Investing in Modernisation - An Agenda for Scotland's Housing :11

Investing in Modernisation - An Agenda for Scotland's Housing

Safeguards for the Community
3.24 The wider community in any local authority area will continue to have a strong interest in the houses which are transferred to new community landlords. It will want to be re-assured that the houses are well managed and that public resources are used to good effect. It will also be important that housing continues to be allocated fairly and that full account is taken of the needs of the homeless and other vulnerable groups.

Regulation of Landlords
3.25 Until recently, Scottish Homes has only been able to register and supervise housing associations. The advent of New Housing Partnerships has encouraged local authorities to consider setting up other types of landlord to provide affordable rented housing which would not necessarily be housing associations, for example local housing trusts. The Government believes that regulating these new landlords should bring benefits to tenants, local authorities and the landlords themselves.
3.26 A Working Group on the regulation of new landlords (consisting of representatives of the Scottish Office, COSLA, Scottish Homes, the Chartered Institute of Housing in Scotland and the Scottish Federation of Housing Associations) set up to consider this issue recommended in 1997 that, in the long term, both housing associations and other types of new landlord should be regulated under statute. The Group recognised the scope, within existing legislation, for Scottish Homes to develop a new set of rules for statutory registration which would encompass more flexibility. The Group further recommended that Scottish Homes should establish a new register for landlords who were not currently eligible for statutory registration, but who could be regulated by contract. Following consultation, the Government accepted the recommendations of the Working Group and asked Scottish Homes to amend its criteria for the registration of housing associations under statute and make arrangements for registration of other landlords under contract. All landlords registered with Scottish Homes will, however, be known as Registered Social Landlords.
3.27 All new landlord organisations benefiting from New Housing Partnerships' funding will be required to register with Scottish Homes as this provides a safeguard for tenants, for local authorities and for private lenders. Registration means that landlords have to prove that they can provide and manage rented housing to a high standard. Their performance will be measured against a set of performance standards which require them to treat their tenants fairly and properly at all times and consult them for their views. These standards will also require them to manage their houses efficiently, deal with repairs promptly and make sure that they provide good value for money. Tenants can take comfort from the fact that Scottish Homes uses a system of tried and tested supervision procedures to check that the standards are being met and will take action if they are not.
3.28 Registration also means that tenants are safeguarded in the knowledge that their landlord is committed to long-term affordable rented housing and to improving the quality of service. Any surpluses made by registered social landlords can only be used to improve the quality of the housing and the housing management services. The members of the Board cannot benefit from their position by receiving payments in cash or in kind.
3.29 Finally, registration will ensure that the new landlord is controlled only by its governing body. Registered social landlords are expected to be under the absolute control of this body, which must act independently of any other organisation.
3.30 Although we have asked Scottish Homes to establish a contractual system of regulation for those new landlords who are not covered by existing statutory requirements, we consider, in line with the Working Group report recommendation, that a single, unified statutory system would be preferable in due course. A further possibility, discussed in Chapter 4, would be to establish a single regulatory system which would also cover local authorities' housing activities.

Views are sought on whether establishing a single statutory system of regulation for all registered social landlords should be an early legislative priority for the new Scottish Parliament.

