the homes for social renting and shared ownership within this programme will provide accommodation for just under 4,000 people.

1.3 This programme will not only be delivered amid recession but also without reliance on Homes and Communities Agency funding. The programme is ultimately self-financing after initial starting costs are covered by the Council.

1.4 Overall the programme achieves a tenure balance of 49% for sale and 51% for social rent and shared ownership.

1.5 Regarding the supply of affordable housing more generally, Hackney Council has concerns about the introduction of a new Affordable Rent tenure—combined with the forthcoming benefit cap—as a means to continue the supply of affordable housing locally, and to house those on its waiting list in a borough where market rents have risen exponentially and larger, family-sized homes are in considerable demand.

2. Councillor Philip Glanville

2.1 Councillor Philip Glanville is Hackney Council’s Cabinet Member for Housing, with lead responsibility for strategic housing, housing needs, and issues relating to Hackney Homes, the borough’s Arms Length Management Organisation. Councillor Glanville has lived in Hackney for ten years and has represented Hoxton Ward since 2006.

2.2 Prior to joining the Cabinet he chaired the Living in Hackney Scrutiny Commission, which covers public realm, housing, regeneration, planning, culture, leisure and sustainability, and he led reviews into how to support and sustain the local high street, how to better involve Hackney residents in the planning process and how to encourage residents’ participation in the work of Hackney Homes.

2.3 Councillor Glanville is in post as a Cabinet Member from June to December, 2011, as maternity cover provision for Councillor Karen Alcock, Deputy Mayor of Hackney.

3. Financial Overview

3.1 The regeneration programme across all tenures totals investment in excess of £400 million. Included within this are leaseholder repurchase costs, tenant home loss and disturbance payments, and development and works costs.

3.2 The investment for the affordable housing will be funded from a series of income streams:

sales receipts from the initial equity share purchased within shared ownership properties;

receipts from land sales where developments have been earmarked for open market home sales; and

borrowings raised on the net rental income receivable from tenants and from shared ownership properties.

3.3 Build costs have been priced conservatively at a square metre rate that is higher than recent Council developments. We have chosen to be prudent on build costs due to increasing commodity prices, although labour costs are expected to remain static. Architect and other professional fees are based on industry standard percentages.

3.4 Land receipts are based on a combination of sales values, build costs and developers’ profit margins.

3.5 With the downturn in the construction industry, we have already received significant interest from developers for the programme.

3.6 Payment terms will be negotiated on a site-by-site basis with each developer. It is expected that assisting developers with cash flows will result in increased land receipt values. A charge will be put on the land if land receipts are not received up front.

3.7 Interest rates are assumed to be 5.25%.

3.8 Rental income is as per the Government’s rent restructuring regime. It assumes a 2% void rate and a 1% bad debt rate which is in line with rates for our current stock.

4. Cross-Subsidising Within the Programme

4.1 A number of the 12 estates and sites within the programme will cross-subsidise each other. An example of how the Council has recently achieved this to great effect is from January, 2011: a land deal totalling £25 million between Hackney Council and Lovell for two HCA-funded Local Authority New Build developments.

4.2 The Council contracted Lovell to build 87 new homes for social renting over two sites, after match-funding through prudential borrowing an HCA grant of over £6 million.

4.3 By the Council enabling an additional 42 private sale homes at one of the sites which overlooks Finsbury Park with a substantial Red Book value, Lovell will invest in the regeneration by undertaking the construction of 20 further Council-owned homes at another site, worth around £3 million, to assist in acquiring leasehold interests, which can be a significant cost before work can proceed.

4.4 This is thought to be among the first instances of a local authority cross-subsidising the development of sites in its property portfolio on this scale, as the mixed-tenure model is usually associated with major regeneration projects such as at Woodberry Down, or with housing associations.

4.5 Due to a 15-month deadline for development to meet grant requirements, Hackney put to the market a procurement package seeking bids from developers either to build the 87 social rented homes across the two sites, or to build the 87 homes plus private housing, and in return build a further 20 homes for Council ownership on the other site.

