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CHAPTER SIX: OUR PROPOSALS FOR STIMULATING INNOVATION AND CHOICE IN SOCIAL HOUSING
In this chapter, we set out our proposals for improving the supply, quality and choice of social housing. The proposals on improving supply relate mainly to the RSLs, as they will continue to be responsible for providing most of the new supply. We begin however by setting out ideas for encouraging local authorities to contribute to the supply of new social housing.
Supporting local authorities as social landlords
Some local authorities are already building new council houses by using their ability to borrow under the prudential borrowing regime. If this practice were spread to all local authorities in areas of need that have borrowing capacity, it could deliver between 500 and 600 houses a year over the next 10 years.
We propose two initiatives to support those authorities that wish to use their borrowing capacity in this way:
- Ending the right to buy for new social housing: Whilst we recognise the popularity of the Right to Buy, the current pressure upon Government and social housing providers to improve supply means that the early loss of new properties may tend to work against achieving the full benefit of the proposals that we put forward elsewhere in this paper. Therefore we propose ending the Right to Buy for new social housing properties, whether built by local authorities or RSLs (except for, for example, those tenants forced to move as a result of demolition or refurbishment programmes, whose rights could be protected).
- Providing incentives for new council house building: We propose that Government should offer incentives for local authorities that are prepared to undertake new council housing. We envisage these incentives taking the form of subsidies that will be awarded on a competitive basis to those authorities that can demonstrate the most effective and efficient use of their borrowing capacity to meet need for social housing in their areas.
These initiatives would give local authorities clear incentives to contribute their resources to improve the supply of new social housing. They would mark a break with previous housing policies, by making clear our commitment to a continuing and growing role for local authorities as social landlords and our determination to safeguard new social housing as a public asset for the future.
Ending the Right to Buy would also benefit RSLs, as many, like local authorities, currently face the risk of losing any new stock that they build. It would give them an important measure of certainty at a time when we will be looking to them to adapt to changing circumstances.
Questions
16. Do you agree that we should exempt new build social housing from the Right to Buy?
17. Do you agree that we should subsidise local authorities in areas of need to use their prudential borrowing capacity to build new council houses?
Improving the supply of RSL housing
Our proposals for supporting new council housing are intended to add to the overall supply of social housing. RSLs will continue to build the great majority of that housing. As we made clear in chapter 5, they need to do so much more efficiently than at present.
In our view, securing greater efficiency from
RSLs requires us to adopt a fundamentally different approach to the way in which we subsidise new RSL housing. The approach that
we outline below would combine a more strategic means of identifying and meeting need with a competitive process for allocating the subsidy
to meet the need.
As we discussed in chapter 2, improving supply is not just about enabling more houses to be built. It means building enough houses of the right type in the right place. Achieving that outcome for RSL housing requires us to allocate our subsidy to RSLs (Housing Association Grant ( HAG)) strategically to meet need at Housing Market Area level.
Our current approach to awarding HAG is straightforward. Any RSL seeking to build new houses for social rent can apply to Government for HAG to make up the difference between the cost to them of building each house and the amount of borrowing they can support from the rental income that the house will generate once operating expenses have been deducted.
There is an annual HAG budget and targets for the number of new social houses that this should support. HAG applications are considered against a number of criteria, including the applicant's performance as a service provider and developer and in the community.
The strength of this process is that it allows relatively large numbers of RSLs to develop new social housing in response to local need. Its weakness is that it does not enable us to form a strategic view on where to direct subsidy to meet need most effectively within housing market areas. We propose to replace it with a new approach that allocates subsidy to a few larger scale, longer-term programmes.
Under this new approach we would channel all subsidy to one developer for them to take the lead in meeting the need for RSL housing across a housing market area, or other large area, over a period of several years. In addition to meeting need more effectively, this would enable a few lead developers to secure procurement efficiencies through their ability to offer contractors significant levels of work over a number of years.
A key objective of this approach is to allow all types of RSLs to continue acquiring stock where that is consistent with strategic need for new stock. However, rather than do so at their own hand, the lead developer would be expected to develop stock on their behalf as part of a larger strategic programme.