Allocation of Tenancies and Responsibilities towards the Homeless
3.31 The setting up of transfer partnerships involving transfers of all or a substantial proportion of the housing stock in any particular local authority will have significant implications for the allocation of tenancies. These will need to be considered carefully both by the local authorities sponsoring the transfer and the new community landlords themselves. The operational responsibility for allocating houses must be transferred to the new community landlords if they are genuinely to have control over their own affairs. It will, however, be essential to ensure that sufficient housing is available to the local authority to meet its statutory obligations, particularly its duties in relation to homeless persons as set out in Part II of the Housing (Scotland) Act 1987, and that operational responsibility is exercised within a framework that ensures that allocation policies continue to take account of the full range of housing need, including the needs of those requiring care in the community and other vulnerable groups.
3.32 Local authorities will be expected to enter into new contractual arrangements with the new community landlords to ensure that this framework is established. These contractual arrangements should cover: agreement on the broad priorities to be applied by the new community landlords when considering applications for houses on their waiting list, for example, that priority should be given to persons assessed by the local authority as unintentionally homeless and in priority need; persons occupying houses which do not meet the tolerable standard; persons occupying overcrowded houses; etc; agreement on nomination arrangements to ensure that the council is able to meet its statutory duties and agreement over the way in which these nomination rights should be exercised. For example, many councils already have nomination agreements with housing associations operating in their areas. These generally give them access to around 50% of an association's lets. Where a council is transferring housing to a new community landlord, the contract of sale should clearly define the rights and responsibilities of both partners in this area. In particular, the local authority will want to ensure that the proposed nomination arrangements provide sufficient housing of the right type and in the right place to allow local authorities to meet their homelessness responsibilities; to implement their strategic responsibilities in community care which require access to a supply of affordable rented housing, for example, as part of the running down of a long stay hospital in the area; and to meet the needs of other vulnerable groups; and, agreement that, as far as possible, houses built to meet the needs of a specific group within the community, for example, houses built for wheelchair users or houses which have major adaptations to make them suitable for the disabled, should be used for this purpose.
The extension of regulation by Scottish Homes to the new community landlords will also ensure that allocation policies are carefully assessed and monitored.
3.33 The Government's view, then, is that the statutory duties relating to homelessness should continue to remain with the local authority as the strategic housing authority in the area and that it would be impractical and undesirable for these duties to be transferred to each community landlord. Nevertheless, there may be a case for some change in the legislation. One area that may need to be looked at is the operation of nomination arrangements in relation to homeless people. The contractual arrangements that are put in place between local authorities and new community landlords might benefit from statutory underpinning to ensure that the unintentionally homeless in priority need get early access to permanent accommodation. A second possibility would be to ensure that the new community landlords are subject to some of the statutory requirements that currently apply to the management of waiting lists and the allocation of houses by local authorities. For example, at present: section 19 of the Housing (Scotland) Act 1987 specifies that the local authority shall not take account of certain factors (e.g. age for those over 16, income, etc) in considering whether an applicant is entitled to be admitted to a housing list; section 20 of the 1987 Act requires the local authority in allocating houses to ensure that reasonable preference is given to persons with specified needs including homeless persons and that other factors are not taken into account, (e.g. length of residence, age over 16, income, etc); and, section 21 of the 1987 Act requires the local authority to publish any rules which it applies governing admission of applicants to the waiting list and priorities for allocations and transfers.

Views are sought on the need for new statutory provisions on allocations, to safeguard access for particular groups.

3.34 The establishment of new community landlords could lead to a significant increase in the number of organisations letting affordable rented housing within the socially rented sector. There is already considerable interest in establishing common housing registers in any particular local authority area which would allow potential applicants to record their interest in obtaining a house, together with relevant information on their circumstances, on a single register available to all relevant landlords. The existence of a common housing register does not prevent individual landlords from deciding which applicants should be accepted on to their waiting lists or priorities for re-housing from these lists. The arguments for common housing registers are likely to become even stronger as the community ownership programme is developed. We look to local authorities to take the lead in establishing and agreeing common housing registers for applicants in their areas within a framework which would still allow individual community landlords to shape their own allocation priorities.

Views are sought on the need for common housing registers to be established which would cover all community and social landlords in a local authority area.

