Our deputy director of regulation Jonathan Walters' presentation at the National Housing Federation's Future of Welfare Reform event on 21 January 2016.
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NHF Future of Welfare Reform
1. The social housing regulator
Successful places
with homes and jobs
A NATIONAL
AGENCY
WORKING
LOCALLY
Rent reduction and
Pay to Stay: What are
the implications?
2. The social housing regulator
Life was already getting
more complex for providers
Gone: core assumptions
about rented products
Gone: the grant/bank debt
funding model
Going: Rents always going up
More market exposure
Complex choices for Boards
Opportunities and risks
A more cyclical model
4. The social housing regulator
Rent Reduction
Announced in the July 2015 budget
Included as part of the Welfare Reform and Work Bill 2015
Introduces a 1% rent cut for 4 years for all social housing (social
rent and affordable rent) held by registered providers
Introduction date of 1 April 2016
Currently at the ‘Report’ stage in the House of Lords (25 January
2016)
Detailed regulations that support the Bill to follow
5. The social housing regulator
Main aspects of the Bill
1% rent reduction to social housing stock for four years
Low cost home ownership is not included within the Bill
1% reduction to be made within the new concept of a ‘relevant year’
Introduced a new implied term into tenancy agreements overriding any
contractual restrictions on rent changes
Baseline rent to be used for the reduction set at rent as of 8th July 2015,
although a new general consent announced which providers can use should
their annual rent setting date be after 8th July
Bill contains provisions for the enforcement of the rent reduction through the
use of the regulators existing powers under part 2 of the Housing and
Regeneration Act 2008.
6. The social housing regulator
Specifics - Exceptions
Exceptions in the Bill outline where Section 21 (requirement to
reduce rent) do not apply
Property subject to a mortgagee, receiver, or other party being in
possession is excepted from the Bill
Bill outlines that Regulations will outline further exceptions
Government Impact Assessment on the Bill states that further
exceptions may ‘include the types of accommodation and tenants that
are currently exempted from the Rent Standard will continue to be
exempted’
7. The social housing regulator
Specifics - Exemptions
Exemptions replace ‘Waivers’ under the previous rent regime
Exemptions from the rent reduction requirement are much narrower in scope
than waivers under the Rent Standard.
Exemptions will only be given where the financial viability of the organisation
would be jeopardised by compliance with the legislative rent reduction
following implementation of a full range of mitigating actions
A detailed business case and supporting evidence will be required from the
provider as part of the process for obtaining an exemption
An exemption can only be granted if the Secretary of State consents
Exemptions can be given to the whole of the provider of can be limited to
defined stock
Guidance will be issued by the Regulator
8. The social housing regulator
Specifics – Rent Setting
Requirement around rent setting set out in Schedule 2 of the Bill
Definitions of Formula and Affordable rent expected to remain
unchanged
10 % Rent Flexibility on top of formula rent for supported housing is
to be retained
5% rent flexibility for General Needs accommodation is to go for new
stock and all accommodation that has not had it applied to date
We are expecting the social rent floor for affordable rent to be
included within the bill before Royal Assent
9. The social housing regulator
Rent Reduction – Next steps
Royal Assent is expected from late February onwards with the
regulations (including details of exceptions to the reductions) being
released as soon as possible
Boards of providers need to take an informed decision on how they will
comply with the legislation
Regulator will publish guidance on exemption criteria
G&FV Standard requires compliance with “all relevant law” – likely
route of regulation of the reductions
10. The social housing regulator
Pay to Stay
Introduced in the Housing and Planning Bill
Builds on existing scheme brought in in April 2015
Makes it mandatory for Local Authorities to charge high income
tenants up to full market rent
Enables PRPs to voluntarily charge up to market rent to high
income social tenants
PRPs must publish their policy on high income social tenants if they
have one
The Act makes provisions for the sharing of income data with PRPs
Further detail is expected in the regulations that support the Bill
12. The social housing regulator
Is this the future of social
housing policy?
13. The social housing regulator
The business model for providers is
changing…
ASSETS
Right to
Buy
New
Develop-
ment
DiversificationHousing Market
Sales
Existing
Stock
14. The social housing regulator
And the financing of that business is
becoming more complex…
LIABILITIES
Counterparty
Risks
Liquidity
Existing Debt
New Debt
Index Linked
Debt
Hedging
Strategies
Accounting
Issues
15. The social housing regulator
There are some key issues for
boards and exec teams to consider
What is the right strategy for our business?
Where do we want to be in 5 -10 years?
What do our charitable objects means for us in this new
world?
What is the right development mix for our business?
What is our home ownership offer for our tenants?
16. The social housing regulator
What is the role of the regulator?
We don’t have the answer for your (or anyone else's)
business
We seek assurance that boards and executives are
managing the business effectively and have a thorough
understanding of their risks
Where we have concerns that this is not happening it is
reflected in our regulatory judgements and we look to
providers to remedy the situation
Where they can’t or won’t respond then we look to use
our power proportionately to bring the provider back into
compliance with our standards