RE: Affordable Homes and Recent Legislation

RE: Affordable homes and recent legislation

Stratford District Council is now seeing an increasing number of applications where the 106 contributions for affordable housing is in doubt. Most, it seems, of the larger housing associations (HAs - including Orbit & Stonewater) are effectively refusing to take on small affordable schemes. We do not as yet have an exact figure of what is ‘small’, however anything less than 24 seems to be considered not viable to the housing associations.

This is a recent occurrence and according to the developers agents, appears to stem from recent Government rulings, namely reducing the rents of affordable housing (1% pre year cumulative),certain tax reliefs being reduced an the increase in the minimum wage. I do though wonder if what we are now seeing is a cumulative impact and unintended consequence of those policies.

If the larger HA’s are distancing themselves in this manner from small schemes then as a rural district we are in danger, through attrition,of loosing a significant portion of our affordable rented housing, the very housing needed for residents that cannot afford an alternative.

Until recentlythe planning committeesresponsibility has just been to ensure the 35% ratio of affordable to market homes and that any appropriate 106 monies are noted. The mix has often been driven by officers and developers (following negotiations with the HA’s) Now we are seeing applications for small schemes where developers are not deciding to bring forward this type of accommodation but suggesting either no affordable homes, off-site contribution or building starter homes instead. I have real concerns on this approach.

Housing in our district is expensive. Even starter homes at 80% of market rates may well be unaffordable to many.I have also seen these starter homes and in honesty they do not appeal. Not only are they small and cramped, they are often difficult to sell on. They can become a trap, not a way to start up the property ladder. It is interesting that a social landlord and hence far more intimately involved in this problem than me, described them as ‘rabbit hutches’ and would not touch them with the preverbal barge pole.
60% of market rate are now being proposed.This is more affordable to some but still exclude many.
Shared equity. If adopted then the person pays 50% of the mortgage. However this can still be out of the reach of people on say£25,000 and 2.5 times salary. Also modern estates have maintenance charges and of course council tax, gas,electric etc.
Off-site contribution is an option but where is the land to build on coming from and who will look after them again?
If no affordable homes are offered then are we as a committee able to refuse an application? If not then are we just allowing developers a free hand on development and will have no control or influence on the schemes.

The impact as you can see is less of the types of affordable homes we need for the district.

I have discussed this issue with two housing charities, Warwickshire Rural Housing and Care21.Although discussions so far have only been in outline, Ifeel that there may be a route for them to help in this process. As asmall charity there are issues that would have to be addressed and it would be a significant departure from their current role. However if structured correctly their function would b that of a management company, a role they currently perform.

My thoughts are now centred around forming an arms length company that will take over the housing stock. This can be in one form or another such as a limited or Tekel company. The housing charities would be partners and set up with exec and non-exec directors. Their aim would be to manage the housing stock and pass onto the housing department available housing.

This is not a return to council housing but does offer councils to influence the number and type of affordable home built.

I would appreciate your thoughts on this issue and perhaps the opportunity to discuss it in detail.

Best regards

Mark Cargill

Ward member for Bidford West and Salford Priors

Chair of West Area planning committee

OrbitAnd other social landlords. Their business model is predicated on ownership of a largehousing stock. Due to the government decision to reduce social rents by 1%/cumulative, per year for the life of this parliament then these landlords have decided to pull out of small level social housing (around 24 homes). Their costs are high due to the amount of maintenance they have to perform and the administrative burden. To them scale of supply is vital, hence the issue before us. Interestingly, Orbit are positioning themselves in the building market now.

Lack of supply. Alcester is a good example of where the current system falls down. Alcester has a severe lack of social housing at the moment. This may be alleviated somewhat in the coming years when the Alimore lane site comes on line (est. 100 homes). However, take the Redrow estate in Kinwarton. They have provided the 35% affordable homes but due to floor area constraints have had to provide an off-site contribution for more homes. The issue is that there is limited or no land available to build these homes on. What happens to the money? a) if we do not act quickly then it goes back to the developer or b) it is used elsewhere in the district thereby not helping the residents it is meant for.

