Module 8

Housing

Introduction

Housing is vital to the country’s economy because it enables people to have social mobility, health and wellbeing. Because housing is a base from which children access education, the quality and choice of housing has an impact on social mobility and wellbeing from an early age.

By statute, councils must aim to balance their HRA accounts and not budget for any deficit. The following chart therefore only shows local authority housing expenditure from the general fund, on non-landlord functions, such as homelessness (and so is not total housing expenditure):

Total service expenditure – England 2013/14

(a) Housing benefit includes mandatory rent allowances and rent rebates.

(b) Central services include courts and other services relating to administration costs for council
and no-domestic rates collection.

Much is being written about the problems faced by people seeking housing in the UK, such as the NHF report Broken Market, Broken Dreams.

The income of an average first-time buyer today (£36,500) is nearly double that of their parents as average first-time buyers in the early 1980s (£20,000) after accounting for inflation. In real terms, this means that while in the early 1980s an average mortgage for a first-time buyer was 1.7 times their annual income, today this ratio has risen to 3.419.

By contrast, the local authority average weekly rent ranges from £69 to £128 per week, making this an option for many seeking accommodation, but supply often falls below demand.

There were 1.37 million households on local authority waiting lists on 1 April 2014, a decrease of 19% over the 1.69 million on 1 April 2013.

In the UK, the public sector’s role is to provide shelter for people who could not otherwise provide it for themselves. However, in the social housing sector spending cuts and other restrictions on councils plus revised government priorities mean that available resources for social housing across the sector are limited.

The financial and other arrangements (eg statutes and regulations) for social housing are not uniform across the UK. The two main categories of social housing providers are housing associations (previously called registered social landlords) and local authorities (councils). In previous years, many council homes were transferred to housing associations. Such transfers are still possible. Housing association housing is both funded differently and accounted for differently from that of local authority housing. From the tenant’s viewpoint, the services provided by the two categories of landlord are broadly similar and government policy has been until recently to encourage rents to converge to (eventually) the same level.

Local authority housing powers are extensive. Excellent financial management of the function has a vital part to play, both in the provision of housing services and in the implementation of the government’s wide range of strategic changes in housing policies.

Challenges for social housing

The biggest upcoming challenges in the social housing sector are likely to be:

• ■the urgent need to increase the supply of housing, especially affordable housing, in a climate of scarce funding
• ■the changes to housing benefits and the implementation of a new universal benefit under welfare reform.

Increasing supply

Overall, UK the housing market has been considerably depressed in recent years. This is primarily because of the tough economic and financial climate and the consequent lack of funding for new build, and difficulties for buyers in obtaining mortgages. Despite these difficulties, house prices have remained high. The house price index for August 2014, excluding London and the south east, showed that UK house prices increased by 7.8% in the 12 months to August 2014. Many commentators have gone so far as to describe the situation as a housing crisis. The Institute for Public Policy Research suggests that a whole generation may be locked out of home ownership, destroying community spirit and preventing young people from building careers, forming relationships and starting families. Their research suggested that by 2020, the number of 18–30-year-old homeowners will almost halve, falling by 1.1m to only 1.3m. These findings were supported by the report Broken Market, Broken Dreams.

In 2011, the government produced Laying the Foundations: A Housing Strategy for England. The main points of the strategy included:

• ■a new mortgage indemnity scheme to help house-buyers
• ■an invitation to councils to come forward with proposals for locally planned large-scale development
• ■cash rewards to incentivise councils to bring empty homes back into use
• ■a new deal on housing for older people to help them to adapt their homes and stay independent if they wish
• ■help to people and communities who want to design and build their own homes
• ■improving fairness in council housing through increasing rents for the most well-off, recycling the income into new housing.

The Elphicke–House Report, published in January 2015, contained recommendations on local authorities’ role in housing supply. It stated:

We believe that councils could achieve much more by taking a more central role in providing new homes. Our key recommendation is that councils change: from being statutory providers to being Housing Delivery Enablers. Councils have a primary role in setting out a vision for the development of their areas. They can be active in creating housing opportunity. Councils can be proactive in identifying housing need, growth and opportunity. They can work closely with businesses and other partners to share ideas and experience – and actively use their own assets and knowledge to unlock housing opportunities and deliver more homes, to build strong and sustainable communities.

The challenge to social housing providers, in both the local authority sector and the housing association sector, is to increase the supply of affordable housing within the context of the current adverse financial climate and the framework of government and regulatory restrictions, while managing and maintaining their existing housing stock. Councils also have wider and more strategic housing responsibilities.

Welfare reform and housing benefit

Housing benefit is an income-related social security welfare scheme to help people pay their rent. It is sometimes referred to as rent allowance or rent rebate.

Overall, the housing benefit programme costs some £24bn (including both the administration and the payment of housing benefit and council tax benefit) and is forecast to rise in 2015/16. It makes up about 14% of welfare spending. The government has identified it as a key area for spending reductions and is introducing major changes to housing benefits and a wider welfare reform. The first changes were heralded by the 2010 emergency budget, and the Welfare Reform Act 2012 received royal assent in March 2012. The Act introduced a wide range of reforms which aim to make the benefits and tax credits system fairer and simpler and to create incentives to get more people into work.

