HOUSING AND CONSULTANCY SERVICES

South West Housing Event April 2013

Jon Lloyd-Owen – 07880 043574 jonlloyd-owen@sector-group.com

Glenn Smith – 07825 316786

gsmith@sector-group.com

Transforming the local authority housing business Making the most of HRA self-financing

2

Introductions

• Who we are

− Broad-based housing consultancy

− Previously from Tribal, Sector Weedon Grant & HACAS Chapman Hendy

• What we do

− Innovative solutions to current housing problems

− Assist evidence-based decision-making

• More about you

− How many work for a local authority or ALMO?

− How many of your authorities retain a housing stock?

3

Focus for this session

• Key questions under HRA Self-financing

− Opportunities for authorities with retained stock

− Opportunities for transfer authorities

• Experience so far

• Making the most of the opportunities

− Meeting the opportunities

− Making sense of the evidence

− Pulling it all together

• Potential new development options

• Filtering the options

Please ask questions as we go

4

Self-financing changes in a nutshell

• End to the housing subsidy system for stock-owning authorities

• Debt allocations based on net present value of 30 year projections of subsidy allowances & assumed rents

• Recognition that it costs more to manage & maintain the stock than allowed for by the subsidy management and maintenance allowances

• End to capital receipts pooling (replacement mechanism for RTB receipts)

• Rents still to be controlled centrally through social rent policy & rent convergence, but no financial mechanism for Government to encourage compliance

• Authorities are responsible for their own debt (within debt cap constraints)

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Key questions

• HRA borrowing levels Max debt or repay early?

• Tailored rent policy/ Affordable rents Max income vs. affordability?

• Local stock investment standard Decency or a higher standard?

• Rebalancing/ Rationalisation Is this the stock we need?

• Self-build programme What can we afford to build ourselves?

• Development partnerships How can we work with others to achieve more?

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Key questions

Q. How many of you have started exploring these questions?

Q. What interests your members and tenants most?

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Experience so far

• We are seeing a wide variety of priorities from different clients

− Some are focusing primarily on new build/ supply

− Some are looking at investment standards

− Some are reviewing the suitability of their existing stock

− Others are concerned with rent levels

• Typically the approaches taken are multi-faceted

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Meeting the opportunities

Resources

Policy

Evidence

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Meeting the opportunities

Resources

• Finance

• Assets

• People

• Partnerships

Policy

• Debt

• Rent

• Housing strategy

• Partnership working

Evidence

• Business Plan

• Stock Condition

• Supply

• Demand

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Making sense of the evidence

Q. What information do you hold & monitor on your stock?

Q. What types of analysis do members like to see?

Q. How informative is that analysis?

Q. What flexibility is there to present different facets of the stock?

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Evidence – stock breakdown

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0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Be

dsp

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Archetype

Stock Breakdown

1 Bed

2 Beds

3 Beds

4 Beds

5 Beds

6 Beds

0 Bed

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Evidence – estate size

Properties by estate size

20 or fewer

21 to 50

51 to 100

101 to 200

201 or more

Non-estate properties

Estate size bands

No.

Estates

No.

Units % of stock

Average

estate

(units)

20 or fewer 28 302 3.36% 11

21 to 50 25 781 8.68% 31

51 to 100 11 699 7.77% 64

101 to 200 6 850 9.45% 142

201 or more 2 2,290 25.45% 1145

All estates 72 4,922 54.71% 68

Non-estate properties 4,075 45.29%

Total 72 8,997 100.00%

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Evidence – stock mix, demand & lettings

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10

20

30

40

50

60

Bedsit & 1 bed 2 bed 3 bed 4 bed

% Current Stock Mix, Demand & Lettings

Demand Profile Current Stock Mix Lettings

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

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1,000

1,500

2,000

2,500

3,000

3,500

4,000

Bedsit & 1 bed 2 bed 3 bed 4 bed

Units & stock mix by bedrooms at years 1 and 10

Units at year 1 Units at year 10 % Mix at year 1 % Mix at year 10

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Evidence - metrics

0

1

2

3

4

5

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Voids by Bedsize

% of stock

% of voids

1 - Pre 1945 small terrace houses (small: less than 70 square …

2 - Pre 1945 semi detached houses

3 - All other pre-1945 houses

4 - 1945-64 small terrace houses (small: less than 70 square …

5 - 1945-64 large terrace/semi-detached/detached houses …

6 - 1965-74 houses

7 - Post 1974 houses

8 - Non trad houses

9 - Pre 1945 low rise flats (1-2 storeys)