To improve the value that we get for public expenditure, we would require the lead developer to identify the greatest amount of resources, including money and land, that they and the RSLs for whom they were developing, could contribute to the programme and to develop proposals for using them as efficiently and effectively as possible.
In effect, the business of developing social housing would become a separate role in which a relatively small number of developers would acquire the specialist skills in design, procurement, funding and land acquisition necessary to deliver large programmes.
A key skill for the developer would be the ability to meet the needs of particular areas and of the RSLs operating there. These needs will differ across the country from large scale urban developments that contribute to regeneration projects, to delivering large numbers of small developments to meet need in more rural areas.
In the first instance, we would expect these developers to be RSLs. But over time, it might make sense to encourage others, such a private sector house builders or other large contractors to become developers.
Later in the year we will be consulting on a procurement strategy that describes in detail how we propose to manage the approach outlined above.
Encouraging the creation of lead developers to deliver strategic building programmes is intended to get the right houses in the right places as efficiently as possible. By itself however, it runs the risk of a few lead developers becoming entrenched as substantial regional monopolies. To counter this, we propose introducing a competitive regime under which a number of developers would bid for each block of subsidy.
This provides an opportunity for us to involve local authorities in decisions on the allocation of public funds to meet the need for social and other affordable housing in their areas. We propose working with one or more councils to specify the number and mix of affordable housing required in total across particular housing market areas over a period. This assessment would form the basis of an invitation to tender for work. The invitation would guarantee quality by setting minimum specifications to be met. Prospective developers would bid to meet the specification for the least possible subsidy.
This approach would enable us to satisfy ourselves that we were getting value for money by testing the price at which developers would undertake to achieve specified outcomes. It would place the onus on the lead developer to bring together partners among RSLs, private financiers and any other parties capable of using their financial resources to minimise the amount of subsidy required to meet or exceed the specification.
It will take some time to introduce a competitive regime - and we would not expect it to be in operation before April 2009. In the meantime, we believe that the increase in demand for social housing and our duty to secure value for public expenditure require us to make immediate progress in reducing the cost of subsidy per house. Therefore we will consult separately in the coming weeks on detailed proposals for getting better value from the current arrangements with effect from early in financial year April 2008-09.
Questions
18. Do you agree that we should introduce large -scale competitions for subsidy?
19. If not, how would you ensure that public subsidy is used to build as many good quality RSL houses as possible?
Greater freedoms for registered social landlords to develop different kinds of stock and to re-organise their stock in accordance with demand
Given the range of need and demand among households - and households' differing means of meeting these needs - genuine choice requires there to be a variety of opportunities for renting and owner occupation. These opportunities need to include a range of renting and ownership options between conventional social renting at one end of the spectrum and outright ownership at the other.
In chapter 4 we indicated our intention to consult shortly on enabling local authorities more flexibility in accessing the private rented sector to provide suitable accommodation for homeless households. Such flexibility should help to increase the choice available to those presenting as homeless.
Within social housing, demand comes mainly from those who cannot buy or rent in the market without some form of financial assistance or subsidy. It does not follow, however, that these households all require the same type or degree
of assistance.
For some, social housing will be the means of meeting their long-term housing need. For many others it will not. Their aspirations or circumstances will mean they expect more choice, or see social housing as a temporary solution to their housing needs. One thing is certain, demand is likely to become more complex and variegated in future - and it is therefore right for government to reflect this in its approach.
We want to encourage social landlords to respond to this more variegated demand for affordable housing, for example by attracting people who otherwise would choose the private rented sector or struggle to afford owner occupation. Adopting this course will help landlords to counter the trend towards a narrow, more vulnerable tenant base and will also help with the creation of mixed communities.
Encouraging more housing for mid-market rent
A number of RSLs, through specialist affiliates or subsidiaries, already offer houses for mid-market rent (i.e. at levels between full market and normal social rents). These houses are often built alongside, or as part of, new private development - and generally in urban areas. They are popular with people on incomes that are not quite enough to afford owner occupation, or who need or want to rent for a limited period and can afford to pay more than a social rent, for example those entering the teaching or nursing professions, who expect to be able to buy a house later in their careers.