Local authorities were originally told that their responsibilities for the provision of support with housing costs would reduce year on year between April 2014 and October 2017, with housing benefit being merged into universal credit and administered by DWP agencies. The original plan was that all new claims for housing benefit would end from April 2014, with existing claims starting to be migrated from October 2014 and completed by mid-2017.

Despite consistently expressed concerns over the progress of the project from a wide range of organisations, extending from the Public Accounts Committee, the National Audit Office, the Office for Budget Responsibility and the Major Projects Authority, Iain Duncan Smith has continued to insist the project remains ‘on time and on budget’.

In its December 2014 Economic and Fiscal Outlook (EFO), the Office for Budget Responsibility set out forecasts for the economy and the public finances, and an assessment of whether the government is likely to achieve its fiscal mandate.

This includes an assessment that even the much-revised schedule to introduce the new benefit remains ‘too optimistic’.

Housing benefit is an essential part of many people’s ability to meet rent payments and an increasing number of in-work claimants require support. One of the areas of most concern to all housing providers is the introduction of direct payments, which, while providing the tenant with personal freedom, will also lead to some tenants falling in to rent arrears. The risk is that some tenants will have difficulties prioritising payments of rent against competing demands on their monthly budget.

Overall, these changes have significant financial implications for councils – and for housing associations. Tenants whose full housing benefit (or, when universal credit has been implemented, the housing benefit related part of the universal credit) no longer covers their total rent may struggle to pay their rent. There is a risk therefore of rising rents arrears and rising costs relating to bad debt provision.

Local authority housing finance

Not all councils or local authorities provide housing or have social housing responsibilities. The ones that do in England are:

• ■London boroughs and the City of London
• ■metropolitan districts
• ■unitary authorities
• ■district councils in county council areas.

A couple of specific kinds of housing service are run differently from the main housing service. Supporting People (a programme for funding, planning and monitoring housing-related support services) is run by councils with social services responsibilities and in county council areas, it is the county council, rather than the district councils, that do this. Services for Gypsies and travellers are provided similarly.

Local housing authorities have a wide range of powers and duties. Most of their housing functions are overseen by the relevant government department, DCLG, though housing benefit is currently overseen by DWP.

Local authorities in England owned 1.67 million dwellings on 1 April 2014, following a general decline from 3.67 million on 1 April 1994. This has been associated with right-to-buy sales and large-scale voluntary transfer of local authority stock to private registered providers.

Housing powers and duties

All local housing authorities (LHAs) have a number of statutory housing duties – responsibilities that they must carry out. Additionally, they have some housing powers that enable them to choose whether and how to provide some housing services. These powers and duties are summarised in the box below. These are the existing powers and duties; where major changes are planned by the government, this is stated.

Local housing authority powers and duties

Stock-owning authorities

About half of local housing authorities provide council housing. These are referred to as stock-owning authorities. Before 1988, all local housing authorities were stock owners. From 1988 onwards, the government encouraged local housing authorities to transfer their stock or at least some of their stock to housing associations, subject to government permission and the tenants’ approval. This was aimed at offering tenants the prospect of better housing services in the longer term.

In other, later moves, some authorities set up arm’s-length management organisations (ALMOs) to manage their housing stock and a few authorities had parts of their stock improved and managed by private finance initiative (PFI) contractors.

Local housing authorities that do own stock have an additional set of powers and duties, set out in the following box. They fall into three broad categories:

• ■strategic change
• ■business as usual or ongoing responsibilities
• ■investment and improvement.

Powers and duties of stock-owning authorities

The housing finance system before 2012

A brief look at the previous housing finance system, which was in place for many years until April 2012, is useful for understanding the impact of the changeover to the current system.

Before April 2012, the system worked as follows. An authority’s entitlement (or not) to subsidy was based on government assumptions about the key elements of their housing expenditure and income. The main costs were management and repairs. A major repairs allowance was paid to keep stock in good condition. Support for borrowing costs was also paid. The subsidy calculation then made an assumption about the rents that councils should be charging. If the assumed income from rents amounted to enough to cover assumed expenditure (or more), then the authority had to pay the difference to the government. But if the rent income assumed amounted to less than was needed to pay for their assumed expenditure, then the authority received a subsidy from the government.

So, for stock-owning authorities, the annual decision – or ‘settlement’ – was a very important part of their budget process. Note, though, that the settlement gave income certainty only for that year, thus greatly limiting an authority’s ability to plan long-term investments in its housing stock.

As an HRA is still operated by authorities that have transferred their housing stock management to an ALMO or that use PFI, the subsidy system also catered for housing managed under these options.

The subsidy entitlement drove the HRA budget. Authorities could not safely move very far from the government’s subsidy assumptions because if they did, either the HRA would be in danger of spending more than its income, or very high rents might need to be levied.

