Background · Web viewPurpose This independent study is initial research to test the feasibility of establishing a local lettings agency, (LLA), in the North East region. There is

North East Region Inside Housing Solutions

LLA Feasibility StudyOptions & Development Report

July 2013

North East Region Inside Housing Solutions1

Background

Purpose

This independent study is initial research to test the feasibility of establishing a local lettings agency, (LLA), in the North East region. There is a concern that with welfare reforms, that affordability and accessibility of the private rented sector (PRS) is going to reduce, resulting in an increase in persons presenting as homeless, giving a knock on effect of the rising use of expensive and unsuitable temporary accommodation (including bed & breakfast) nationally and in the region.

Therefore a structured, affordable and sustainable approach to procuring and sustaining good quality, affordable private rented housing is required.

This study was commissioned to assess whether a Local Lettings Agency might be able to deliver this for the 12 Local Authorities in the region, or whether other services and schemes might be more appropriate and viable.

The study gathered information about the current market, what issues exist that could influence the development and delivery of such a service and presents recommendations regarding a LLA model, finance, other services that might influence and assist PRS procurement, affordability & availability of accommodation, timescales and critical factors.

This study on its own should not be regarded as a comprehensive business plan for a LLA in the region, and it is strongly recommended that further work is undertaken to finalise a LLA model and business structure/plan should you decide to proceed with development of a LLA.

Methodology

In order to ensure the study is relevant, we carried out the following research;

Design bespoke questionnaires for senior housing managers in all 12 districts Interviews with key Council staff from the 12 districts Interviews with a number of local Landlords and Letting Agents who currently work with the districts

housing homeless households in the private sector. Mystery shopping exercise of regional High Street and online Letting Agents Interviews with existing ‘Social’ Local Letting Agencies in other parts of the UK SWOT analysis (to consider the external and internal issues which a LLA might encounter) PRS procurement, affordability and availability research across all regional postcodes


The contact details for Officers, Landlords and Letting Agents we formally interviewed were provided by the districts. The ‘Social’ Lettings Agencies were chosen from existing contacts that we had, and only LLAs that were fully developed and operating were used, so that a full picture of the issues involved in bringing a new business to market and operating it successfully, could be analysed.

Detailed information on the processes, methodology, raw data gathered and results of the research are contained in Appendices A, B, B1 & B2.

This study is not a detailed business plan. However, we felt it was a vital part of this study to identify a possible financial plan for a regional LLA, so that it’s viability could be measured sensibly by studying how it could be structured, including an operating budget and cash flow forecast for at least two years.

This financial plan will need further development dependent upon how you decide to proceed, resources available and the targets that you set for properties procured. At this stage, it is intended as a guide to how a LLA might be set up and operated. A detailed financial plan is outlined at Appendix C.

Current Position

Procurement & Sustainment

Across the region a range of Rent Bond, Cash Deposit, Leasing and other Private Sector Access schemes are operated. Some of these schemes are operated through 3rd parties (such as Aquila Way and DISC) and some are operated in-house by the districts. As might be imagined, to be able to detail staff resources, properties procured and sustained, savings made (against Temporary Accommodation costs) and financial costs of all of these schemes is nigh on impossible.

Indeed our research showed that many of the schemes themselves do not have this accurate data. For example, in some schemes staff resources for this work may be spread across a number of officers’ time, and processes and responsibilities have developed over time and on a slightly ad-hoc basis. Therefore accurately assessing the current cost (financial and staffing) of the schemes is not possible.

Ongoing support provided to private sector tenancies is perhaps even more difficult to quantify. The main reason for this is that the majority of Councils in the region tend to provide support on an ‘as needed’ basis in order to prevent homelessness. Some more structured support, both pre-tenancy and ongoing is now part of private rented sector tenancy set up in parts of the region, but monitoring the effectiveness of this support, is not consistent.

Despite this, ‘support’, however it is provided, is hugely important in creating and sustaining private rented sector tenancies, and whatever course of action is taken by the region, the structuring, marketing and


implementation of this support should be formalised so that the benefits we all know this brings, can be seen by Landlords and Tenants.