10 - Post 1945 low rise (1-2 storeys)

11 - Medium rise flats (3-5 storeys)

12 - High rise flats (6 or more storeys)

13 - Bungalows

Voids by Archetype

% of stock

% of voids

No. Beds No. %

1 861 30.16%

2 592 20.12%

3 298 13.44%

4 63 15.29%

5 10 15.87%

6 0 0.00%

0 - Bedsit 192 38.63%

Grand Total 2,016 22.41%

1 & Bedsits 1,053 31.41%

Dwellings with at least 1 void in the

last 5 years

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Evidence – financial contribution

£0

£10,000

£20,000

£30,000

£40,000

£50,000

£60,000

£70,000

£80,000

Archetype Contbn/ Unit - Years 1 to 20

£0

£20,000

£40,000

£60,000

£80,000

£100,000

1 2 3 4 5 6 0 - Bedsit

Bedsize Contbn/ Unit - Years 1 to 20

£0

£10,000

£20,000

£30,000

£40,000

£50,000

£60,000

£70,000

£80,000

Estate Contbn/ Unit - Years 1 to 20

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Meeting the opportunities

Resources

Policy

Evidence

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Policy choices

Rent policy

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Policy choices

Rent policy

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Policy choices

Q. To what extent have you revisited key policies under self-financing?

Q. What appetite is there for change?

Q. Do members know that they have greater freedom to make local policy choices?

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Meeting the opportunities

Resources

Policy

Evidence

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Resourcing

People

Finance

Assets

Incentives

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Resourcing

People

•Project team

•Decision-makers

•Advisors

Finance

•Budget/ Balances

•Debt

•Capital receipts

Assets

•HRA Land

•Dwellings

•Non-HRA assets

Incentives

•Discounted land

•Planning rules

•Financial

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Resourcing

People

•Project team

•Decision-makers

•Advisors

Finance

•Budget/ Balances

•Debt

•Capital receipts

Assets

•HRA Land

•Dwellings

•Non-HRA assets

Incentives

•Discounted land

•Planning rules

•Financial

Project team

Steering group

Skills & Remit

Outcomes

Partnership

Profit

Operational

Contributing

Realisable

Actuals

Business plan

Sensitivities

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Resourcing

Q. Who are the principal decision-makers for your authority?

Q. How well-equipped are they to evaluate and choose between strategic options?

Q. How often do you monitor progress against the HRA business plan?

Q. Which of your assets are making the greatest contribution?

Q. How is the authority linking incentives to HRA self-financing at the moment?

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Pulling it all together

Business Plan

Property-level modelling

Rents Stock

investment Operating Costs

Estate/ Block level

modelling

Redevelopment options

Summary information

Stock attributes Metrics

Resources

Land & Receipts

Housing Need

Supply Demand

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Showing the impact on the HRA

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0

50,000

100,000

150,000

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Base - Debt Cap Base - HRA CFR Base - Revenue Balance

Scenario - Debt Cap Scenario - HRA CFR Scenario - Revenue Balance

£000 Debt Profile Graph

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Showing the impact on stock investment

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£000 Funding Provided for the Capital Programme

Scenario - Capital Programme Scenario - Unfunded Capital Expenditure

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Pulling it all together

Q. How does your authority usually pull its spending & investment plans together?

Q. How often are these reviewed & updated?

Q. Who is keeping these plans on course?

Development Objectives

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Why develop?