Community Ownership and Neighbourhood Regeneration
3.35 Chapter 2 has already discussed the important role of the housing sector in creating and sustaining employment and training opportunities. The extension of community ownership and stock transfers from local authorities will create substantial potential for new investment to upgrade and improve housing in Scotland. This investment will be spread over a number of years and the precise levels and timing of investment will depend on the resources available from the public and private sectors. It should generate significant numbers of new jobs in the construction sector and, in addition, the new community landlords will have access to large revenue streams for the management and maintenance of their housing stock. There should, therefore, be excellent opportunities for generating local employment and boosting the confidence of the communities concerned.
3.36 This work will often take place in areas where there are few local job opportunities at present and will give people the opportunity for productive work within their community, especially where landlords and contractors can be encouraged to use locally hired labour. A key priority will be to develop within communities the skills needed for housing improvement and refurbishment. These will range from basic entry level skills which can be acquired largely through on-the-job training through to higher skill levels which will require a longer period of apprenticeship training. By linking housing investment with job creation and training through the New Deal we can ensure that local people in the communities involved have the skills that they need to compete for jobs and that they are ready to take on work. One approach which has been used successfully is for employers to guarantee an interview for people who successfully complete an initial period of training. This ensures that local unemployed people acquire skills and have the opportunity to compete for jobs.
3.37 There will be benefits for contractors, and for local people and communities, in using a locally based workforce. It will reduce the costs of travel and should help to ensure a committed and motivated workforce. For the community, there will be benefits in terms of jobs, which would not otherwise be there, and benefits in terms of local incomes and potential spending on services. There may also be opportunities for existing local firms to benefit from both the initial refurbishment work and subsequent maintenance contracts and, in time, for new local businesses to be established. 3.38 Chapter 2 also referred to the possibility that housing associations, particularly community based housing associations and co-operatives, might play a wider role in their areas which might encompass both local economic development and local service delivery initiatives. New community landlords might, in time, also wish to contribute to neighbourhood regeneration by developing a wider role along these lines.
	Craigmillar, Edinburgh.
The Position of Local Authority Staff
3.39 The Government will expect local authorities in drawing up plans for community ownership to give careful consideration to the impact on existing local authority staff. Staff who are directly affected by the transfer may be protected by the Transfer of Undertakings and Protection of Employment Regulations (TUPE) and local authorities should aim to secure continuity of employment on comparable terms and conditions as provided by their current posts. They will, no doubt, also wish to ensure that individual members of staff have access to professional advice on their future employment and associated terms and conditions. The experience of Scottish Homes is that their staff who have transferred to locally based housing associations as a result of their stock transfer programme have often found that this presented new career challenges and opportunities.
3.40 Local authorities should also consider the position of staff who might be affected indirectly, including staff who may provide services to the Housing Department, for example, local authority solicitors. Employees in Direct Labour Organisations (DLOs) may be particularly affected and, in the short term, it might be appropriate for the local authority to make transitional arrangements with the new community landlord to continue to provide these services, for example for the remaining period of any existing contract between the Housing Department and its DLO. However, our view is that the fair and proper way forward, beyond this initial period, would be for new community landlords to award contracts for goods and services following a normal competitive process and for Direct Labour or Direct Service Organisations to be allowed to compete on equal terms with other contractors.

Views are sought on this approach towards local authority staff affected by community ownership proposals.

Planning for Community Ownership
3.41 Changes of this magnitude need careful planning and preparation. The Scottish Homes Initiatives Unit has considerable relevant expertise as a result of experience with arranging stock transfers over a number of years and can provide advice and assistance to local authorities. We have made it clear that the Scottish Office will be prepared to consider New Housing Partnership bids for feasibility studies and preparatory work generally, for example, stock condition surveys. We have also recently issued procedural guidance to local authorities. It is essential that plans are taken forward in consultation with tenants, other relevant interests such as local housing associations, local authority staff representatives, Scottish Homes and private sector lenders. The wider community must also be given an opportunity to understand what is being proposed and to express views. Adequate time must be allowed for these consultations.

Housing Debt
3.42 The Government recognises that the level of local authority housing debt is a major barrier to large-scale stock transfers in Scotland, particularly for those councils where the value of the stock to a new landlord is thought to be less than the outstanding debt. The total local authority housing debt was estimated at �3.9 billion in April 1998, i.e. an average of almost �6,500 per house. The position varies from local authority to local authority, but on the basis of the information currently available the estimated receipts from the transfer of all local authority houses in Scotland to alternative social landlords would still leave a net residual debt of around �2 billion. In addition, if debt was actually repaid prematurely then this could expose local authorities to significant breakage costs. The problems associated with housing debt and the implications for New Housing Partnerships are discussed in a recent joint report by Scottish Homes and COSLA.²
3.43 We envisage that the Government will be prepared to provide funding to tackle the outstanding debt problem in those cases where stock transfer proposals represent good value for money and are selected to proceed. It is important to secure the fairest possible deal for the taxpayer, and each bid must be considered on its merits. Detailed arrangements to deal with the debt would therefore need to be agreed in individual cases and be affordable. But where a local authority's housing debt exceeds the receipt from disposal of its stock we would hope to arrive at an outcome which would have four elements, as follows: (i) the local authority would be expected to obtain the best possible receipt; (ii) the whole of that receipt would be used to repay part of the council's outstanding housing debt; (iii) the cost of the premature repayment of debt (i.e. the breakage costs) would be met from resources provided by the Scottish Office; and, (iv) the cost of servicing the remaining (i.e. residual) debt would also be met by resources provided by the Scottish Office.
3. 44 The arrangements for dealing with the existing public sector debt on houses which are to be transferred into community ownership will clear the way for new community landlords to negotiate new investment from banks and building societies in the private sector to undertake the necessary repair and modernisation work. The net result will be more and faster investment in affordable rented housing by using central government support to lever in additional resources from the private sector.