There are some very good and effective schemes being operated in the region, meeting local demand and assisting households sustainably into the private rented sector.

However, what can be said with certainty is that the schemes that are running across the region are having increasing difficulty procuring affordable properties in the private rented sector. The market research undertaken as part of this project shows that welfare reform changes coming later this year are only going to make procurement and sustainment of properties in the private rented sector more difficult.

Because the proposed changes to subsidy on leasing schemes is very much an unknown at the moment, increasing the use of leasing schemes should be approached with caution as there could be significant financial liabilities in running a leasing scheme where rent has been agreed with Landlords, but reduced subsidy no longer makes this profitable for the provider.

Additionally, accommodation procured through leasing schemes is more ‘temporary’ by its nature and as such schemes in their current form could not be used to discharge the Councils housing duty to individuals.

Regional partnership issues

If a regional Local Lettings Agency is going to be viable and effective, the following general issues need to be addressed;

Districts need to decide whether they wish to genuinely work together, developing a LLA. Districts have different demands, services and resources allocated to private rented sector work. Additionally, districts operate under different market conditions, meaning procurement issues vary across the region. Both these issues are to be expected. It is clear from this project, that some districts are not convinced that regional working is the most effective approach to meeting PRS demand in their area. This is not a criticism of that understandable viewpoint, but if a ‘new regional LLA’ were to be developed, it’s success or otherwise is to a large extent down to the passion and drive of those who wish to be involved.

How properties and households will be allocated. A LLA procuring across the region will be more successful procuring in certain areas. This may be down to affordability, market issues or simply links forged with a particular supplier in an area. For the scheme to operate in an open and honest way with partners, any allocation of properties needs to have the agreement of all parties, and be part of a transparent process.

A LLA must operate with a commercial focus. This is both in terms of the product to be offered as well as the service received. Therefore any regional LLA must have certain autonomy and flexibility to compete


in a commercial environment. Therefore reporting structures and management would need to reflect this.

Procurement in the PRS market is going to become increasingly difficult. Pressures from welfare reform, other Agents and out of area Councils will make it difficult for any new business to start up and be viable. Therefore if a LLA is developed, regular reality checks must take place to ensure that the LLA is not burdened with bureaucracy, unrealistic expectations or other issues that reduce its ability to be viable.

A LLA does not need to compete with existing schemes and Agencies, whether they are High Street Letting Agencies or Council Rent Bond schemes. Therefore a LLA should have its niche in the market to ensure that it has the best opportunity for success and is not simply another option for Landlords who might have worked with the Council anyway.

Local Lettings Agency (LLA)

A Local Lettings Agency operates in a very similar way to a High Street Letting Agent, in that they broker tenancies between Landlords and Tenants, but there are a number of key differences. LLAs are:

Often run by external or 3rd sector organisations, with the support of the Local Authority or by the Local Authority themselves. Their main aim is not to make a profit from housing those threatened with homelessness, to distribute to shareholders, but to stabilize the costs of homelessness in an area, by securing sustainable and affordable PRS accommodation

Specifically targeted at individuals and groups who would not normally be able to use a High Street Letting Agent, (due to costs, referencing requirements etc.), this tends to be a large percentage of those presenting as homeless at a Council

Aim to provide a service more focused on supporting the tenant and tenancy Aimed at a specific group of people who may require more assistance than others, in finding and

sustaining PRS accommodation Often linked into other services or support, either through the hosting organisation or a partner agency Able to offer a different style and depth of service to High Street Letting Agents. However limitations

need to be recognised and alternatives provided where possible (i.e. referencing of tenants) Not private sector access schemes (e.g. Rent Bond scheme) that simply charge for their services

This last bullet point is the most crucial to understand. In order to develop a successful sustainable LLA, the best aspects of Local Authority private sector access work must be retained, (such as support for the tenant and good Landlord communication), but these need to be significantly developed, professionalised and marketed, particularly if you are going to be able to charge for the service.


Elements of a High Street Letting Agency will also need to be incorporated into the services provided by the LLA if it is to attract and retain Landlords at a level to meet current and likely future demand. The LLA needs to provide a Landlord with comparable level of service to existing Agency services, without merely replicating the service those Agents provide.