Over time, the subsidy system became very complex, making it difficult for tenants – and even decision makers such as councillors – to understand. It also began to build up surpluses as the amounts paid in by councils exceeded the amounts paid out by central government. These surpluses were retained by the government at a time when more and better affordable housing was urgently needed.

The housing finance system since 2012: self-financing

The problems with the subsidy system were widely recognised by practitioners and by central government alike, but designing and modeling a fully functional replacement system took many years. Finally, the new self-financing system was introduced in April 2012.

From 2012/13 on, each stock-holding housing authority relies on its own rent income to provide council housing. To bring this change into operation, 30-year business plans were drawn up for all local authority HRAs to assess their long-term investment needs as well as the day-to-day costs of running their homes. A one-off settlement in 2012, intended to last the full 30 years, was made. In this settlement, depending on its business plan and its current long-term borrowing, each authority (in England) either took on an additional share of the total housing debt or received a sum towards repayment of its housing debt. The point of this was to start the new system from a position of parity between different housing authorities.

Under self-financing, councils – not government – are responsible for the long-term funding of their HRAs. The affordability of the 30-year HRA business plan is therefore critical. It should take into account either the cost of financing the additional debt received as part of the self-financing settlement or the savings from the repayment of debt. Within that context, councils can then borrow anew, under the prudential system, to invest in their stock – except that the government has set a housing debt cap for each of authority which means that for most, new investment is in practice likely to be restricted, especially in the earlier years of the business plan.

The 30-year business plans should not be considered as one-off, static plans. The impacts of government policy – and government policy changes – need to be factored into them. For example, right-to-buy sales can reduce an authority’s expected rent income. Welfare reform and the introduction of benefit payments direct to claimants (not to the council) may lead to increased rent arrears.

In May 2014, the government published its final policy on rents for social housing for the ten years from April 2015 – Guidance on Rents for Social Housing. The guidance applies only to local authorities, although the social housing regulator is expected to have regard to it when setting the rent standard for private registered providers.

The government’s guidance confirmed it would proceed with its policy of abolishing the provision for landlords to increase rents by an additional £2 per week to achieve convergence. It also confirmed the introduction of a CPI-linked calculation on which local authorities are expected to set their rents from April 2015 onwards.

The capital programme

Local housing authorities invest in a whole range of investments and improvements. If they are stock-owning authorities, the greatest demand is usually for works to their own properties. But there are also many other demands on capital such as paying grants to private owners or working with housing associations. The main sources of funding for these investments and improvements are:

• ■Capital receipts (receipts from the sales of assets such as buildings). Note that there are restrictions on the percentage of capital receipts that may be used.
• ■Meeting capital expenditure directly from HRA revenue (day-to-day expenditure).
• ■Borrowing.
• ■Grants from DCLG or the Homes & Communities Agency.

In the ten years or so from 2000, the government committed very large capital resources to stock options such as stock transfer, PFI and ALMOs and the achievement of the decent homes standard. There was also funding for housing market renewal. However, in the current financial climate and following the 2010 spending review, local housing authorities have had to be much more dependent on generating their own capital resources locally.

Decent homes standard

The decent homes standard is a specific standard that the government introduced in 2000 as a target for public sector housing. The standard is that all homes should be warm, weatherproof and have reasonably modern facilities. It applies to social rented housing (predominantly council or housing association housing).

As a broad principle, a home must have reasonably modern facilities. The specified requirements are:

• ■The home must meet the statutory minimum standard for housing (under the housing health and safety rating system). So it should have no safety hazards (such as a sub-standard gas heating boiler).
• ■It must be in a reasonable state of repair. No key building component should be too old or need replacing. (Key building components are items such as walls, roof, windows and the heating system.) Not more than one other building component should need replacing.
• ■It must have reasonably modern facilities and services. In particular, the kitchen should be less than 20 years old and the bathroom less than 30 years old. No more than two of the main facilities may be too old.
• ■It must provide a reasonable degree of thermal comfort. This means an efficient heating system, and good insulation.

Inspection and regulation

When the Tenant Services Authority was closed in April 2012, the regulation of social housing was transferred to the Homes & Communities Agency. The Regulatory Framework for Social Housing in England from April 2012 brought together the changes within the Localism Act 2011 and set out how co-regulation will operate with a revised set of principles of co-regulation. Following consultation, a revised regulatory framework will come into effect on 1 April 2015.

The inspection of local authority housing was passed briefly from the Audit Commission to the Tenant Services Agency before the TSA’s closure. The Local Audit and Accountability Act 2014 closed down the Audit Commission and replaced it with a new local audit framework under which councils appoint auditors from an open market, with the model based on private sector auditing and overseen by the Financial Reporting Council and the National Audit Office.

Housing advice

Local housing authorities must provide free housing advice to anybody who is homeless or threatened with homelessness. (In some cases there is also a duty to provide housing.) Most authorities provide a comprehensive housing advice service to all residents, with good signposting to other organisations.