Providing New Affordable Rented Housing
3.45 New Housing Partnerships provide an opportunity to modernise and revitalise existing housing stock, but, as Chapter 1 made clear, there is likely to be a continuing need for new affordable rented housing. For some time now almost all new affordable rented housing in Scotland has been built by housing associations with government support channelled through Scottish Homes and paid in the form of a one-off grant for each new development. Since the establishment of Scottish Homes in 1989, housing associations in Scotland have built almost 40,000 new houses for rent or for shared or low-cost home ownership on this basis.
3.46 Housing associations have established a clear track record for building high quality new housing which is well managed and let at affordable rents. Many housing associations in Scotland operate at local or community level and are well aware of the needs of their area; others have developed a particular interest in meeting the needs of specific client groups such as the elderly, the disabled, or persons with learning disabilities. Over the years, housing associations have developed a detailed and specialised knowledge of the requirements of their prospective tenants together with a willingness to innovate. With the assistance and encouragement of Scottish Homes, they have successfully managed to attract over �600 million of private finance into new rented and low cost home ownership housing since 1989. Housing associations will have a continuing and important role to play in the provision of new affordable rented housing in Scotland and we have provided increased resources for Scottish Homes for 1999-2000 to allow for a modest expansion of the housing association development programme.

3.47 The housing association sector in Scotland is diverse and characterised by a large number of small organisations - two thirds own less than 500 units. What is needed is arrangements that retain the advantages which result from the current diversity and structure of housing associations in Scotland whilst allowing for improved economies in the commissioning of new building work. In some cases, it may be sensible for smaller housing associations to consider joint working. A possible alternative to this would be for smaller housing associations to make greater use of the expertise and resources of some larger associations in development work by using them as development agents. This might enable both Scottish Homes and housing associations to increase the value for money from development work, and it should allow the existing smaller housing associations to concentrate on the preparation of the development brief for any new housing in their areas and its subsequent management.
Views are sought on the scope for strengthening the development work of housing associations and achieving greater value for money through such approaches.	Catering for diversity together: Fountainbridge Housing Association and Edinburgh Elderly Chinese Association.

3.48 Other types of landlord will also have a role to play in providing new affordable rented housing alongside the existing housing associations. With the help of resources made available through the New Housing Partnerships initiative, new social landlords are being established in several areas with local authority and, in some cases, housing association involvement to develop new affordable rented housing and housing for sale. Resources are already being made available under the New Housing Partnership initiative for "development partnerships" along these lines, to provide new housing to meet housing need. It may well be that new community landlords established as a result of stock transfers from existing public sector landlords will also wish to develop new building programmes although, in most cases, their first priority is likely to be with the repair and modernisation of their existing houses. Although we are keen to encourage landlords which are not conventional housing associations to get involved in building new affordable rented housing, it will be necessary for all landlords to agree to registration and supervision by Scottish Homes, as a condition of receiving any public funding. Moreover, we would wish to encourage close co-operation between these landlords and existing housing associations.

