This document provides an analysis of innovative tenure types that could allow Network Housing Group to increase its provision of affordable housing. It examines affordable rent, shared ownership, and introducing private rented sector homes. It recommends that NHG support legislative reform to give housing associations more freedom in setting rents. It also suggests NHG partner with a private developer to deliver shared ownership homes at scale, and consider developing private rented sector homes to gain experience and support future lobbying. The document analyzes challenges with current tenures and proposes expanded or new models to better achieve affordable housing goals.

1. Charityworks 2014/2015 Graduate
Scheme
Jonathan Buck
Assignment 2 – April 7th
2015
Innovated tenure types are fundamental to
the future of Housing Associations, how
should Network Housing Group respond?

2. Contents
1. Introduction 1
Housing Associations,Network Housing Group and My Role 1
The issue 2
ReportOverview 3
Argument 3
2. Analysis 5
AffordableRent
Shared Ownership
Private Rented Sector
Critique of existing Research
Critique of Report Methodology 2
3. Recommendations 2
Rent-Linked-To-Income
Expanded Shared Ownership
Private Rented Sector
4. Conclusion 2
Bibliography
Appendix A

3. 1
1. Introduction
Housing Associations,Network Housing Group and My Role
The national housing charity Shelter describes Housing Associations (HAs) as
‘independent, not-for-profit social businesses that provide homes and support
services for their tenants’1. However, the word “independent” may only be suitable in
the definition of modern day HAs. This is because although HAs have always been
autonomous entities, their development of new homes has traditionally been reliant
upon government grant funding. Funding which was cut drastically by 67%2 as part
of the budget cuts introduced by the coalition government in 20103. Denise Chevin
has explained that before 2010, government grants used to subsidise up to 50%-
60% of development cost for HAs, whilst as a result of these cuts most associations
are now ‘preparing for a life without grant’4. Network Housing Group (NHG) is one of
these HAs. It currently manages approximately 19,300 homes across London,
Hertfordshire and the South East of England, but it has ambitions of growing by a
further 1000 homes annually. Thus it must find an innovative way of developing new
homes as it shifts from being what Chevin calls an ‘administrative developer to being
an entrepreneurial developer’5.
My role at NHG is to support the development department in many ways,
however, recently I have been asked to help the organisation learn about new tenure
types that could allow NHG to achieve its ambitious growth plan, and also allow it to
continue providing housing at a sub-market rate.
1http://england.shelter.org.uk/get_advice/social_housing/housing_association_tenancies/what_are_housing_
associations
2 http://prsupdate.co.uk/2013/05/are-housing-associations-ready-to-tackle-the-private-rented-sector-2/
3 http://www.bbc.co.uk/news/uk-politics-11570923
4 http://www.d4multimedia.com/genesis/Social-hearted.pdf P. 45.
5 http://www.d4multimedia.com/genesis/Social-hearted.pdf P. 45.

4. 2
The Issue
The lack of available grant funding from the government now means that HA’s must
generate enough income to cover the cost of building new homes by themselves.
However, it seems that only by receiving a quick financial return on the homes they
do build, will they be able to create enough of a surplus to do this. Consequently, the
service which HAs are able to provide is changing, as rather than developing homes
for Sub-Market Rate tenures (Social Rent, Affordable Rent and Shared Ownership
(SO) etc.) in line with their ‘not-for-profit’ definition, they are increasingly having to
maximise profits, using Private Sale and more recently Market Rent tenures, to do
so. This has brought controversy on some London based HAs such as Affinity Sutton
who have been accused of ‘social cleansing’6.
However, this controversial move away from affordability and towards market led
pricing has been magnified by the ‘housing crisis’ which Britain currently faces7. The
recent Lyons review states that Britain currently has a backlog demand of one million
homes, and needs to build 243,000 homes a year in order to avoid adding to that
backlog, and to meet the overall demands of the population8. A challenge which has
only increased the demand on HAs to develop more affordable homes. There is a
risk that if HAs fail to innovate and find a way of building affordable homes, they
could see a lot of their development opportunities cease. This is demonstrated by the
recent Thames View East project which recently won ‘Most Innovative Affordable
Housing Scheme’9, and did so because rather than the housing stock being
6 http://www.24dash.com/news/housing/2015-03-05-Eddie-Izzard-attacks-housing-association-s-social-
cleansing
7 http://www.independent.co.uk/property/house-and-home/property/britain-is-suffering-from-a-housing-
crisis--who-is-to-blame-and-how-can-we-fix-it-9113329.html
8 http://www.yourbritain.org.uk/uploads/editor/files/The_Lyons_Housing_Review_2.pdf P. 18.
9 http://www.housinginnovationawards.co.uk/gallery/winners-2015