• New affordable housing

• Releasing under-occupied stock

• Stock rebalancing

• Management Economies

• Regeneration

• Providing quality rented housing

• Building the local housing business

Q. What are your local objectives and priorities?

New development options

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HRA Direct Development

Stock Reform Partnership

Deferred Purchase Partnership

Investor – Operating Lease

General Fund Development

HRA direct development

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Self-build using HRA borrowing capacity and revenue surpluses

• On HRA land – infill and estate regeneration; or other council land and privately acquired land

• In competition with resources for stock investment needs

• Commuted s106 funding and RTB receipts could be applied

• Debt cap limits level of development

Q. Does the scale of development possible under the HRA debt cap meet your Council’s ambitions?

Stock Reform Development Partnership

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• To support stock rationalisation, rebalancing and optimisation

• Releasing value through void stock transfer and re-investment

• Transfer to RP (or JV) for use as affordable rent housing

• Net receipt recycled to RP (JV) for investment in new homes

Issues:

Alternative to disposal – units available to meet housing need

Transfer could be to Council ALMO or SPV – but consent required and GF borrowing

Receipts could be used through HRA but debt cap will limit development capacity

Q. Are you considering selected disposals – could transfer and re-investment be an alternative?

RP Deferred Purchase Partnership

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• Council provides land at low-value

• RP builds and owns new housing to meet local needs

• Council has nominations

• HRA has future call option to purchase units

Advance RP new-build for later HRA Purchase

Council – disposal

RP develops and finances

RP owns and manages

Assured Tenants

HRA Call option

RP Deferred Purchase Partnership

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• Affordable housing supply brought forward and increased

• Potential for Rolling programme of:

• RP development

• HRA purchase

• RP re-investment in next phase of development

• Land investment recovered

• Option to retain as affordable or dispose and take capital growth

• Alternative to Council land disposal

Q. Would such a partnership with an RP be of interest?

Investor-Lease Development

35

Joint Venture Vehicle

Council

RP/Third Party

Investor

Investor Lease

and Lease-back

Council (HRA)

under-lease

New-build investor lease-back supported by HRA

• Council SPV or JV develops new rental housing on its land

• Long lease sold to investor

• SPV takes finance lease-back

• Council HRA takes operating lease

Investor – Lease Arrangement

36

Issues

• SPV (Council) responsible for meeting lease payments from rental income

• Demand risk and rental movement risks with Council

• Could be GF development approach only or with HRA for affordable units

• HRA Revenue surpluses provide additional support, subject to lease treatment

Q. Is the level of financial risk to the Council acceptable?

Is this an alternative to GF land disposal?

General Fund Development

37

New-build rental development using General Fund resources

• Council subsidiary or JV created to develop and own mixed-rental housing

• Council provides development finance and land

• Tenancies – ASTs will apply (could use fixed terms) and RTB does not apply

• Council takes demand and rental market movement risk

• Option for flexi-tenure – proportion of affordable flexes to assure viability over time

Q. Does your Council want to be a direct provider of quality rented housing?

Development Options - Overview

38

HRA Direct

• Debt cap limit

Stock Reform

• Disposal vs. Transfer and investment

Deferred Purchase

• Advance supply and long-term growth

Investor - Lease

• Advance supply

• GF commitment

GF Rental

• GF commitment

• Alternative to disposal

Ambition

• Local housing needs

• Member priorities

Resources

• HRA Headroom and surpluses

• HRA and GF land assets

39

Filtering the options

Plan A

Rent levels

Partner-ship

Self-build

40

Filtering the options

• Focus on what the council requires from its stock/ assets

• Agree a short list of potential strategic options

• Model strategic options & sensitivities through the business plan/ MTFS

• Assess the policies & resources required to deliver each option

• Use the business plan to measure what each option should deliver

• Present clearly the options & conclusions for decision

41

Any Questions?

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Contacts

Jon Lloyd-Owen

07880 043574

jonlloyd-owen@sector-group.com

Glenn Smith

07825 316786

gsmith@sector-group.com

www.sector-group.com

43

Sector

Sector is the trading name of Sector Treasury Services Limited, which is authorised and regulated by the Financial Conduct Authority (FCA) for the provision of the investment advisory services it provides as part of its treasury management service. Registered in England No. 2652033. Sector’s housing and consultancy services (excluding treasury management services) are provided by Capita Business Services Ltd, registered in England no. 2299747. The registered office of Sector Treasury Services Ltd and Capita Business Services Ltd is 71 Victoria Street, Westminster, London SW1H 0XA. We operate as part of Capita plc.