Private sector licensing and houses in multiple occupation

Authorities must keep the housing conditions in their area under review. Under the Housing Act 2004 a housing health and safety rating system is used to determine whether the authority needs to intervene. It may decide to introduce a licensing system for specific categories of rented property. A particular problem area is usually houses in multiple accommodation (HMOs – an HMO is a house occupied by persons who do not form a single household).

Private sector renewal

Councils have a wide range of powers to pay grants to owner-occupiers or tenants to bring their property up to a decent standard but generally, in the current financial climate, they have little funding available. Authorities usually concentrate their resources on those on low incomes by assessing contributions from the applicant.

New homes bonus scheme

The new homes bonus scheme is an initiative aimed at increasing the number of available council homes. It is paid by central government for the increase in the number of homes (from one year to another) on a council’s valuation lists. The increase is analysed by council tax banding. Each year’s bonus is paid for six financial years at the national average council tax for each band’s increase. It is paid to the council that actually bills for council tax, though in some areas where there are two tiers of local authority some of the bonus will be paid to the first-tier authority. This payment is not without criticism, and the Lyons Housing Review proposed that the new homes bonus should be reviewed to consider:

• ■whether it should be retained in its current form
• ■whether it has an element of deadweight, rewarding housing growth that it has not incentivised
• ■the redistributive impact of the policy.

HomeBuy

HomeBuy is a programme to promote affordable home ownership. The Homes & Communities Agency oversees the scheme and it is mainly operated by approved local agents. There are four schemes:

• ■equity loans
• ■mortgage guarantee
• ■shared ownership
• ■new buy.

The HomeBuy scheme in Wales offers support to households by providing an equity loan to assist in purchasing a property. It is the responsibility of Welsh local authorities to decide whether HomeBuy is a priority for their social housing grant allocation.

Cash incentive scheme

Housing authorities can set up schemes at their discretion. Under these, tenants are paid a sum similar to their right-to-buy discount entitlement in return for surrendering their property and proceeding with the purchase of another property or moving to smaller rented properties if their home is now larger than they need. The scheme frees up rented accommodation and makes home purchase an option for those who do not want to buy the particular property they are renting.

Disabled facilities grants

Disabled facilities grants (DFGs) are paid to enable property owners or tenants or their dependants to continue living in their own homes by adapting them to provide disabled facilities. Certain works are specified in regulations; if the claimant needs those works in order for him/her to be able to remain in their home, the housing authority must award a grant. However, all grants are subject to a means test. Examples would include widening doors and installing ramps or a stairlift. Government grant for DFG was set at £180m for 2014/15 (but because this money is not ringfenced it is possible that authorities actually spend some of the money elsewhere). A council can also of course pay out additional grants over and above the mandatory ones.

Housing allocations

Local housing authorities often work with local housing association partners, operating joint housing waiting lists and allocation policies. Before the Localism Act 2011, local housing authorities’ allocations policies had to give reasonable preference to unintentionally homeless applicants who were in priority housing need. Now, under the Act, they have more freedom to decide who is eligible to go on to their waiting list. Certain categories of applicants (such as returning armed forces) are now eligible for inclusion under legislation.

Housing authorities may have nomination rights for the allocation of some local housing association properties.

Councils must also offer choice-based lettings. Under choice-based lettings, rather than be allocated the next available tenancy on a ‘take it or leave it’ basis, applicants can ‘bid’ for properties they like on the strength of their waiting list points.

Homelessness

Housing authorities have a duty to provide accommodation to those who present themselves as homeless or threatened with homelessness and are in priority need. This duty is discharged by providing temporary and eventually settled accommodation. The settled accommodation provided has generally been a social housing tenancy but now, under the Localism Act 2011, the offer of a year’s private sector tenancy will count as fulfilling the homelessness duty.

Housing authorities must maintain a homelessness strategy. The government is to provide £80m in homelessness prevention grants to councils in 2014/15.

The government is putting additional resources into tackling rough sleeping, in partnership with the voluntary sector. It was estimated in autumn 2013 that there were around 2,414 rough sleepers in England – but this was a ‘snapshot’ estimate and the numbers reported by councils over a yearly period suggest a much higher figure. According to outreach database CHAIN, 6,437 people slept rough at some point in London alone during 2012/13.

In 2013/14, housing authorities made 113,181 homeless decisions, accepting 45.5% as in priority need and unintentionally homeless

Empty homes

A proactive approach to reducing the number of empty homes will assist local housing authorities in addressing housing demand. Authorities do have powers to take empty homes into their own management, but these powers are being modified to restrict the powers to properties where there is a nuisance (for example, caused by squatters). Possession orders are adjudicated by the Residential Property Tribunal Service and are very seldom used in practice. A recent council tax change, increasing the amount of council tax paid on empty homes, is also part of this approach.

Gypsies and travellers

Both local housing authorities and county councils provide and operate sites for Gypsies and travellers. There is now no government grant funding for the sites.

Supporting People

Supporting People is a government programme, delivered through councils and with partner agencies such as primary care trusts and the Probation Service, aimed at providing housing-related support to vulnerable people. Supporting People services enable over 1.2 million people across England and Wales to live as independently as possible. They provide accommodation, hostels, and staff to support people to move on to fully independent accommodation, and also support people in their homes or temporary accommodation.