5. 3
transferred to a HA to then carry out a regeneration project, the Local Authority took
the area’s development into its own hands, bringing in a foreign investor to fund its
construction, allowing them to maintain all the homes at Social Rent levels.
Therefore, in order for HAs to; remain true to their original purpose and provide
genuinely affordable housing for those on lower incomes, build enough homes to
match the demand of Britain’s ever-increasing population, and continue to secure
development business from Local Authorities, they must explore innovative ways of
expanding the affordable tenure types they already offer, and introduce new
innovative tenures, such as linking rent to income.
ReportOverview
The definition of innovation – the overarching theme connected to this report – will
be the one given by the Oxford Dictionary ‘a new method, idea or product’10 so that
the expansion and changes to delivery of HAs current tenures are regarded as
innovative alongside the introduction of brand new ideas.
In order to explore the options available to NHG, both primary and secondary
source based evidence has been collected to analyse what other organisations have
attempted. The primary research consists of phone interviews being conducted with
the following people;
 Miranda Plowden - Business Development Director at South Yorkshire
Housing Association Limited11
 Tom Titherington - Director of Business Development at Catalyst Housing12
10 http://www.oxforddictionaries.com/definition/english/innovation
11 http://www.syha.co.uk/
12 http://www.chg.org.uk/

6. 4
 Tony Quigley - Director of Home Ownership at Sovereign Housing13
Their organisations manage a combined total of approximately 63,000 properties
across England, and they are all keen developers in their respective locations,
therefore they should give a good indication of the current opinions present in the
sector on this issue.
This report will analyse three of the main tenures which could allow NHG to
increase its provision of affordable housing. It will begin by looking at those that are
already offered by NHG (Affordable Rent and SO), examining how they could be
innovated to be more effective, and end with brand new tenure types which could be
introduced (Private Rent). In each instance the research analysis will decide whether
it is recommended to NHG what that they should change in their current offer and
how they would be able to do so.
Argument
Resultantly, it will be recommended that NHG should support legislative reform
which would enable HA’s to set their own rents with more freedom than they are
currently permitted. They could do this by switching their focus to developing homes
for the Private Rented Sector in the near future, and use the results from this to add
weight to any future political lobbying. Further to this, it will also be suggested that
NHG offers financial or human resource support to London & Quadrant (L&Q) in
order to learn from their respective rent-linked-to-income experiment that will be
beginning shortly14.
13 https://www.sovereign.org.uk/
14
http://www.insidehousing.co.uk/analysis-and-data/investigations/a-new-era-for-affordable-
rents/7008738.article?adfesuccess=1

7. 5
2. Analysis
AffordableRent
Affordable Rent is classified as being the value of 80% of the current Market Rent in
any particular location. It was introduced by the Government on 14 July 201115 and
the Homes and Communities Agency was able to offer HAs small amounts of grant
towards developments which were suitable for its application. However, Inside
Housing Magazine explains that ‘rent levels in England have risen by about 46%
during the last decade’16 meaning that a 20% discount only goes someway to
addressing this sudden rise in prices. Obviously the amount to which market rent has
increased differs according to location, meaning that in some locations 80% of
market rent will be affordable. However, due to the vast price increases across the
country, HAs have not been able to create genuinely affordable housing in enough
locations for the Affordable Rent tenure to be considered a success. Its effectiveness
as a tenure is epitomised by the comments of Christopher Walker (Head of Housing
at Policy Exchange)17, who braded them “a misnomer”18, and Tony Quigley who
described them as ‘a blunt tool’19.
Nonetheless the introduction of a rent linked to another economic factor has
led to innovative thinking, as earlier this year The Joseph Rowntree Foundation and
The National Housing Federation funded Savills to investigate a model of rent which
is linked to a tenant’s income, naming it Affordable Working Rent.20 This model offers
15 https://www.gov.uk/government/policies/improving-the-rented-housing-sector--2/supporting-
pages/providing-affordable-homes-for-rent
16 http://www.insidehousing.co.uk/home/analysis/a-living-rent/7005792.article
17 http://www.policyexchange.org.uk/people/research/item/chris-walker
18
http://www.policyexchange.org.uk/images/publications/freeing%20housing%20associations.pdf
FreeingHousingAssociations:Betterfinancing,more homes,ByChristopherWalker(2014) P. 10.
19 Tony Quigley Interview.
20 Rent setting for social housingtenancies (England)