Catch 22. If a person is on the register for a home in Alcester they must be on Home Choice Plus. To get to the top and (gold) you must have a local connection. This is to enable people with family here to stay in the community they grew up in. However if there are no homes in their area thenthey have to move to another town. If that happens they go down to the bottom of the list as they do not have a local connection.

Starter homes. The government have announced that they are allowing smaller builders to take over brown field sites with few restrictions to kick start development. Laudable. However starter homes can be a burden not an asset when it comes to selling. I am not aware of many rural authorities that want one bed homes. They are all looking for 2-3 bed.

Developers. Developers as we know do not always wish to build affordable homes and find many and varied ways to slip out of the commitment. However on the smaller schemes (<100 homes) their proposal as a way around this conundrum to build starter homes in lieu of social/rented. This further diminishes the housing stock available for rent.

Right to buy.A good scheme for aspiring people. However if the potential rental houses are sold under this scheme then we again diminish the rented stock. If the money generated (and remember this is normally at 80% of market value) is used to build more social homes, then we hit the same problem of where to build them.

Affordability.Houses are expensive in Stratford. Even with 80% or 60% of the market value, it will not be affordable to many. Therefore the rented sector is vital

Private rented sector

Current government legislation is reducing the taxable benefit in the private rented sector. Also there are restrictions on buy-to-let mortgages.A number of Landlords are therefore pulling out of this sector. Although rents are at market rate, private rental is a good alternative to many and relieves pressure on the social rented sector. If for example someone can afford to rent privately but not afford a mortgage (or the deposit or their income is insufficient) then if evicted due to the property being sold, their only recourse is the social rented sector.

Possible solutions

1)We need to identify land that can be used for social housing. This may be uncomfortable in that possibly Green Belt has to be used and special circumstances shown. But who pays? Compulsory purchase is an option.

2)Can WCC allocate land that they have? They do this already for some small local schemes

3)Can SDC allocate land that they have?

4)Can we encourage Smaller Charity Housing Associations (SCHAs) to take over these smaller schemes? They have a different business model and reduced costs. Other cost saving measures can be explored, for example instead of employing full time maintenance labour as the big boys do we could use tradespeople who live in or near to the scheme. Locally sourced, locally accountable. This would help retain any money spent locally and give small communities a better sense of ownership and togetherness

5)Using the above concept, who would own the properties and land?A suggested route is to set up an arms length company that owns the assets. An example could be for land owned by the LPA. This could be transferred to the new company for free. Section 106 monies can be allocated to the company for the sole purpose of providing affordable homes. The SCHAs may be able to leverage more capital based on the scheme on ROI. (See worked example of rental income below). If considered in detail, this scheme does almost exactly the same as the large HAs do now. Property s transferred to them, they manage and with the District Authority, residents are allocated a home.This proposition simply captures the smaller affordable sites for precisely the same purpose

6)What next? If such a company is set up with the relevant operating charter, greater flexibility can be shown to needy residents, a better balance of rented to % of MV homes can be implemented, local needs addressed and true localism employed.

We live in a very rural area where people want to and like to live which is great. We cannot however provide for the low paid members of our society. We have been set targets for industrial growth in the core strategy but may be unable to provide affordable accommodation to meet their needs. People will therefore have to travel and that is unsustainable. It seems a bit of a mess.

ROIfor a small scheme demonstrating who benefits apart from the residents of course.

4% return on land rent from rentees

Get land free from developers or SDC or WCC But they comply with their commitment to provide the right type of accommodation, I.e. Affordable and extra care

Local connection hence local ownership

Local trades employed

Management companyemploying skills of SCHAs

Charities can be invited to be on the board (CAB Is one charity that SDC work very closely with)

Other considerations

Board of directors to be appointed.