Housing revenue account

The HRA is a separate landlord account that any council with more than 50 council dwellings must keep. It covers the income and expenditure necessary to manage and maintain the housing stock, including major repairs, and associated debt charges.

The HRA is ringfenced, meaning that its funds must be kept separate from other council income and expenditure streams. The reason behind this is the need to ensure that council house rents are not used to subsidise general council expenditure and to prevent the general council taxpayer subsidising council housing. Councils must balance their HRA each year – they should not budget for a deficit.

Arm’s-length management organisations

Many housing authorities that retain stock have established ALMOs. These offer greater operational flexibility, and give tenants a greater say in housing management. Key features of an ALMO are:

• ■ownership of the housing stock remains with the local authority
• ■the local authority remains the legal landlord
• ■secure tenants remain secure tenants of the authority and there will be no change in their rights, such as the right to buy, right to repair and right to manage.

An ALMO may manage all or part of an authority’s stock. ALMOs are normally companies and 100% controlled by the authority. Local authority based companies of the kind suggested, formed to carry out a charitable or non-profit-making activity, normally take the form of a company limited by guarantee. It is not appropriate for the companies to trade for profit or issue share capital and pay dividends.

Rents, service charges and other income

Rent income is not entirely a matter for council decisions; it is influenced by government policy. The rent restructuring programme began in 2002/03. The aim was to move local authority rents to a comparable level, known as formula rents, with housing association rents. Formula rents are based on local earnings levels and property values in 2000. They are updated annually for inflation and to bring about the real-terms increase needed for local authority rents to catch up with those of housing associations. The scheme was complicated by rules on the amount by which any individual tenant’s rent can increase and rent caps based on the number of bedrooms in a property. It had been expected that rent restructuring would only be achieved by 2015/16 at the earliest, but government policy on rent setting has changed and April 2015 will see new rent-setting policies in place.

The government has introduced a new system of ‘affordable rents’: rents that are closer to market rents for new housing association developments funded by the HCA. Councils will be able to offer flexible two-year tenancies in addition to traditional secure tenancies.

Local housing authority income includes service charges: authorities may make separate service charges to tenants for items such as a concierge service or community aerials. In some accommodation there are communal heating systems, and authorities recover the cost of these from individual tenants and leaseholders.

Another income source can be rents from individual garages or parking spaces.

Leaseholders

Because of the right to buy, many council estates are now a mix of tenanted property and owner-occupation (leaseholders). Local housing authorities try to ensure that leaseholders pay their fair share of estate costs (for example, for maintaining lifts) in order to avoid unnecessary expense to the HRA. However the rules on recovery are complex, especially where major works (such as reroofing a block of flats) are concerned. For example, for five years after a right-to-buy sale is completed, only works that had already been identified in the sale documents can be recharged to leaseholders. Leaseholders have statutory rights to loans from the authority to help them pay their share if the works exceed a certain value. Authorities may operate local loan schemes that are more generous than the statutory ones. Leaseholder case law (Florrie’s Law, 2014) introduces a £15,000 cap on repair bills for local authority leaseholders.

Repairs and maintenance

Stock-holding authorities need to strike a balance between planned maintenance and reacting to responsive repairs. Certain repairs are subject to a tenant’s right to repair. If the council does not complete the repair within the regulatory timetable, compensation must be paid to the tenant at a stipulated daily amount. There is also a statutory duty to keep property in good repair under wider landlord and tenant legislation; failure to do so can involve authorities in expensive litigation.

A tenant cash-back scheme is available, aiming to enable tenants to be paid cash for carrying out or commissioning their own repairs. A £3,000 start-up grant is payable to encourage take-up.

Tenant empowerment

Stock-holding authorities are encouraged to establish tenant participation agreements or ‘compacts’ setting out how tenants will be involved in running housing including financial decisions. Tenants can also group together to form tenant management organisations (TMOs). The TMO would then receive annual funding from the housing authority to carry out a specified set of functions. Essentially, a TMO must be funded at least as generously as the council is for property it manages directly. More flexible forms of tenant management can also be used by agreement between the authority and groups of tenants.

Right to buy

Right to buy is a scheme under which longstanding local authority tenants are entitled to purchase their homes at a heavily discounted price. Since the 1980s, nearly two million council properties have been sold under the right to buy. However, the recession and tighter rules on discounts caused the volume of right-to-buy sales to fall away considerably in later financial years and in 2011/12 just 3,080 sales were completed, generating capital receipts after discount of £238m. In 2012, the government announced an initiative to reinvigorate right to buy and from April 2012 the maximum available discount was increased to £75,000.

Note that specialised properties such as sheltered accommodation are not eligible for right to buy. There are also restrictions on resale for properties bought in designated rural areas.

For qualifying tenants of housing associations, there is a similar scheme called ‘right to acquire’.

Sheltered housing

Local housing authorities provide around 400,000 sheltered or extra care properties. Some of this accommodation is hard to let, and authorities find it difficult to identify funding to modernise them and make them more attractive lets.