8. 6
far more geographical flexibility to rents, as rather than a “blunt” rate of 80% of
market rent being paid no matter where you live, in ‘Westminster it can be at about
20% of market rates, but in Bexley it might be 70%’21 as explained by L&Q Chief
Executive David Montague, it appears to be a much better way of making rent
tangibly affordable.
However, there are unknown issues which arrive with this model and Tom
Titherington foresaw one during his interview. He stated that it would be impractical
due to the amount of intensive management needed to implement it,22 which is
understandable as it would be extremely complicated to monitor each resident’s level
of income. Nonetheless, L&Q have announced that throughout their upcoming
developments they are going to take ‘an average wage of tenants in each postcode it
operates in, and then set rent for this area at 35% of this average’23 specifically to
conquer this issue and enable them introduce a rent-linked-to-income model.
Shared Ownership (SO)
SO enables buyers to purchase a percentage of their property ‘typically between 25-
75%, and pay rent on the remaining share retained by the landlord’24. Purchasers
are then able to “staircase” up the amount the percentage they own over time, until
Standard Note: SN/SP/1090
Last updated: 5 January 2015
Author: Wendy Wilson
Section Social Policy Section
21 http://www.insidehousing.co.uk/business/development/land-and-construction/lq-to-build-16500-
genuinely-affordable-homes-without-
grant/7009006.article?utm_source=Housing60&utm_medium=email&utm_content=article_link&utm_campai
gn=H60
22 Tom Titherington Interview
23 http://www.insidehousing.co.uk/business/development/land-and-construction/lq-to-build-16500-
genuinely-affordable-homes-without-
grant/7009006.article?utm_source=Housing60&utm_medium=email&utm_content=article_link&utm_campai
gn=H60
24 https://anthonygold.co.uk/latest/legal-insight/shared-ownership-and-its-future-as-a-mainstream-tenure

9. 7
they own their property outright. However, only 0.8% of homes in England are
occupied using SO,25 and ‘only 27,908 have been “staircased” up to 100%
ownership since 2001’26. This though is not a result of the tenure being unpopular, as
verified by the fact that ‘levels of applications in each of the last two years
approached 7,000 but annual completions peaked at (only) 913’27. Rather it is due to
a lack of supply, however with house prices increasing by 19.6% in London and
11.7% nationally between August 2013 and August 2014,28 demand for SO is only
going to increase further.
If HAs can be innovative in the way they deliver SO homes, they can take
advantage of huge market demand. Additionally, not only will the higher provision of
homes in general bring down the overall cost of housing in the locations where they
are built, but SO will also make joining the property ladder affordable for a much
larger percentage of the population. Thus, in order for HAs to utilise this opportunity,
they must tackle the issues preventing them from increasing supply and fortunately,
in December 2014, some of these issues were identified. They included;
1) SO being seen as complex, and potentially higher risk, by financial
regulators.29
2) Local Authorities tending to seek ‘best value’ for land on the open market,
and only including it to discharge a Section 10630 obligation31.
25 https://anthonygold.co.uk/latest/legal-insight/shared-ownership-and-its-future-as-a-mainstream-tenure
26 http://www.theguardian.com/housing-network/editors-blog/2012/jul/06/shared-ownership-flexible-
housing-market
27 http://www.cih.org/resources/PDF/Policy%20free%20download%20pdfs/Shared%20Ownership%202.0.pdf
P. 3.
28 http://www.ons.gov.uk/ons/rel/hpi/house-price-index/august-2014/stb-august-2014.html
29 http://www.cih.org/resources/PDF/Policy%20free%20download%20pdfs/Shared%20Ownership%202.0.pdf
30 A mechanismwhich make a development proposal acceptablein planningterms,that would not otherwise
be acceptablerestrictthe development or use of the land in any specified way.I can require; specified
operations or activities to be carried out on the land,the land to be used in any specified way, a sum or sums
to be paid to the authority (or, to the Greater London Authority) on a specified date or dates or periodically.
31 http://www.cih.org/resources/PDF/Policy%20free%20download%20pdfs/Shared%20Ownership%202.0.pdf