So ultimately the challenge for a LLA to be viable in this region is not to just compete with existing Agencies, but to locate the gap in the market and ensure it is filled with a competitive and well marketed product.

Market Research and Business Analysis

Summary

For detailed information, see Appendix A

There are some clear issues that came out of the market research:

1. Due to welfare reforms, most Landlords or Agents are stating that they will need guaranteed rent or an equivalent to “direct Housing Benefit payments” if they are to consider letting properties to benefit claimants

2. Preconceptions regarding “poor quality” of Tenants on benefits are strong. Therefore a sensible approach to referencing, assessment and information sharing with Landlords needs to be developed

3. Availability of ongoing support for tenancies is an essential requirement to working with this client group as they are perceived to be “more hassle”

4. Points 1 – 3 above outline the perceived increased risk of housing benefit claimants as Tenants. Effective procurement in the PRS will only be possible if schemes can significantly reduce these risks for Landlords

5. Communication and more general customer service are not at a consistency or quality level that a commercial organisation would expect to provide. Existing LLAs also comment on the importance of communication with Landlords if development and launch of a LLA is to be effective

6. Accountability and professionalism. A ‘Council brand’ is perceived as a solid, accountable and sustainable brand. A LLA would need to focus on these ‘strengths’ and ensure that a LLA is perceived similarly. Doubts regarding professionalism and ability to deliver a high quality service remain

7. Conflict of Interest, could a Council backed LLA deliver a service (and range of services) to Landlords that was comparable with a High Street Agent without compromising their statutory duties?

8. In terms of fees and service, a LLA could charge, but the service provided would need to be of tangible benefit to Landlords and Agents and mitigate the other issues raised in this list

9. Staff and organisational skillset are vital to the success of a LLA as is an established financial plan10. Letting Agent fees are reducing significantly, (some now offer FREE services to Landlords and make their

money from the Tenant), so a realistic approach needs to be taken to what a LLA could charge Landlords


From a positive business point of view all these issues are capable of being addressed. Indeed a regional LLA, given autonomy to operate more commercially, suitably funded and structured might be the most effective way to deliver on the majority of them.

A Council backed regional Local Lettings Agency would have a number of strengths that could not be said of existing Letting Agent competitors on the High Street, allowing the LLA to develop a service that could potentially fill a niche in the market in this region. Opportunities such as welfare reform, an established presence in the market and the savings that could be made in the temporary accommodation budget make the development of a LLA enticing and with huge potential.

A major area for concern is whether it is possible to get a start up LLA business to a stage where it is generating an income and is stable. Once Universal Credit and other welfare reforms are fully embedded, then a LLA service would have a clear niche in the PRS procurement and management field. This research has demonstrated that a LLA that can effectively deliver on the bullet points below would have a tangible value to Landlords, and therefore a chance to be a viable if it could operate effectively as a commercial concern.

Reduce the risk (perceived or actual) to Landlords working with benefit claimants Assist claimants with ‘responsibility’ aspects such as self-managing their claim, budgeting and sustaining

their tenancy through appropriate behavior Offer ‘softer’ ongoing support to tenancies that may get into trouble, so that the tenancy can be saved

and relationships maintained

However, until the full impact of welfare reform is recognised, a LLA is a difficult business launch, even with the other positive factors in its favour. The demand for a LLA operating as above has not yet been clearly understood by the market and additionally there remain the following issues that mean we are not in ‘ideal circumstances’ at the current time;

The logistical issues of developing a business with many partners across a variable market and a large geographical area

Many Landlords still receive Housing Benefit direct, and may do so up until the end of 2017 Some of the 12 LAs involved do not currently see the need to embark on such a project, and to be fair to

those LAs, some of their markets do not justify such a venture The idea of LAs operating commercial services is still fairly new and as such is viewed with considerable

scepticism in some quarters, including importantly, potential customers, officers and funders

Additionally, what appear relatively minor issues, such as effective marketing, branding, rent collection, improving communication & professionalism, an efficient ‘back office’ monitoring and management system etc. would also need to be developed and trialed to make sure they could deliver a service as advertised.