Communal areas and shared facilities

In many authorities the HRA pays for facilities – such as a recreational area – that are also used substantially by the wider public. In such cases, the appropriate proportion of the cost of facilities used by the wider public should be recharged to the general fund.

Anti-social behaviour

As announced in the May 2013 Queen’s Speech, the government introduced legislation – the Anti-social Behaviour, Crime and Policing Act 2014 – to require councils to repossess any property where the tenant has an ongoing record of anti-social behaviour. Anti-social behaviour orders themselves are to be replaced with criminal behaviour orders and crime prevention injunctions.

In conclusion

Local authority housing powers are extensive. Excellent financial management of the function has a vital part to play, both in the provision of housing services and in the implementation of the government’s wide range of strategic changes in housing policy.

housing association finance

Housing associations are not-for-profit organisations. In the UK there are some 1,200 housing associations. Housing associations vary in size from fewer than 10 homes, to more than 50,000.

Altogether, housing associations provide about two-and-a-half million homes for more than five million people in England. They are voluntary bodies and vary greatly in size. Some are charitable trusts or companies; others, industrial or provident societies, which may be charitable or non-charitable. Their business, that of providing social housing, is in many ways similar to that of local housing authorities but their governance, funding and accounting regimes are different. Rent levels for housing association tenants are, generally, higher than those for local authority housing tenants. Despite these differences, local authorities and housing associations obviously need to work together over the provision of housing in a local authority area. And there are many specific issues, such as the introduction of international financial reporting standards, where it is helpful for both types of organisation to share and learn from their experiences.

The two main challenges for housing associations, as those for the social housing sector overall, are:

• ■the urgent need to increase the supply of housing, especially affordable housing, in a climate of scarce funding
• ■the changes to housing benefits and the implementation of a new universal benefit under welfare reform.

Funding for housing associations is based on a one-off capital grant (social housing grant or SHG) paid to the housing association when a building is built or acquired. No further public capital funding is usually available. Instead, housing associations are expected to anticipate the cost of repairing and improving their stock, and to make funds available when required through a mixture of revenue funding, reserves, sales and borrowings or from sources other than grant. (There are some very limited exceptions to this.)

SHG is provided by the Homes & Communities Agency through the affordable homes programme, or by local authorities (LA SHG). However, SHG is not intended to cover the full costs of a development programme. Although some project costs might be paid for out of revenue surpluses, the great majority of non-grant-funded project costs are paid for from borrowing. The borrowing power of the housing association will be one of the main factors that determines the scale of the development programme.

Receipt of SHG is conditional upon the housing association meeting the annually published funding conditions. The main conditions require the housing association to comply with the HCA’s Capital Funding Guide and the Regulatory Framework.

The main sources of revenue income for housing associations are rents, service charges and charges for support services. The main features of these streams are broadly comparable to those described above for local authorities. Many housing association tenants receive housing benefit, currently often paid directly to the housing association. Charges for support services are underpinned by Supporting People funding, administered by councils.

Asset management is key to the long-term viability of a housing association. Asset management comprises all the activities that are part of maintaining the value, financial and non-financial, of the ‘bricks-and-mortar’ assets of an association. The main operational focus of asset management will be on the maintenance of the association’s buildings, but asset management should go further, covering everything that may affect how well the association’s assets can continue to serve its corporate objectives.

Housing finance in Wales

After lengthy negotiations, the Welsh Government and the UK Treasury reached an agreement in July 2013 that will allow the 11 local authorities in Wales with council housing stock to exit from the HRA subsidy system and become self-financing from April 2015.

The agreement has two parts:

• ■first, local authorities will be required to buy their way out of the current HRA subsidy system with payment of a one-off settlement figure to the UK Treasury
• ■second, local authorities will be subject to a cap on HRA borrowing.

HM Treasury requires that the settlement is ‘fiscally neutral over the long term’. This will require the 11 authorities to take out loans from the Public Works Loan Board (PWLB) to fund their share of the settlement figure. Under the terms of the agreement with the Treasury, the agreed £40m interest will be converted to a total settlement value using the PWLB 30-year maturity rate.

The settlement figure has been estimated to be £920m, but the precise figure will depend on the interest rate for PWLB loans on 31 March 2015 when the loans are finalised.

Housing regulation in Wales

Housing regulation in Wales has had a new regulatory framework since December 2011. This applies to housing associations registered with the Welsh ministers. The framework describes the principles, approach to regulation and the main features of regulation. It also explains how housing associations are assessed.

The regulatory framework contains a number of ‘delivery outcomes’ to be met by housing associations in connection with their functions relating to the provision of housing, and matters relating to their governance and financial management.

The regulatory framework aims to put tenants at its heart by:

• ■ensuring that housing associations work with their tenants and people who use their services in planning and assessing the quality of services
• ■providing information that allows tenants and others to compare the performance of their housing association to that of others
• ■ensuring that the Welsh ministers take account of the views of tenants and service users.