4.6 Market interest was considerable, and the Council also mitigated development risks by designing schemes ahead of procurement, to minimise planning risk; providing land at no cost, removing significant finance risk; and “buying back” the social rented units upfront through the HCA grant and prudential borrowing.

4.7 The Council will offer similar cross-subsidy across the 12 estate and site regeneration programme, to achieve similar benefits in future.

5. The Council as a Key Provider of Shared Ownership Homes

5.1 The eight-year programme will deliver 484 additional homes for shared ownership across the 12 estates and sites, which is expected to position Hackney Council as one of the major shared ownership providers in the borough, with homes for approximately 1,500 people.

5.2 Half are one- and two-bedroom properties, and the remainder includes those with up to four and five bedrooms, to offer current leaseholders in family-sized homes on regeneration estates an alternative to being bought out but then facing limited prospects of finding suitable local homes.

5.3 In this way the Council can not only mitigate against the high upfront costs of acquiring leasehold interests before regeneration works can get under way, but also help finance the regeneration through deposits and rent, making use of HRA reform.

5.4 In Hackney, low cost home ownership properties, notably those for shared ownership, are being squeezed out by the withdrawal of HCA grant and the need in turn for providers to focus on homes built for private sale to help fund developments. As a result, the Council through its estate regeneration programme is expected to become a major supplier of low cost home ownership properties up to 2015.

6. Housing Supply in Hackney in the Context of the Social Housing Reforms

6.1 Hackney has seen a building boom since 2005, peaking at an extra 2,500 homes in 2009–10. This was way above the Greater London Authority’s annual target for Hackney of 1,085, and the second highest total in London that year. Demand is such that private renting has continued to surge despite rising rents, while owner-occupation levels do not appear to have grown since 2003.

6.2 The number of households in temporary accommodation nearly halved between 2005 and 2010, with a 60% reduction in severely overcrowded households on the housing register since 2007. This is mostly due to a high number of new homes for social renting built, and Council initiatives such as those to release family homes held by under-occupying tenants, and enabling homeless households to move into private rented accommodation. These reductions look set to go into reverse due to rising demand and declining supply.

6.3 An increase in homelessness applications is already under way and Hackney’s Citizens Advice Bureau reports a rise in the number of private tenants seeking advice as landlords seek tenants who do not need housing benefits to help pay the rent. Other challenges going forward include the prospect of a continuing rise in market rents, as well as the effects of the new Affordable Rent model. Whilst the Council will do everything it can to respond to and mitigate the impact of these trends, they seem likely to continue over the medium term.

6.4 Notes to graph:

(1)Lettings include homes becoming available for re-letting or which are newly built—but exclude (i) tenant transfers and the impact of estate renewal; (ii) lettings in new homes built for people with support or care needs; and (iii) lettings in new homes elsewhere in east London to which the Council has nomination rights.

(2)The estimates for Affordable Rent lettings are subject to change and depend on targets to be agreed between providers and the HCA in autumn, 2011.

6.5 To continue to ensure enough new affordable homes are built for residents, and to secure the best use of all housing sources, presents the Council with a number of challenges, especially as there are competing claims on the Council’s land and resources, including Decent Homes works as well as many non-housing priorities. Registered Providers are also now being expected to make greater use of their assets and look across borough boundaries to build new homes.

7. The Role of Affordable Renting (AR)

7.1 As the graph beneath paragraph 6.3 reveals, there will be a projected 30% reduction in social rented homes available to the Council for letting from 2013, due to a big fall in newly built homes and providers converting an estimated 60 homes each year to AR when they become available for re-letting.

7.2 This shortfall means the Council has been looking at how it can make AR homes work for local residents in need. We have already issued interim guidance to our provider partners to help shape decisions made between them and the HCA on funding to build new homes, on the following issues:

Affordability

7.3 Following research commissioned by the East London Housing Partnership, the table below represents what the Council asks providers to set as a maximum Affordable Rent, according to bedroom size, to ensure local affordability including for priority groups on the housing register. Lower percentages are being sought in high rent areas locally.