Although touched on above, it is important to reiterate, as this would be a regional project, there is also a concern that a LLA could struggle with basic partnership working, bureaucracy and a common drive to take the business forward. For a project of this nature to work, partners need to be committed to taking the project forward and responsive to making changes that may be required as the business is developed.

Creating a regional LLA would be a huge step in any market, but more so given the reasons outlined above. Bearing in mind the market research, there are other more sensible, cost effective, yet still innovative steps that could be taken by the partners in this project to improve PRS procurement in the short term, and improve readiness to develop services further in the medium term.

In order to analyse how to deliver on improved PRS procurement and ‘future proofing’ of these services, we need to consider the issues coming out of the research and how we might best address these.

Business Analysis

Business Issue Considerations

Direct Payments to LandlordsGuarantors requiredHousing Benefit SystemWelfare Reform

Clear ‘Hassle free services’ for Landlords How to deliver regular, on time rent payments to Landlords Ensuring delivery of above effectively - back office systems Communicating welfare reform issues and LLA service

Perceptions about ‘quality’ of tenant

Support for Tenancy

Referencing / assessment tools to be developed Services to diminish the importance of this issue for Landlords

(guaranteed rent?)

Positioning as ‘welfare reform’ experts Identify ‘rapid response’ support that can be put in place Develop ‘tenancy ready’ branding for Tenants

CommunicationCustomer Service

Staff skillsetOrganisational skillset

Marketing and ‘brand’ to address these issues Structure of LLA set up commercially with autonomy Dedicated ‘Tenancy Managers’ assigned per tenancy 24/7 responses? Out of hours contacts? Communication tools, use of website, social media etc. Back office data management and monitoring tools Staff training and flexibility for staff

Accountability Marketing and ‘brand’ to reinforce these issues, partners


Professionalism developing a more safe, accountable and sensible approach to letting

Professional literature, policies, information packs, standards, terms of business, complaints policy, inspection procedures etc

Develop Landlords Consultation group

Conflict of Interest Marketing and ‘brand’ to address issues Structure and reporting of LLA to remove issue Autonomy for LLA and flexibility for staff Published standards & procedures Dedicated ‘Tenancy Managers’ assigned per tenancy Develop Landlords Consultation group Guaranteed rent / hassle free service

FeesLevel of ServiceProducts offered

Guaranteed rent / hassle free service New ‘tenancy ready’ service to complement current Council

Rent Bond Schemes Range of Letting Agent type services (i.e. EPC, gas safety certs,

tenancy agreements etc.) Ensuring delivery of above effectively - back office systems Strategy to revisit tenancies created under RBSs and offer LLA

service

Financial PlanSustainability

Regional working

Market

Clear financial plan Marketing and ‘brand’ to reinforce these issues, “safe,

accountable and sensible approach to letting”? Other 3rd party skills / external provider experience?

Realistic joint ventures with clear reporting and management structures

What services have value across different markets?

Is it ready for a LLA service, does that niche yet exist? What services are needed in the short term as well as longer

term planning?

How to create services and the financial planning for these services is looked at in the Service and Financial Planning section later in this report, and in detail at Appendix C.


Procurement & Affordability

Summary

For detailed information, see Appendices B, B1 and B2.

Before they can consider the logistics of ‘how to procure’, for any Local Lettings Agency (LLA) or Council procurement strategy to be viable, it needs to have a supply of affordable and available private rented accommodation in their procurement area and understand the market.

Appendices B, B1 & B2

Supply of affordable accommodation, and access to that accommodation, for clients in receipt of welfare benefits is reducing. During 2013 and beyond supply in the region will come under further upward pressure. Examination of the reasons for this is contained in the introduction to Appendix B.

An overview of affordability and availability of all accommodation types broken down by district is contained in Appendix B, as are colour coded maps which are designed to be visually simple in terms of identifying pockets of potential affordable supply.

Detailed data for affordability and availability of all accommodation types, broken down by each postcode in each district, is contained in spreadsheets in Appendix B1.

To ensure a primary focus was on solutions for single homeless, detailed data for affordability and potential availability if shared accommodation were to be created using traditional 2 and 3 bed properties, is contained at Appendix B2.