The rental income from properties for mid-market rent does not cover the full cost to RSLs of developing them. At present, as the Government does not subsidise RSLs to build such properties, RSLs finance the shortfall through separate funding deals with local authorities to provide housing for key workers, or with private developers as a means of meeting the developer's obligation to provide affordable housing as part of a new development. Consequently, the supply of such properties tends to be limited and does not meet the full extent of demand for them.
Increasing the supply of such properties would have benefits. It would be a response to market demand for more variety in affordable housing. It would enable social landlords to broaden their tenant base, helping to dispel the sense of stigma attaching to social housing and counter the tendency towards deprivation becoming concentrated in social housing. This in turn would help to create more mixed communities.
In view of these benefits, we propose that registered social landlords should in future be eligible to receive a subsidy for houses they build for mid-market rent. To encourage better integration of social housing and the wider housing system, we propose that the subsidy should be available only where housing for mid-market rent is included as part of new developments for social rent.
We would require that the housing, most probably built and managed by registered social landlords through their subsidiaries, would be constructed and maintained to the standards required of social landlords. Arrangements for subsidy would be set out in a contract between the social landlord and the Government.
We see merit in seeking to combine the award of subsidy for mid market rents with that for the proposed competition for mainstream HAG. This would allow us to run competitions for a mixture of affordable housing in given areas. We would welcome views on whether we should explore this possibility further.
Questions
20. Do you agree that we should subsidise the development of houses for mid market rent?
21. If so, should the subsidy be awarded as part of the competitive regime for awarding HAG that we are proposing?
22. If not, how would you increase variety in social housing?
Improving variety in existing stock
Our proposals on mid-market rents are intended to encourage social landlords to make their new developments more varied and therefore more appealing to a wider mix of prospective tenants. We also wish to encourage the development of more variety in the existing stock of all social landlords, particularly in areas where social housing is most concentrated.
Therefore, we propose giving landlords the flexibility to respond to local demand by enabling them to convert existing stock to mid-market rent and to sell stock on the open market where it makes strategic sense for them, addresses need in the local housing market and is consistent with the creation of a more mixed community.
It would be a condition of all conversions and sales that proceeds arising from them, whether income through higher rents or capital receipts, should be used to fund new affordable housing, or meet the cost of improving existing social housing.
The circumstances in which this flexibility might be used may well be limited, for example by the extent and nature of demand for different forms of affordable housing and by the type and condition of the stock. We hope, however, that it will at least encourage landlords to consider the scope that they have to adjust the mix of their stock in particular areas. Where such scope exists, the proceeds arising from higher rents or sales would be available to contribute towards the costs to the landlord of meeting the need for new stock and of improving remaining stock.
Question
23. Do you agree that we should encourage landlords to look at means of adjusting the mix of their stock in the interests of achieving more sustainable mixed communities?
The development of affordable housing for rent by parties other than social landlords
At present social landlords are either local authorities or RSLs. Until now it has been the policy that RSLs alone are eligible to receive Government subsidy to build new houses for social rent. In practice, therefore, anyone seeking a subsidy to build a house for social renting has had to be registered and regulated by Communities Scotland.
This arrangement has ensured that public funds provided to support the creation of new social housing are used only for that purpose. It is an important objective, but there is a risk that seeking to secure it through the requirement
to be registered may deter some prospective landlords from providing houses for social rent - inhibiting the supply of much needed affordable homes where they cannot otherwise be provided.
Our proposals to provide funding for local authorities to build council houses are in part a response to that concern.
If possible, we want to remove other obstacles to the provision of new affordable housing and wish to explore whether, in some circumstances, we could safeguard public funds in a more light handed fashion.
For example, it might be possible to make subsidies available on a contractual basis. This could be appropriate in specific circumstances, such as pressured rural housing markets where private landowners are unwilling to split up estates by selling off small pieces of land for development by RSLs, but are prepared to develop and manage rented housing themselves on their own land to complement local provision for meeting housing and homelessness needs.