10. 8
Unfortunately these issues are not within HAs own control, which makes it difficult for
NHG to create effective change. However in 2013 the National Housing Federation
(the HAs political lobbyist) held ‘SO Week’32, an initiative which has not been
repeated since. NHG could propose to the National Housing Federation that they
believe another initiative similar to this is required this year, and highlight that rather
focus on attracting potential customers to the tenure, like the 2013 event,33 it should
target financial regulators and Local Authorities to try and address the two issues
above.
However, the government already promised a review of SO ‘to identify and lift’
barriers to its popularity in last year’s autumn statement,34 which – when it happens –
could confront some of these issues. A more entrepreneurial solution was alluded to
by Tony Quigley during his interview. He explained that the only organisations
capable of building mass SO homes are Private Developers, due to the low
development costs they can achieve through economies of scale, meaning a return
on their investment does not have to be so sudden.35 Therefore, one option for NHG
may be to approach such a developer and propose a partnership in widespread
delivery of SO homes. The benefit of this for the private developer would be quick
and efficient reaction to Section 106 Agreements, and NHG would be able to absorb
more affordable homes into its ownership, for a lower development cost than it would
be able to achieve independently.
32 http://www.housing.org.uk/get-involved/shared-ownership-week-2013/
33 http://www.housing.org.uk/get-involved/shared-ownership-week-2013/
34 http://www.insidehousing.co.uk/housing-associations-could-lose-shared-ownership-first-
refusal/7008055.article
35 Tony Quigley Interview

11. 9
Private Rented Sector
The Private Rented Sector has grown extensively in the last few years, in 2013 the
sector accounted for ‘around 4.8 million homes…having risen from 3.4 million in
2005.’36 It is an attractive option for HAs, not only because there is obviously a
market demand for it, due to the large increases in house prices which has made
home ownership vastly unattainable and renting more popular, but also because
HAs will not have to obey the same rent setting legislation which they have to under
“affordable” tenures. Rather the rent can be set at any level the HA deems
appropriate, and the market will respond accordingly.37 This is beneficial to HAs
because, similarly to the rent-linked-to-income model aforementioned, they will be
able to take an individual’s circumstances in to account, and also redistribute profits
from one area’s rents to another, in order to suit their tenant’s needs. Titherington,
expressed that an overall fluidity of the Housing which Catalyst owns would be the
ideal situation in his opinion, as then rents could be adjusted and shifted from a
social rent level to a full market level or vice versa, over time, in response to what the
market is like, making tenancies affordable and sustainable.38 The Private Rented
Sector is a good step in this direction, simply because of the freedom it gives HAs.
Miranda Plowden highlighted that there are further benefits to it as well. ‘Through
Crucible (South Yorkshire Housing Association’s Letting Agents) we can offer some
of our customer’s access to a tenancy in the private rented sector. We benefit
through the letting fees or through managing properties on behalf of other
36 http://prsupdate.co.uk/2013/05/are-housing-associations-ready-to-tackle-the-private-rented-sector-2/
37 http://www.housingadviceni.org/understanding-rent-how-it-set-and-what-do-if-you-cant-pay
38 Tom Titherington Interview

12. 10
landlords.’39 Thus providing further revenue streams and subsidising some of the
income HAs will lose from not selling the homes as an alternative.
However, Gavin Smart has highlighted that although HAs would be able to set
their own rents, HAs ‘will have to consider a huge number of factors – not just the
area the property is in but things like; what side of the street it is on, what floor the
flat is on and how it has been furnished etc. All these little variables can make a
difference’40 to the overall rent levels and could mean that flexibility to set rents at
varying levels may not be as straightforward as it initially seems. This is supported
by the further warnings offered by ‘Andrew Cunningham, chief executive of Grainger
(the UK’s largest specialist listed residential landlord)’41. He states that in the Private
Rented Sector;
• Tenants have greater freedom to move. If they don’t get a good service, they
vote with their feet, making it vital to fill voids quickly.
• Properties also need to be designed for rent, especially with a view to
reducing maintenance.42
HAs must be aware of all the issues if they wish to use the private rented effectively
in the endeavours to create more genuinely affordable housing.
Critique of Existing Research
Due to the funding cuts only being introduced in 2010, the current conditions in
which HAs are operating in are still quite new, especially as it can easily take five
years for a development to progress from start to finish. Therefore we are only really
39 Miranda Plowden Interview
40
http://prsupdate.co.uk/2013/05/are-housing-associations-ready-to-tackle-the-private-rented-
sector-2/ MAY 20, 2013 BY GavinSmart
41
http://www.d4multimedia.com/genesis/Social-hearted.pdf
42 http://www.d4multimedia.com/genesis/Social-hearted.pdf