Funding New Affordable Rented Housing
3.49 In 1998-99, the grant paid by Scottish Homes to housing associations is expected to meet approximately 70%, on average, of the cost of new building projects, although the actual percentage varies from project to project. This figure has reduced steadily since 1989. The remainder of the cost is met from borrowing from the private sector with the servicing costs, along with management and maintenance expenditure, being set against rental income. There is, therefore, a balance to be struck between the initial level of grant provided and ensuring that rents are affordable _ reducing the effective grant rate enables more houses to be built for a given amount of grant but a steep reduction in grants is likely to have an adverse effect on rents with a number of undesirable consequences. Housing Benefit costs are likely to increase, the rents may be unaffordable for households on relatively low incomes who do not qualify for Housing Benefit, and households containing persons who are looking for work may find that taking up employment is not financially worthwhile because of the loss of Housing Benefit. The Government considers that, in general in Scotland, the grant arrangements for new housing association developments have struck a reasonable balance between the taxpayers interest in ensuring value for money and the need for affordable rents. Although the scope for reducing the effective grant percentage further should be kept under review by Scottish Homes, the Government sees no immediate prospect for significant reductions.
3.50 Nevertheless, there may well be scope for reducing the costs of new building without compromising on quality or, alternatively, achieving improvements in standards without commensurate increases in costs. In 1997-98, the overall average cost of a new rented house, approved for grant aid by Scottish Homes, was approximately �56,000. The proposals set out above for greater co-operation in the work of developing housing associations may help to reduce costs. In recent years, Scottish Homes has initiated two competition pilots. The first, launched in October 1995, asked housing associations to compete on the basis of the lowest level of subsidy. Phase 2 was launched in December 1996 and seeks to test whether associations can deliver increased quality, innovation, or both, against set costs. Scottish Homes has also reviewed the procurement processes of housing associations and is currently piloting an approach to 'bulk' purchasing with Perthshire Housing Association which may have wider applicability. The Government believes that Scottish Homes should be encouraged to take forward initiatives of this nature and to ensure that they are carefully evaluated so that any lessons learnt can be applied more generally.
3.51 The present arrangements for calculating the grant paid to housing associations were developed some time ago. The system is project based and uses a standard set of assumptions applied to the first year of the project relating to income and costs. Scottish Homes have suggested a number of ways of achieving efficiencies. The Scottish Office has asked Scottish Homes to work up these ideas in more detail, in consultation with the Scottish Federation of Housing Associations, with a view to developing a set of proposals which could be considered in more detail by Government.
3.52 There might also be advantage, in the longer term, in establishing a unitary grant system for all providers of affordable rented housing. This new grant would be payable to all landlords who have registered with Scottish Homes whether on a statutory or on a contractual basis. We would expect this change to follow on from the introduction of any revised procedures for calculating Housing Association Grant and the result would be a Social Housing Grant based on these new procedures and potentially available to both housing associations and other relevant landlords.

Views are sought on the potential for longer term changes to create a new unitary grant system for all providers of affordable rented housing.

Conclusions
3.53 The Government believes that its strategy for encouraging community ownership of public sector housing offers the prospect of fundamental and radical change which could bring major benefits to tenants, local authorities and communities. It has the potential to provide tenants with a greater say in the ownership and management of their housing and to improve the conditions of many thousands of households that, at present, are faced with the prospect of deteriorating housing conditions. For local authorities it will provide the opportunity to accelerate investment in their housing stock and encourage them to take up a more strategic role in their approach to local housing needs, as we discuss in more detail in the next chapter. And for local communities, the strategy will enable further decentralisation of decision-taking and support community regeneration.
3.54 Views are invited on the strategy set out in this chapter, including the proposed safeguards. In particular, views would be welcomed on: the case for legislation to establish a new social tenancy (para 3.23); whether legislation to establish a single statutory system of regulation for all registered social landlords should be an early priority for the new Parliament (para 3.30); the need for new statutory provisions on allocations to safeguard access for particular groups (para 3.33); the need to establish common housing registers across all landlords letting affordable rented housing in any local authority area (para 3.34); and, the approach towards local authority staff affected by transfers to community landlords (para 3.40).
3.55 Notwithstanding the relatively high level of new building currently undertaken by the private sector, there is likely to be a continuing requirement for some additional new socially rented housing. We envisage that most of this new building should be undertaken by housing associations or other registered social landlords and there is a continuing need to ensure that we are achieving the best value for money from this expenditure. In this context, views are invited on: the scope for strengthening the development work of housing associations and achieving increased value for money from Scottish Homes' development funding, through greater joint working between housing associations, the adoption of group structures or, possibly, greater use of "developer" associations (para 3.47); and the need for Scottish Homes to review its procedures for paying grant to housing associations with a view, in the longer term, to establishing a unitary grant system for all housing providers (para 3.52).

Footnotes
1 The key differences between the two types of tenancies are shown in the Annex to this Chapter although this does not reflect any additional rights provided through contractual agreements linked to assured tenancies. 2 Scottish Homes and COSLA, New Housing Partnerships and the Treatment of Housing Debt - A Discussion Paper (1998)