The extent and variety of circumstances where this approach might be necessary and feasible is likely to be fairly limited, but in signalling an intention to extend our approach in principle, it may be possible to create an additional supply
of homes which otherwise would not exist.
Questions
24. Do you think that subsidies for development should be provided to bodies other than registered social landlords?
25. What sorts of protections should be offered to tenants in these circumstances?
Further consideration of the right to buy for new social housing
We have outlined our proposals for ending the Right to Buy for new build social housing. In this section, we discuss our plans for reviewing how Right to Buy applies to the existing stock of social housing.
Over 480,000 tenants have bought their homes since 1980, allowing them to meet their housing aspirations and helping to create stable mixed-tenure communities. 38 However, the Right to Buy can aggravate affordable housing shortages in areas of housing pressure, which is why the operation of the scheme was adjusted by legislation in 2001.
The 2001 changes were intended to strike a better balance between the needs of the community and those of individual tenants. The full effects of these "modernised" Right to Buy arrangements have still to be seen and understood. We stand by our manifesto commitment to review the Right to Buy and will do so when the effects of the modernised arrangements are clearer.
If necessary, we will explore ways to achieve greater local flexibility within the scheme, while recognising the rights of existing tenants and ensuring that we achieve value for money for our investment in new build stock. We will look at the flexibility that exists within current legislation around discount rates, where the powers to vary discounts have not been utilised previously. There may be scope for variation for different localities and for particular categories of properties, such as large family houses, where those are in short supply.
In the meantime, the pressured area mechanism enables local authorities to suspend the Right to Buy for some tenants in areas facing particularly acute pressures. Several local authorities have already applied successfully for designations under these arrangements and it is expected that many more will wish to consider this as an effective means of striking an appropriate balance where there is pressure on social housing in their area.
Question
26. Do you think that the Scottish Government should vary Right to Buy discounts by (a) locality and/or (b) type of property?
Improving the quality of existing housing
The Scottish Housing Quality Standard ( SHQS) is the test of whether a house is in decent physical condition. We believe that the Standard represents the minimum acceptable level of quality for Scotland's social housing. We expect all social housing to meet, or exceed, the Standard by 2015, unless it is clear that this is not practicable or could be achieved only at disproportionate cost.
We are monitoring landlords' progress towards the gradual achievement of full compliance over the next eight years. Our assessment to date of landlords' plans for achieving compliance suggests that there is no risk to landlords meeting the Standard for the vast majority of all social houses in the country.
A minority of landlords appear to be at risk of not meeting the Standard, at least in respect of some of their properties. The causes of this risk spring from a combination of poor stock condition, high management and maintenance costs and weak finances with high levels of debt.
In cases where it is clear that it is not technically feasible for a property to be brought up to the energy efficiency element of the Standard, or that this could be done only at disproportionate cost, we are content for the property to be exempted from that element. In all other cases, it is essential for tenants that landlords find ways of meeting the Standard.
If landlords conclude that they lack the managerial capacity or financial resources to meet the Standard, they will need to explore options for making good these deficiencies. In practice this will mean forming partnerships with stronger, better performing landlords to manage their stock. Where that is not feasible, they may have to transfer their stock to a body that can manage it effectively, or - in the case of RSLs - merge with other landlords.
For local authorities, transferring all or part of their stock to a RSL created for the purpose remains a possibility. We have no objection in principle to this course and would be prepared to consider proposals for full or partial transfers, particularly in cases that qualify for the Treasury to write-off the debt associated with the stock being transferred. However, we are prepared to consider such proposals only where they have the support of tenants and are based upon a business case that demonstrates how the new RSL will acquire the capacity and resources to achieve compliance without any additional financial support from us.
