All change …. what can we look forward to in 2016?

Barometer_changeAs the dust settles on another Spending Review, I’ve been reflecting on what the latest developments mean for housing associations, particularly the smaller community-based ones. The Review comes on the back of what might already be described as an eventful year for the sector; just about every component of the operating environment is changing from relationships with government and councils through to, funding and regulation. Even the nature of social housing and wider social policy is being dramatically re-engineered. So here’s my canter through some of the key issues.

Spending Review

The feared 2% rent cut didn’t materialise which seems to confirm that the rent cut is all about limiting the Housing Benefit (HB) bill and not gratuitously bashing housing associations. Similarly, fears of a secret Tory plan to nationalise associations (or at least sell off the grant embedded in balance sheets) seem to be ill-founded – the Department for Communities and Local Government (DCLG) made clear that it will move swiftly to get associations ‘re-reclassified’. Clearly, maintaining a stake in the sector provides the government with the leverage it might not otherwise have.

Home ownership is undoubtedly king with a range of routes now opening up for Low Cost Home Ownership (LCHO). The government is even encouraging those on the lowest incomes to buy, eg by mixing LCHO options like a Starter Home and Help to Buy. The concern has to be that – as with the sub-prime crash on both sides of the Atlantic eight years ago – a situation might arise where people whose level and certainty of income makes such a commitment extremely risky at the same time as local authorities’ ability to respond to homelessness is under increasing pressure.  However, the banks may not have forgotten the lessons learnt; there are already signs of an aversion to granting mortgages on mixed LCHO products.

It’s clear that many in the sector were relieved by Osborne’s commitment to invest in new homes whilst concern too that none of it is for sub-market renting. Any new sub-market renting will need to be supported through associations’ internal cross-subsidy – from efficiency and diversified activity.

The Spending Review introduced a new fear into the mix- the capping of social rented HB to Local Housing Allowance (LHA) rates.  As well as impacting on those whose affordable rents exceed the LHA and most single people under 35 (because the LHA rate is based on a room rate rather than self-contained accommodation), it also poses a threat to supported housing. Clearly this has significant implications for many specialised, smaller housing providers.  The problem is that the cap, as currently expressed, applies to all social rents even those inflated by essential ‘intensive housing management’. Furthermore, it’s not clear if service charges are excluded.

It would be surprising if the government is deliberately seeking to kill off supported housing –  the NHF and others are lobbying for its exclusion from this proposed reform as well as the 1% rent cut. If this fails, it falls to Discretionary Housing Payment (DHP) to take the strain. No business would relish the prospect of part of its income stream being dependent on somebody’s discretion. It’s a case of watch this space.

Future budgets and autumn statements always offer the opportunity for new surprises, but it may be that the main policy direction for the government’s term has now been set.

Other policy

The rehabilitation of the sector in the eyes of the government depends on the extent to which it builds new homes, especially for LCHO. How much of this can be accommodated within organisations’ social missions and charitable objectives is the stuff of board away days. As time marches on, it will be interesting to see to what extent the sector turns on those perceived to be letting the side down (not using their capacity) and whether this might make them fair game for take-over.

The NHF will be publishing its voluntary merger code shortly. Might it make it more difficult to knock back an offer you can currently refuse? It’s not so much the code itself that is interesting but how the NHF suggests it should be used.

The way Right to Buy (RTB) will play out is many and varied and difficult to predict in terms of:

  • take-up
  • the ability to replace lost stock where it is needed
  • what should be exempt

Accordingly a pilot, involving five diverse associations, has recently been announced. Notwithstanding this variability (and the fact that replacement does not work on a one-for-one basis in many parts of the Midlands and North) RTB is seen by government as making an overall contribution to increasing housing supply and reducing dependency on the state.

In keeping with the government’s home ownership aspirations, it’s likely we’ll see some kind of rent to equity product for those who can’t afford the RTB join the ranks of LCHO products.  It is also likely that associations will become increasingly proactive in terms of reviewing and offering alternative housing options regardless of whether fixed-term tenancies are made mandatory (more below).

The Secretary of State is likely to set out Homeownership Criteria for associations to adhere to. But the HCA will not enforce it – its role is to collect and monitor data and flag potential non-compliance to DCLG.