The framework applies to housing associations but the Welsh Local Government Association (WLGA) and the All Wales Chief Housing Officers’ Panel have developed and agreed a complementary set of draft delivery outcomes for local authority housing services. These can be used on a voluntary basis by councils to support service improvement, ie not as part of any formal regulation arrangements.

These delivery outcomes can be found on the WLGA website and are very similar to those in place for housing associations – thereby seeking to address concerns from tenant groups that local authority and housing association tenants were being treated differently, and allowing for ready comparisons to be made between social landlords in an area, whether local authority or housing association.

FREQUENTLY ASKED QUESTIONS

The following are some of the questions CIPFA is frequently asked, together with the answers given.

Q: WHAT ARE THE STATUTORY FINANCIAL RESPONSIBILITIES OF A LOCAL AUTHORITY WITH HOUSING STOCK?

A: In summary, the local authority’s statutory responsibilities (assuming their housing stock comprises 50 homes or more) are:

• ■the local authority ‘must keep a housing revenue account’ (Local Government and Housing Act 1989, s74)
• ■the local authority’s statutory entries to the HRA are as set out in the Local Government and Housing Act 1989, Sch4
• ■the local authority has a duty to prevent a debit on the HRA (Local Government and Housing Act 1989, s76).

Q: WHY DID THE RINGFENCE ARISE AND WHERE IS IT SET OUT?

A: The Local Government and Housing Act 1989 ringfenced the HRA, thereby preventing any cross-subsidisation from or to the general fund; that is, so that council taxpayers would neither subsidise nor be subsidised by council tenants. The Act also prescribes the items of expenditure and income to be included within the account and the accounting treatment of capital financing charges. Income typically includes rents, service charges and HRA subsidy (if paid) while expenditure involves costs for repairs and maintenance, supervision and management, rent rebates, capital charges and debt repayment.

Guidance from the government was for a long time provided by the DCLG’s HRA Manual and by DOE circular 8/95. DCLG is no longer planning to revise DOE circular 8/95 – so although some parts of it have been overtaken by self-financing, the general thrust of that circular (and the Act and the Manual, etc) still holds. However, DCLG has stated (in their self-financing papers of 1/02/11): ‘In line with our emphasis on localism we do not intend to issue new guidance on the operation of the ring-fence. We expect local authorities to take their own decisions, rooted in the principle that “who benefits pays”.’

Readers interested in more detail on the ringfence should consult LAAP Bulletin 22.

Q: IS THE RINGFENCE AFFECTED BY THE MOVE TO SELF-FINANCING?

A: It is important to note that since the implementation of self-financing, both the ringfence and indeed the need to have an HRA remain (despite some mistaken headlines in the press).

Q: SHOULD EXPENDITURE ON HOMELESSNESS BE HRA EXPENDITURE?

A: Homelessness costs, including associated costs such as the provision of furniture, property maintenance, rent, guarantees and nomination fees, should be accounted for in the general fund and not in the HRA.

Q: CAN THE HRA BE USED TO FUND THE COST OF PRIVATE REGENERATION?

A: The HRA cannot fund the cost of private regeneration and the repurchase of properties prior to demolition. It is worth noting that the adoption of self-financing did not alter the rules for the ringfence.

Q: WHAT ARE THE RULES FOR NON-RIGHT-TO-BUY CAPITAL RECEIPTS?

A: It continues to be the case that non-right-to-buy receipts can be used to fund affordable housing and regeneration. This was reaffirmed in the Consultation paper Streamlining Council Housing Asset Management: Disposals and Use of Receipts, which was issued in August 2011 and responded to by government in May 2012.

Q: WHAT ARE THE RULES FOR RIGHT-TO-BUY CAPITAL RECEIPTS?

A: The new rules governing use of these receipts are covered in Reinvigorating the Right to Buy and One for One Replacement. The consultation was issued on 22 December 2011; government response together with information for local authorities was issued 12 March 2012.

These rules explain that the 25% non-pooled element as estimated in the self-financing model is available to fund any capital spend (ie it is not ringfenced to housing). The additional receipts net of debt repayment over and above those estimated in the self-financing model can all be used for up to 30% of each affordable housing scheme (including grants to housing associations) where an agreement has been entered into with government. Each council’s position will vary according to their returns to government and their decision on whether to enter into an agreement. If an agreement is not entered into, these receipts must be submitted to government for pooling.

The limited allowance for buy-back of former council properties is also explained and there is also some new guidance for local authorities applying to use receipts from the disposal of council housing assets in ways not prescribed in regulations. 

Q: WHAT TRIGGERS THE NEED TO SET UP AN HRA?

Our district council does not currently have any housing stock (we carried out a large-scale voluntary transfer many years ago). Can you advise what would trigger us to need to set up an HRA? For example, would it be as soon as we own one property and rent it out?

A: This is covered by DCLG’s HRA Manual. Although parts of the manual are outdated (eg references to HRA subsidy), the main body of the manual remains relevant. If in doubt, the enquirer should check with DCLG.