We have asked Treasury to consider in what other circumstances, besides stock transfer, they would be prepared to write off local authority housing debt. Meantime, where tenants do not support stock transfers, local authorities will have to identify alternative means of acquiring the capacity and resources to achieve compliance. This is likely to mean creating a separate organisation that would operate at arms length from the local authority to manage stock that the authority would continue to own. A number of Scotland's local authorities have created similar organisations to manage other activities, such as leisure services.
Each arm's-length management organisation ( ALMO) would be required to achieve specified outcomes, including SHQS and measures of service and performance, which the local authority would set. Its managers would be accountable to the authority for achieving the outcomes and would have full autonomy from the local authority in determining how to do so, enabling them to run the ALMO as a separate business with the freedom to act solely in pursuit of the objectives set for it by the local authority.
Evidence from England and Wales, where ALMOs manage one-fifth of all social housing, is that with properly set objectives they can achieve substantial improvements in the quality and efficiency of housing management and bring substantial benefits for tenants.
Whether efficiency improvements in Scotland would be sufficient to achieve the SHQS would depend, among other things, on the level of debt that the ALMO had to service, as the Treasury does not write-off the debt associated with stock managed by ALMOs. Where debt levels appeared to constrain an ALMO's ability to deliver the improvements required to achieve SHQS, there could be arguments in favour of the Government giving the ALMO additional financial support.
We are conscious that such support would be at the expense of other public services and could be seen by some as a reward for previous poor financial management. On the other hand, denying ALMOs the possibility of assistance under any circumstances would effectively mean tenants having to bear the consequences of their landlords' past poor performance.
We are not prepared to condemn some tenants to permanently poorer standards than others. Therefore, we will consider providing a measure of financial support, but only where an ALMO has improved its performance over a number of years in line with a programme agreed between them and us in advance. We believe that this approach will give managers an incentive to improve services, while safeguarding public funds.
Questions
27. Do you agree that ALMOs can provide a satisfactory alternative to stock transfers?
28. Do you think that additional help from Government to enable landlords to meet the SHQS should be linked to improvements in a landlord's performance?
29. If so, what measures do you think would be beneficial? If not, why not?
Better neighbourhoods
Good quality houses of the right type and tenure mix and good quality services are essential if we are to create places where people want to live. Focusing on these factors is essential if we are to improve the perceptions of areas suffering deprivation and stigma. But the quality and mix of houses are not the only factors in creating vibrant, mixed and sustainable communities. The quality and management of the environment and public space are also critical elements.
There are very many examples of places where the development of new, affordable homes has been accompanied by a focus on the quality of the public spaces, including green spaces, within neighbourhoods. Examples include Crown Street in Glasgow and Petersburn, Airdrie, where the community has developed a new local park to complement the housing redevelopment.
Often, but not always, the lead role in developing these initiatives has been the RSL responsible for new housing development. But we recognise that this can sometimes be the part of a development that gets missed or gets squeezed out for financial reasons. And often the maintenance of public space seems to be a bone of contention or again, the part of proposal that gets diluted because it is difficult to fund in the long term. At the same time, it is one of the factors that many tenants and residents say reduces their satisfaction with the neighbourhoods where they live.
We are keen to encourage social landlords and other neighbourhood stakeholders to work together in devising solutions to the problems of particular neighbourhood needs. So any proposals for tackling this issue need to be in line with the wishes of those living in the area and to be developed on the basis of co-operation among local stakeholders.
We want to develop new ways of approaching this agenda and through this consultation hope to generate ideas and suggestions. We intend to develop a number of projects around Scotland that focus on the key features of creating mixed, sustainable communities. One of these factors will be the "quality of place". We intend to make a small amount of funds available to enable partners in these projects to develop high quality public spaces and proposals for long term management. In this way we will test out a range of approaches.
We are also looking, with Greenspace Scotland and the Glasgow and Clyde Valley Green Network, at the possibility of introducing guidelines and standards for the quality assessments of Greenspace in neighbourhoods. We think that a range of stakeholders may be well placed to take the lead on this agenda and that this could vary from neighbourhood to neighbourhood. It may be that as the main landlord, an RSL is best placed to take on this role, but other stakeholders, such as the local authority or local Greenspace Trusts, might be better placed in some situations.