Bedroom size

Percentage of local market rents

1 bedroom

Up to 70%

2 bedroom

Up to 60%

3 bedroom

Up to 50%

4 bedroom +

Up to 50%

7.4 Research so far indicates that for those moving into employment, the above rent levels will not necessarily adversely affect households’ disposable incomes when compared to social renting levels.

7.5 For example, single people in Hackney could potentially earn up to £20,000 per annum before higher rents affect disposable income; while for some families, especially larger ones, it could be up to £30,000, though this crucially depends on the impact of any child care payments and tax credit reductions.

7.6 Work on these issues is continuing, given the different rental markets operating in the borough, including checks that there is no threat of the Government’s annual cap on benefits of £26,000 per family being triggered, notably on homes with four or more bedrooms. The Council is also exploring whether area-based rent thresholds or a borough-wide rent figure by bedroom size might improve outcomes.

7.7 Conversion of social rented re-lets to Affordable Rent The Council is concerned about the impact of HCA funding requirements to convert a proportion of social rented re-lets to the higher rents involved in AR. Providers have been asked that no more than 22% of all social rented re-lets be converted at this stage, and particularly not homes with three bedrooms or more.

7.8 Providers look set to focus AR on new one bedroom homes and to a lesser extent two bedroom homes. Homes converted to AR by providers when they become available for re-letting will start to appear later this autumn. Newly built homes will start to be let locally in 2013.

Target groups for AR

7.9 The Council has stated to providers that it expects them to continue to accept bids through Choice Based Lettings (CBL) for AR tenancies from Housing Register priority groups, in line with existing protocols, while work is under way to develop a CBL affordability calculator for this. It is likely that most providers will seek to offer only fixed-term tenancies for AR lettings.

New social rented homes

7.10 The HCA will only fund the building of new homes for social renting in exceptional circumstances outside of estate regeneration and some supported housing.

7.11 The Council has formally advised providers that 25% of newly-built homes should be for social renting, with the remaining 75% for AR. Responses from providers suggest that delivering this level of social rented homes will be particularly challenging, as no evidence has emerged yet that the HCA has agreed any exceptional cases. Several providers have advised that the Council may need to invest its own resources to help meet its 25% target, if funds from providers’ reserves and cross-subsidy from sales of new homes built for private sale and low cost homeownership prove insufficient.

8. Funding from Private Developer Schemes

8.1 Subject to viability, Section 106 contributions from private developer schemes could help secure additional social rented homes. However, this will greatly reduce the sum total of new affordable homes of all types built. This impact will be even more pronounced if the contributions are to pay for social renting with three or more bedrooms, as these are more costly properties to build.

9. Planning Flexibilities to Aid Delivery of New Homes

9.1 The Council is considering a number of flexibilities in order to enable further delivery of homes both for Affordable Rent and social rent in the years to come. The Council’s final planning position will be incorporated in a revised Affordable Housing Supplementary Planning Document (SPD), which is currently scheduled for adoption in April 2012, and will be reinforced through policies contained within the emerging Development Management Development Plan Document (DMDPD), currently scheduled for adoption in 2013.

Area and site-based approach

9.2 The current targets for three-bedroom or larger homes in the London Plan are 42% for social rent and 16% for intermediate. The Council’s interim position is that, borough-wide, we expect the affordable rented programme (social rent and Affordable Rent), to meet the target of 42%.

9.3 The Council will assess tenure mix, population make-up and income, land values, average market rent levels, and scheme viability as part of the determination of planning applications, factoring in consideration of changes to the funding model for affordable housing, and also the neighbourhood or site characteristics.

In-lieu contributions and off-site development

9.4 This would involve making greater use of financial contributions for affordable housing in lieu of on-site provision and offsite construction of affordable housing—in specified circumstances and on condition that these help realise additional affordable housing and social integration.

9.5 This would include sites where there are existing concentrations of particular types of social housing and demonstrable benefits could be gained by providing new homes in a different location, such as to create more mixed communities, or provide a particular type of housing, such as family housing; or provide more units than is possible on the principle site.