PRS General Procurement

As might be expected, levels of affordability are fairly good across the region relative to other regions. There are large areas of good affordability and availability in certain Council areas and general procurement by a LLA could focus on these areas, whilst also having success in other areas where affordability is more scattered.

Because of this, currently across the region a number of schemes are able to procure accommodation and place Clients successfully. However, there is a concern about the ability of some of these schemes to adapt and deal with the changing market and welfare reform. Additionally, none of the existing schemes, (whether LA in-house, or operated by an external organisation) would seem to have the need or desire to expand and develop a wider regional scheme that all the districts could access.


Because of the relative ease of procurement in some areas compared to others in the region, it is likely that a LLA would not be supported fully by all 12 LAs. Why develop a relatively high-risk new approach to procurement, if you can procure using your existing schemes and resources?

Therefore, a more sensible approach by the 12 partners at this stage may be to focus on what services would assist them to develop and improve their current schemes in light of welfare reform. Issues raised in the market research (Appendix A), such as “quality of tenant” and “ongoing support / responsibility” are areas where existing schemes could benefit from developing their approach, without the associated risk and expense of developing a full regional LLA.

It is also worth adding that from a competitive point of view, online Agents such as Tenants4U.com can offer Landlords a range of services at very low rates, therefore ‘affordable and available’ should not be taken as reading ‘easy to procure’. Services should still be developed and the competition assessed, as complacency about the current ease of procurement may lead to issues in the relatively short-term as the impact of welfare reforms becomes apparent to Landlords.

Any service still needs to be commercially competitive, so developing schemes (or a LLA) to provide a basic property management option, for example, is unlikely to make inroads into the market, as it very simply does not offer Landlords sufficient benefit when compared to the risk of letting to Clients on welfare benefits.

Creating Shared Accommodation

In order to create wider procurement for accommodation for single homeless, a strategy should be developed to work in the areas that are highlighted as affordable for creating shared accommodation. As can be seen in Appendices B, B1 and B2 there are even more of these areas, than for general procurement.

Shared accommodation is always more resource intensive in terms of management, so if a LLA was developed, then perhaps it could focus on procuring and managing this type of accommodation. The LLA would be very well placed to ‘sell’ the idea to Landlords of converting this accommodation to ‘shared’, by offering to manage the property or guarantee rent. Agents such as Tenants4U.com do not offer a comparable product for this market.

Additionally this type of LLA product, focused on developing, procuring and managing shared accommodation would not compete against existing Council schemes to the same extent as a wider ranging LLA.

Guaranteed rent still carries the benefits to the Landlord outlined elsewhere in this report. But, in these areas also can prove profitable to the LLA, due to the combination of multiple shared LHA rates being competitive, when compared with the market rent for renting the property to a single household. Therefore the procurement and conversion of these ‘typically single household’ properties to shared type accommodation can provide a potential profitable revenue stream for the LLA.


Additionally creating shared accommodation and the potential provision of that accommodation for single homeless people is a common goal that binds the 12 partners. The same cannot be said for general procurement of private rented sector accommodation with different markets, needs, demands and resources allocated to it across the districts.

Therefore, if the focus of a LLA was in creating and managing resource intensive shared accommodation, there is a strong argument for any other services that are developed to assist with general procurement (operating across the 12 districts), to also be embedded in the LLA to also ensure effective support for their tenancies.

Additionally, a ‘rent a room’ scheme might be a scheme that attracts some interest, particularly from occupiers of social housing who are affected by the social size criteria and this too could be a niche market for a LLA focused on shared accommodation.

Houses in Multiple Occupation (HMO)

In April 2010 the residential dwelling use Class 3 was split into two, C3 & C4. The definition for C3 was changed to specify those living together as a single household, and house sharing would now be classed under C4, even if not meeting the Housing Act definition of a HMO. This meant that a change from C3 to C4 would need planning permission, which could have been considered extreme if a Landlord just wanted to place 3 sharers together.

So in October 2010 the Government introduced a permitted change from C3 to C4 meaning that planning permission would not be required for a change of use, but Local Authorities could make Article 4 Directions if necessary to control the spread of shared accommodation.