We are concentrating in this consultation on physical quality rather than on the extensive agenda of people focussed interventions in communities experiencing multiple deprivation. The substance of that agenda is quite rightly the remit of community planning partnerships and regeneration outcome agreements. Linking the physical agenda about "place" to this "people" based agenda is obviously of the utmost importance and through the Government's five strategic objectives, we will work to ensure that such links are made.
Questions
30. Do you agree that we need to find new ways of focussing on the quality of place/open space and greenspace within deprived neighbourhoods?
31. Do you have suggestions for approaches that are not resource intensive and that include stakeholders?
32. Do you agree that the lead role (and recipient of any resources) to undertake this work should be open to a range of stakeholders?
Improving access and choice in lettings
We believe that Common Housing Registers ( CHRs) are a crucial tool in simplifying and maximising access to social housing, where local authorities and RSLs work in partnership to use a common application form for all their stock. CHRs cut out the duplication of applicants applying to multiple landlords while promoting access to the full range of social housing in an area. They allow a combined housing list to be maintained, giving a more accurate picture of housing demand, and are often accompanied by the benefits of co-ordinated housing information and advice, shared needs assessments and harmonised or common allocations policies.
Many areas of Scotland have developed excellent CHRs, and other areas are making good progress and expect to launch a CHR in the next year. 39 The good practice behind CHRs has been promoted in Scotland for a number of years and all areas have received funding to help develop a CHR. We want to see that progress maintained and effort renewed across all areas so that there is a CHR in every area of Scotland. We will consider whether the time is right to bring into force the provision in the Housing (Scotland) Act 2001 to make it mandatory for local authorities to develop and maintain a CHR.
We support the practice of choice based letting for social housing. We recognise that it cannot be applied to its intended effect in circumstances where demand significantly outstrips supply. Even so, it can assist prospective tenants in more pressured areas by giving them a realistic understanding of the extent and nature of such choice as exists. This helps them to make informed decisions about the options available to them. Evidence suggests that those obtaining houses in this way tend to be more satisfied with their allocations and are more likely to maintain their tenancies than are those allocated houses through traditional allocations systems. 40
We know that demand for social housing, including responding to the high level of homeless applications, makes housing allocations a difficult and pressured area for landlords. This is not a new development, and it is important for landlords to recognise the flexibility that they have to develop allocations policies, in consultation with their tenants, that suit their circumstances.
Recent research has confirmed that landlords find it difficult to navigate the different statutory requirements and policies in this area. 41 We are committed to improving clarity in this area and addressing the issues identified. We will consider the research findings and the need for new guidance on allocations that will help landlords understand the requirements upon them and make use of flexibility they have.
We recognise that some landlords would like to see changes to the statutory requirements on allocations and will consider suggestions that would help them to achieve mixed and sustainable communities while meeting the needs of the most vulnerable in society. Our forthcoming consultation on the regulations allowing local authorities more flexibility in discharging their homelessness duties is in accordance with this thinking.
Conclusions
The proposals outlined in this chapter are aimed at improving the supply, quality and choice of social housing. They are focussed on the outcomes that social landlords can achieve for tenants, those in housing need, the communities in which they operate and the value they can achieve for public expenditure. They reflect our view that a thriving social housing sector that meets the needs of a rapidly changing society will be a diverse sector with a range of providers, including local authority landlords, and a variety of RSLs, some large, some specialist and others continuing to build on the strengths of the community based movement.
Quite deliberately, we have not sought to specify or describe a template for the future of the sector. We recognise that social landlords each face their own particular challenges and it is for them to decide how to respond to them in a way that meets the needs of their tenants and communities and that reflects their own traditions and values.
Our concern is to ensure that our expenditure on social housing supports the supply of as much good quality housing as possible in the areas that it is needed, and that the existing stock of social housing is managed and maintained efficiently and effectively. It is for social landlords themselves to acquire the skills and expertise to secure these outcomes. Whether they do so at their own hand or in partnership with others is a matter for them to settle.
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