Non-execs as independents

The company would have the ability to buy land and to take out loans

A business case/model would need to be developed to fund any loans (£80,000 interest on £1million-note that we may be able to get better rates from the SCHAs)

Homes costs based on £1500 per sq. metre giving say £100,000 per dwelling

Market rate homes say £200,000 giving us two rentals for ones sale

Management fees for grass cutting etc. Could also be locally derived

If these affordable homes are on a development the cheapest way to build them is for the developers to construct them as they will automatically include the infrastructurehence lower affordable homes costs.

Some homes may be ‘given’ by the developer if a model can be developed

Board members will comprise councillors, officers, housing charities and say CAB as non-execs

A worked example

The land to the rear of Hopkins Precinct, Alcester

This is SDC owned land. The options to enable this scheme to work are 1) sell the land to the company or 2) rent it on a peppercorn rent with a financial return.

To make this work SDC will require a return of say 4% on the market rent of the land if used for similar purposes. Not to forget that the council has a moral obligation on affordable housing and a business driver to maximise its return. Currently this land is a cash drain through having to maintain an amenity space.

If this amenity space is used for building then we need to consider if another plot of land needs to be handed over for amenity use.

Assume a few figures here.

Cost to build a single property is £1500 per square metre. Set 70,000 sq metres. This gives a base cost including infrastructure of £100000 per dwelling (high end estimate)
Estimate rental income is £90 per week per dwelling giving £4700 per year
Maintenance is based on 5% per dwelling approx. £234 per year per dwelling
Management charges are based on 5% per year per dwelling also and gives £234
Rental return to SDC is 4% giving £188
Loan. Estimate 15 homes @ £100000 each gives £1.5million loan
If we estimate an interest of £80000 on £1million we get £120000 per year interest
15 homes gives a rent of £70,500
Minus outgoings of £656x15 = £9840 which gives an income of £60,660 per year to pay off the loan
Theoretically could pay off the load in two years. However estimate 3 years.

As SDC has an excellent credit rating we can shop around for beneficial interest rates and potentially reduce the interest payable.

After a few years we can go through the cycle again, loan, build, pay off etc. building up a housing stock managed by the arms length company.

Does not take into account defaulters on rent.

Assumes we use the current system of claiming rent or we use the housing charities system.

Assumes we use local labour to maintain the buildings

Maintenance costs will increase towards the end of the life of the properties but we can look at sales then

As this company will effectively own stock it is in our gift to rent or sell accordingly. To enable people to but but whocannot afford the shared equity model for example, we can look to allowing people to buy at say 40% of market rate then allowing them to take over a greater percentage over the years until they own the property. Fits in with government thinking.

Summary

Stratford District Council is now seeing an increasing number of applications where the 106 contributions for affordable housing is in doubt.Developers will wish to maximise their income but most fully accept the 35% rule. However the planning committees are seeing many requests to change either the quantity or type of affordable home. Government have introduced a number of changes recently especially the 1% year on year reduction in therented sector. They are pushing developers and LPAs along the route of starter homes and of course there is the right to buy philosophy. All of these are putting significant pressure on the affordable rented sector. Coupled with this and possibly directly influenced by these changes, the larger housing associations are refusing to take over affordable schemes of less than approximately 24 homes. These small schemes seem not to fit into their current business model. Another factor is ageing properties. To a housing association their optimal solution is to sell such properties if the renovation costs are too high. Monies for such sales may come to the LPA however this does not mean the LPA has the wherewithal to build affordable homes.

This is an unintended consequence of multiple actions potentially reducing significantly the affordable rented properties we have to offer to residents.

Most, it seems, of the larger housing associations (including Orbit & Stonewater) are effectively refusing to take on small affordable schemes. We do not as yet have an exact figure of what is ‘small’, however anything less than 24 seems to be considered not viable to these housing associations.

This is a recent occurrence and according to the developers agents, appears to stem from recent Government rulings, namely reducing the rents of affordable housing (1% pre year cumulative),certain tax reliefs being reduced an the increase in the minimum wage. Individually I can see the reasoning behind some of these decisions and applaud them. I do though wonder if what we are now seeing is a cumulative impact of unintended consequencesemanating from those policies.

This is a simple business decision for the housing organisations. It’s a huge impact for us.

Mark Cargill