‘Pay to Stay’ is to remain voluntary and it is rumoured that mandatory fixed-term tenancies might go the same way to ensure the sector gets re-reclassified. However the government might still seek a second bite of the cherry by expecting voluntary adherence to these policies as a condition of deals it might do with the sector. The Housing Minister, Brandon Lewis, has already said he expects the majority of associations to consider adopting a Pay to Stay style policy (and indeed a number of bigger associations have already indicated their intention to seek board approval of introducing a voluntary scheme).

The Pay to Stay announcement was included in Lewis’ deregulation package (to be included in the Housing Bill). Other measures include the removal of the consents regime which covers mergers, restructuring, winding up and dissolution as well as disposals.  Instead there will be a notification system where the association provides HCA with notice of its intention. The HCA will then be in a position to seek assurance if required (but it can’t veto the course of action).  Intervention powers will also be more clearly defined. In addition, the government proposes abolishing the disposals proceeds fund which means associations will no longer need to spend receipts from RTB sales according to rules set by the regulator. The deregulation package is likely to be enacted by mid-2016 with the possibility of re-reclassification just in time for Christmas…..2016.

Deregulation must be executed in a way that doesn’t spook investors which still seem keen on the sector. It is likely that it will make it harder for the HCA to rescue foundering associations which underlines the critical importance of the practices at the heart of the revamped Governance and Viability standard, ie excellent governance and risk management, underpinned by an understanding of assets and liabilities and deft stress testing.


In case you’d missed it there is a view in government that associations can and should deliver more with less. This is why it believes the sector can withstand a 1% rent decrease whilst increasing supply.  The view is that the reduction was absorbed without too much difficulty although newish LSVTs and care and support providers have their own set of issues. Only one association has asked for a rent waiver. Whilst business plans are very tight for some of these associations, with very little wiggle room to withstanding further challenges, they don’t want the waiver as it comes with too many strings attached.

This presumption of inefficiency is likely to be picked up in the HCA’s approach to regulation although the VFM standard, for now, might remain unchanged (not least because it’s re-reclassification-friendly in that it reflects the organisation’s own objectives). Pleading prudence versus taking on acceptable risk in terms of development will be viewed dimly. Whilst the HCA has no power to force associations to use their capacity, it can draw conclusions about the quality of governance where the association is not pursuing its charitable objectives, ie increasing the supply of accommodation where this is a stated objective.

In 2016, the HCA is set to revisit the regulation of smaller housing associations on the basis that the 1000 stock limit is somewhat artificial and that a more ‘more nuanced system’ is required. This might result in the scrapping of the existing threshold and a move to a risk-based system that spans the sector. That might mean that some smaller associations get more scrutiny, possibly in the shape of beefed up data returns.

2016 will also see a scheduled fundamental review of the HCA at the same time as the deregulatory package is enacted, and as a result, some of its functions will disappear, eg around consents. This could have significant implications for the HCA in terms of its purpose, core functions and therefore resourcing. It’s also likely the HCA will need to absorb funding cuts in central government budgets, though quite what the extent of this is has yet to be determined.  As a result, it’s likely that there will be an even sharper focus on governance, viability and VFM for bigger associations and consumer regulation might go altogether. Devolution will also have an impact on the HCA’s funding function.

It seems that most associations can accommodate the challenges as far as general needs accommodation is concerned. It’s not the end of the world, but revised business plans are likely to mean really tough and unprecedented choices.  Care and support just got even tougher – a huge question mark hangs over exemptions from the 1% rent cut and LHA HB rate for supported stock. General forecasts for wage inflation over the next few years (including the National Living Wage) and no prospect of improved contract values squeeze margins further.

Adhering to social mission whilst remaining viable and accommodating the governments aspirations will require sound decisions based on excellent business intelligence. Acuity will work with its members to ensure that its benchmarking and satisfaction data provide the kind of analysis and understanding required to do more with less and preserve the value of what they do.  Acuity can also help with board and management team briefings that span the changing operating environment and serve as a starting position for understanding and responding to a rapidly changing world.

About Steve Smedley

Steve is an Acuity associate and independent consultant. He is author of "Social Hearts and Business Heads" and his experience in Social Housing and enthusiasm for improving services has led him to become a leading thinker and practitioner in the sector.
Comments are closed.