9.6 Greater use of in-lieu payments in some circumstances could enable the provision of a higher number of affordable homes, including family homes, and a better mix of tenure on individual sites. This payment would go into a central affordable housing fund.

Upward cascading

9.7 This approach would reap benefits from increases to house prices, and involves building in to planning permissions a flexibility so that where higher-than-anticipated shared ownership or private sales values are achieved, the provider would guarantee to switch any shared ownership or open market properties to the affordable rented sector.

9.8 The Council could also consider receiving an in-lieu payment. Both approaches would need to be site-specific and take account of any implications the proposal might have for housing and estate management arrangements.

Compact flats, or microflats

9.9 These are smaller than the GLA Housing Design Guide standards which are required for affordable housing, and are sold below the corresponding average market value.

9.10 They are aimed at single people or childless couples, located in areas of high public transport accessibility, and built as part of a complex of similar homes. Compact flats can help reduce the demand to convert larger family homes into smaller units, and revenue generated can be used cross-subsidise affordable housing elsewhere in the borough.

9.11 The Council would need to be satisfied with the management arrangements and that below-market values are applied when any home is sold on. The support of the Mayor of London is also required for this approach.

10. Fixed Term Tenancies and the Council’s Tenancy Strategy

10.1 The HCA requirement for providers to convert some existing social rented homes to Affordable Rent when they become available for re-letting, in return for funding for new developments, has prompted providers to discuss their policies on fixed term tenancies in advance of the statutory requirement for councils to produce their own Tenancy Strategy.

10.2 The Council will consult stakeholders on its draft Tenancy Strategy once the Localism Bill receives Royal Assent. The draft, already being shared informally with partners, makes clear that:

no social rented homes should be let on fixed term tenancies, and that lifetime tenancies should continue to be used;

lifetime tenancies should be offered in AR homes to all priority Housing Register applicants nominated by the Council via Choice Based Lettings; and

a rationale be provided if a provider wishes to introduce a fixed term tenancy to an Affordable Rent home to which the Council does not have nomination rights, ie 50% of providers’ one-bedroom re-lets, and 25% of re-lets with two-bedrooms or more.

10.3 Many providers are considering fixed term tenancies for AR lettings, mostly for five years and potentially longer in some cases. They generally expect to renew the fixed terms, but not necessarily in the same property, to address overcrowding or under-occupation issues that may arise in the interim. Further proactive initiatives to assist tenants into work are also being explored. For existing social rented tenants looking to transfer, AR homes on fixed-term will reduce the supply of homes to move to with lifetime security. Should this prove to act as a disincentive to move, it means in particular a reduction of social rented properties available for re-letting to help address overcrowding.

10.4 The Council will separately ensure social renting tenants wishing to move have the information they need should they be interested and be successful in bidding for an Affordable Rented home on a fixed term tenancy.

10.5 In 2012, Choice Based Lettings will be reviewed to take account of changing local and national trends and the Localism Bill. A new homelessness strategy will also be developed, in line with the draft Tenancy Strategy and the new London Housing Strategy. A forthcoming Government national housing strategy will provide insight into its housing objectives and how these can be balanced with Hackney’s priorities, including in reducing overcrowding.

10.6 All of the above will be consolidated in a revised Housing Strategy due to go before the Council’s Cabinet in April, 2012.

11. Conclusion

11.1 This delivery model, adopted by Hackney Council at a July, 2011, meeting of its Cabinet, maximises the number of homes built while minimising the need for Government grant, and nearly doubling the number of residents in social rented and shared ownership homes from just over 2,000 to just under 4,000 without compromising on design and space standards.

11.2 However, as with Registered Providers’ making use of Affordable Rent-dependent Government subsidy, both the AR and Hackney Council models are medium term solutions. The Council will eventually run out of land values, and Registered Providers will eventually exhaust their borrowing ceilings, having stated that AR works for them only during this funding round. If Government grant is in as short, or even shorter, supply from post-2015, the risk remains that the supply of new affordable homes will gradually grind to a halt.

October 2011

Prepared 1st May 2012