Section 12 of the manual describes the circumstances in which an HRA may be closed and includes an outlining of the procedures to be followed if further dwellings are acquired after a prior closure of the HRA:

Re-opening the HRA

12.20 After the HRA is closed, if an authority which had no dwellings within the HRA at the time that consent to close was given again acquires any property which under section 74(1) falls within the HRA – for example, following a local authority boundary change or where the authority has acquired or appropriated land for the purposes of Part II Housing Revenue Account Manual of the Housing Act 1985 (i.e. for the provision of housing) – it is required to re-open its HRA. An authority which proposes to acquire dwellings may however apply for a direction under section 74(3)(d) in advance of acquisition, provided that the number of dwellings is 50 or less and that the properties can be speci?cally referred to in a direction (for example, on a “subject to contract” basis). If granted, this would allow it to acquire the properties without re-opening its HRA. The direction would normally take effect from the date of acquisition of the properties.

12.21 If, however, the number of dwellings, including any for which a section 74(3)(d) direction had previously been given, exceeded 50, the previous direction may be revoked, and all the dwellings would fall to be accounted for within the re-opened HRA. Similar arrangements would apply where an authority which had been granted a section 74(3)(d) direction acquired additional dwellings but had not yet closed its HRA. Those dwellings which had previously been taken out of the HRA would be brought back within the authority’s HRA (by revoking the section 74(3)(d) direction). However, if the total number of dwellings would remain fewer than 50, consideration would similarly be given to granting a new direction to allow both the new acquisitions and the dwellings referred to in the original direction to be held outside the HRA without its being re-opened.

12.22 In either case, one of the normal conditions for granting consent to close the HRA is that the authority shall inform Communities and Local Government as soon as it re-opens its HRA. The Secretary of State would then consider giving a direction under Item 9 of Part I of Schedule 4 to the 1989 Act requiring the authority to credit an amount to the HRA, based either on any credit balance shown on the HRA when it was closed, or on such amount as the Secretary of State, after consulting the authority, considers necessary.

Q: COULD THE COUNCIL BECOME A RESIDENTIAL LANDLORD RENTING PROPERTIES WHICH WE OWN AT MARKET RENT?  

A: The short answer is no – not if the properties are within the HRA. There are a number of reasons why not – eg, first, local housing authorities are required to follow national rent policy. The current rent restructuring policy includes a cap or maximum formula rent for different sizes of property. This applies to properties within the HRA.

Second, the HRA account is supposed (see the Local Government and Housing Act 1989) to balance, which could be seen as at odds with ‘profit-making’ rents.

If the properties were instead to be held under the general fund, the council would need to be clear under what power it would be doing that.

Since 1989, the HRA has been ringfenced. Ringfencing means that HRA resources may only be expended within the HRA. Councils are also not allowed to transfer resources between the HRA and their general funds. This means that council taxpayers are not called on to subsidise the provision of council housing.

Further reading

2011–15 Affordable Homes Programme – Framework, HCA/DCLG, 2011

‘About right to buy’ section on the DCLG website

Affordable Housing Capital Funding Guide, HCA

Broken Market, Broken Dreams: Home Truths 2014/15, National Housing Federation, 2014

Code of Practice on Local Authority Accounting in the United Kingdom, CIPFA/LASAAC, annual

The Decent Homes Programme, NAO, 2010

Empty Homes Toolkit, Homes & Communities Agency

From Statutory Provider to Housing Delivery Enabler: Review into the Local Authority Role in Housing Supply (the Elphicke–House Report), DCLG, 2015

Guidance on Rents for Social Housing, DCLG, 2014

Housing Finance under Self-financing, CIPFA, 2013

Housing Revenue Account Manual: 2006 to 2007 Edition, DCLG, 2007

Housing Revenue Account Self-financing Determinations, DCLG, 2012

The HRA Ringfence (LAAP Bulletin 22), CIPFA, 1996

The Impact of Funding Reductions on Local Authorities, NAO, 2014

Improving Lives and Communities – Homes in Wales, National Assembly for Wales, 2010

Increasing the Number of Available Homes, DCLG Policy Paper, updated February 2013

Laying the Foundations: A Housing Strategy for England, DCLG, 2011

Live Tables on Social Housing Sales, DCLG

Local Growth Fund: Housing Revenue Account Borrowing Programme (2015 to 2016 and 2016 to 2017), DCLG, 2014

Mobilising across the Nation to Build the Homes our Children Need (the Lyons Housing Review), the Labour Party, 2014

The Prudential Code for Capital Finance in Local Authorities (2011 Edition), CIPFA, 2011

The Regulatory Framework for Housing Associations Registered in Wales, Welsh Government, 2011

The Regulatory Framework for Social Housing in England from April 2012, Homes & Communities Agency, 2012

Reinvigorating Right to Buy and One for One Replacement: Information for Local Authorities, DCLG, 2012

Right to Acquire Discounts by Location, DCLG, 2013

Service Reporting Code of Practice for Local Authorities, CIPFA, annual

Social HomeBuy: Guidance for Local Authorities, DCLG, 2010

Survey of English Housing, DCLG, continuously updated

Welfare Reform Act 2012