13. 11
seeing short-term results of how the affordable tenures will work with these cuts, and
also within an economic recession and housing crisis. Thus, this report and the
research conducted might be slightly premature in suggesting innovation and change
is required, as positive changes may appear under differing circumstances, in years
to come. Further to this it must be recognised that there is a distinct difference
between housing in London and housing elsewhere in the country, meaning that
some the evidence used may have been more accurate in one area than another
and therefore not all-encompassing.
Critique of Report Methodology
This report has gaged which options are available to NHG, and which of those are
most likely to be introduced most effectively. However, it is realised that the research
conducted to support this only includes the opinions of three representatives from
other HAs. It is also true that research into what others have done may not provide
NHG with truly innovative ways of modifying the tenures it offers. The report could
have focused on what NHG itself could do internally and immediately to encourage
innovation, however it is hoped that this report will act as a catalyst for this to occur
in the near future.

14. 12
3. Recommendations
Rent-Linked-to-Income(L&Q model)
Strengths
 Will make rent tangibly affordable for a much greater percentage of the
population than at present.
 Will allow for rents to move in-line with an economic factor which
tenants themselves have some control over.
Weaknesses
 Will involve heavy management.
 It has the potential to create large wealth gaps in each local area, as
those whose incomes are at the high end of the local average will see
their level of disposable income rise, while those on an income below
average could see their rents rise.
Verdict
 Rather than implement this tenure immediately, it is suggested that
NHG support L&Q with their upcoming projects, either through
additional finance or human resource, in order to learn from these
developments and re-assess whether this model of working will be
effective or not for future NHG developments.
Expanded SO
Strengths
 Large market demand which is currently not being serviced.
 A flexible tenure from a resident’s perspective as they are able to buy
as much or as little of the property as they can afford and “staircase”
up.
Weaknesses
 It is still a relatively expensive housing option for many people.

15. 13
 Needs to be worked upon by government to give financial regulators
confidence in it and ensure Local Authorities look to implement it on a
more frequent basis.
 It is unlikely NHG will be able to produce SO homes on a mass scale
without the help of a private developer.
Verdict
 Unless NHG can find an effective way of lobbying government, it is
unlikely that it will be able to increase its supply of SO homes. This is
unless they are able to partner with a private developer who will be
able to keep construction costs down and facilitate the building of more
SO homes. However due to geography restricting many HAs, including
NHG, it is unlikely that any Private Developer big enough to keep
construction costs down – ones operating on a national scale – will be
able to effectively partner with just one HA, making the process overly-
complicated an unattractive for them. Consequently, it is recommend
that NHG does not focus its effort on innovating this tenure.
Private Rented Sector
Strengths
 Huge demand and expected to continue to grow.
 Gives HAs freedom to set rents at whatever level they deem
appropriate, and therefore suit the needs of their tenants.
 Additional income can be made through letting fees and managing
other landlord’s properties.
Weaknesses
 No short-term financial benefit to building the house, meaning HAs will
have to be financially strong to provide this type of housing.
 HAs have to be aware of the many factors which can cause increases
and decreases in rents in the private sector. They may not legislated to
put rents at a certain level but market powers may control them just as
strongly.

16. 14
Verdict
 From this evidence it is clear that NHG should move into this sector as
it will give them the opportunity to set their own rents and therefore
create genuinely affordable housing for each resident it financially can.
However, in order to make this sustainable it should carefully collect
data from any of its activity in this area to lobby government on a more
general basis regarding rent setting in the future, to move to a more
fluid housing stock model, as suggested by Titherington. This will in the
long-run allow NHG to create genuinely affordable and sustainable
tenancies in all geographies it is in operating in.

17. 15
4. Conclusions
Overall then it is clear that of the three tenures explored within this report, the two
which NHG can innovate and most effectively implement are Rent-Linked-To-Income
and a move into the Private Rented Sector, and of these it is the Private Rented
Sector which NHG should pursue immediately. This is due to the potential risks
involved with introducing a Rent-Linked-To-Income, which is why it will instead be
more beneficial to get involved in another L&Qs project from the periphery and learn
from the results of that.
From completing this assignment I have learnt much more about the wider
activity and context of HAs than I previously knew, and consequently it has made me
understand the current issues which NHG faces, which are larger than the
challenges of its everyday operations.
Word Count: 3294

18. 16
Bibliography
