Social housing funding and regulation in England

Last updated 15/04/2011: any recent updates in this colour.

This page contains information about the following:

Overview

In 2007 the government initiated two reviews of social housing (Hills and Cave) as well as publishing a housing green paper. This led to the introduction of the Housing & Regeneration Act 2008, which received Royal Assent in July 2008, making provision for:

setting up of a new Homes and Communities Agency (HCA) with a national role as the investment vehicle for affordable housing and regeneration; and
establishment of a new regulator, the Tenant Services Authority (TSA), and a new regulatory framework which allows the scope to include both housing association and local authority owned stock.

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2011-15 Affordable Homes Programme Framework

The Homes & Communities Agency issued its investment prospectus on 14 February 2011 inviting bids by 3 May 2011 from registered providers who wish to use the new affordable rent model. Contracts are due to be signed by July 2011. Lenders support the new model in principle provided there is sufficient flexibility for providers on level of rent to be charged up to 80% and on disposals to allow them to manage the market and revaluation risks. The uncertainty around welfare reform and changes to the existing housing benefit system heighten the risk of the new affordable rent model. This will need to be reflected in assumptions on cash flow and valuation as well as the capacity released through use of the model.

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TSA consults on changes to its regulatory standards

The CML has responded to consultation from the TSA on the changes that it needs to make to its existing regulatory standards in relation to tenure and rent. This is so that a registered provider who gets agreement to use the new affordable rent model can still meet regulatory standards.

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Localism Bill introduced

The localism bill was introduced on 13 December 2011 and sets out proposals around changes to local democracy to devolve decision making and control to local authorities and on to communities, to reform the planning system and make changes to regulation of social housing as well as to how council housing is financed. The CML issued a briefing to MPs focusing on the regulatory proposals and will be proposing amendments to further strengthen the independence and governance of the proposed new statutory regulatory committee within the HCA.

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DCLG consults on social housing reform

The CML has responded to the government's consultation on its proposals for reform to the social housing sector covering allocations, tenancy, mobility, homelessness, regulation of social housing and council housing finance. Our response focused on the new affordable rent model and asked for more clarity on a number of areas including valuation, interaction with housing benefit and welfare reform and the role of the regulator.

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Outcome of the review of regulation October 2010

The Housing Minister, Grant Shapps, announced a review of regulation of the social housing sector on 24 June 2010 at the Chartered Institute of Housing conference at Harrogate. The review looked at the role and purpose of the current regulator, the Tenant Services Authority, as well as the framework for regulation. The review was part of the government's work to reduce the number of quangos in existence overall.

The review team at Communities and Local Government engaged fully with the CML during the period of the review. The CML on behalf of lenders lobbied for the continuation of economic regulation i.e. the oversight of the governance and viability of housing associations as well as the sector as a whole.

The outcome of the review announced in October 2010 confirmed that in order to maintain lender confidence and protect taxpayers, proactive economic regulation of housing associations should continue as now but with more focus on value for money for the taxpayer. Consumer regulation will be reactive and focus only on intervention where issues cannot be resolved locally.

The review also confirmed that regulation would be transferred to the Homes & Communities Agency and the Tenant Services Authority would be abolished.

The timescale for these changes will be no earlier than April 2012 with any legislative changes being included in the localism bill which is due to be introduced in November 2010.

The CML on behalf of the social panel of lenders welcomes the commitment to ensuring that there is a regulatory environment that ensures housing associations continue to command the confidence of lenders and can continue to attract investment at competitive rates. We will now work closely with CLG, the TSA and HCA during the transition period.

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Tenant Services Authority (TSA)

Strengthening regulation

The TSA has worked closely with stakeholders and the sector to strengthen the focus on financial viability. This has been as a result of a changed external environment for the sector with housing market and economic downturn and the first insolvency in the sector of Ujima Housing Association in 2008. Many of the larger housing associations have a business model based on cross subsidy from sales and had increased reliance on shared ownership in particular. The funding liquidity issues have affected both corporate funding to housing associations but also mortgage availability for shared ownership / equity.

The report into the Ujima insolvency case highlighted several areas where regulation needed to be updated and in particular powers for intervention and enforcement increased. The Housing & Regeneration Act 2008 sets out new powers and changes to the insolvency process as a result of the inquiry and feedback from CML and lenders. A summary of the review report and responses is available for members.

It is envisaged that these intervention and enforcement powers will remain in place and be unchanged as a result of the review of the TSA and transfer of regulation to the HCA by April 2012.

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The regulatory framework for social housing in England

The TSA published their new regulatory framework on 16 March 2010. The new regulatory powers and domain regulation within the Housing & Regeneration 2008 are in place from the 1 April 2010.

The CML on behalf of lenders welcomed the new regulatory framework and increased range of powers now available to the TSA. A key focus of the new regulatory regime is on the core elements of governance and viability and there is a recognition of the importance of robust independent regulation in sustaining the confidence of lenders and investors.

We have worked closely with the TSA as they undertake their risk and assurance role in respect of the housing sector and particularly in relation to housing associations to ensure the sector is financially viable. Our focus has been on ensuring that the financial regulation work is adequately resourced within the TSA and that it looks at external and market risks as well as short term solvency and medium to long term viability of associations.

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Homes and Communities Agency (HCA)

Outcome of the review of the HCA

As well as a review of regulation and the TSA, the Housing Minister announced a review of the current role of the Homes & Communities Agency. This review has also concluded and the HCA will not be abolished but it is likely that their role in future will be more strategic and less around direct delivery of public investment.

More detail about how the HCA will operate will be be available during November and December 2010. Arrangements to transfer the regulation role to the HCA will be developed over the next year or so and it is envisaged that a statutory committee within the HCA will undertake this role.

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Background

As well as deciding upon a single regulator the government announced their intention to separate affordable housing investment from regulation and to bring it together with regeneration investment in a single 'super' agency. The HCA brings together the role of both English Partnerships and the Housing Corporation investment activity.

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The new agency has taken on existing programmes such as the National Affordable Housing Programme (NAHP) and the decent homes programme as well as developing new tools and stimulating both supply and demand of the market. This has include a kick-start programme to work with private developers to try to maintain some momentum in the housing market during the recession and slow recovery. Also a private rented sector initiative to stimulate institutional investment in this sector.

The HCA has a role in bringing forward private sector funding and works with the banking and financial sector as well as new investors to develop new public private finance models.

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Consultation on principles of recovering social housing assistance

Clearly going into a period of reduced public expenditure will be challenging for the HCA and they have recently consulted on principles for recovering grant paid to housing associations and other providers together with an uplift for rises in value (or share of any reduction in value). The CML has responded to this consultation stressing the need to avoid an overly complicated or draconian approach that would deter future delivery of affordable housing by housing associations.

The HCA has put this issue on hold pending the outcome of the comprehensive spending review 2010. .