The districts will need to discuss this with their Planning Depts, but the number of Article 4 Directions nationally is very low, so its likely that creating non-licensable shared accommodation would not face planning restrictions.

Considerations

1. A LLA would need to develop a procurement strategy that has a focus on procuring and creating shared accommodation in the areas highlighted as affordable and available (as detailed in Appendix B2)

2. Given the resource intensive nature of procuring and managing shared accommodation, it may be appropriate to identify one or two areas and to run a pilot LLA in those areas. A regional LLA focusing on shared accommodation as outlined, would be a resource hungry project, as well as coming up against the barriers to regional working previously outlined.

3. Running a LLA as a pilot in one or two areas would also make the project more attractive to an external provider, who may already operate in those areas. This would provide the partners with potentially more options when deciding how to run a pilot LLA


4. The culture of the region does not typically identify shared accommodation as attractive to either Landlords or Tenants. Therefore there needs to be an understanding that a LLA would need to invest significantly in a marketing strategy to reflect this new focus on shared accommodation, and the benefits for all parties.

5. Investigate how practical it would be to embed the other services to assist with general procurement, within the LLA, to support the set up and sustainment of shared accommodation tenancies, which tend to need more resources and have a higher fail rate

6. Ensure no Article 4 Directions have been made by regional Planning Departments that would hinder the LLA procurement strategy for shared accommodation

7. Develop a referral and communications process, between the LLA and the 12 partners, for advertising the procured properties to ensure the LLA provider has a ready supply of prospective tenants

8. Investigate how a ‘rent a room’ scheme might fit into the LLA procurement strategy, particularly focusing on social housing where there may be households interested in such a scheme due to the benefit changes around under-utilisation of bedrooms

Financial & Service Planning

For detailed information see Appendix C.

Service Planning

A number of schemes that procure properties in the private rented sector operate across the region. During the research part of this project, consideration was given as to how these schemes, or best practice from them may be incorporated into a regional model.

However, whilst useful lessons and skills can be learned from existing schemes, this study concluded that at the current time, it was not the most effective solution to the PRS procurement needs of the partners to look at a model that developed an existing scheme or schemes further and created a regional LLA in this way.

Table A below outlines four schemes that meet the needs identified as part of this project. The table identifies the service in one column and the needs / business issues it meets in the other column.

Table A


Identified Service Related Business Issues / Needs met

Pilot LLA based in defined geographical areaCommission LLA pilot, aim at creating and managing shared accommodation for single persons from traditional 2 and 3 bed properties

Trial ‘hassle free’ services for Landlords, inc organisational readiness to deliver on time rent payments, service delivery, financial plan etc.…

Establishes niche and meets a regional demand Develops staff and organisational skillsets Develops commercial customer service ethos Establish professional templates for literature, policies

etc. Establish track record of service delivery & reputation Opportunity to develop other ‘Letting Agency’ type

services Trial financial and business plan in a ‘risk contained’

situation Use external provider to bring in skills? Does not require all 12 partners to ‘buy in’ Allows market to understand impact of Universal Credit

and how this type of service might be placed to help

Regional quality referencing teamCreate regional team to develop ‘tenancy ready’ tenants, a bespoke referencing system and to raise the profile of this scheme to the ‘larger’ Landlords

Improves perception and ‘quality’ of tenants Develops ‘tenancy ready’ and ‘safe, accountable and

sensible approach to lettings’ as a brand Develops communication networks and tools Establishes niche as ‘welfare reform’ experts Improves perception of accountability Realistic regional venture that could benefit all

Regional rapid response teamCreate regional team to respond to tenancy issues, in particular linked to ‘tenancy ready’ tenants, and also to target issues created by Universal Credit

Assists ‘hassle free’ services and reduces risk to Landlords

Improves perception of ‘quality’ of tenants as less tenancies should fail

Backs up ‘tenancy ready’ brand Provides dedicated contact Improves staff skillset Addresses conflict of interest issues Develops ‘tenancy ready’ and ‘safe, accountable and

sensible approach to lettings’ as a brand Realistic regional venture that could benefit all


Regional Landlords Business ClubDevelop Landlords consultation group to assist with service development and communication

Communicates work being undertaken and establishes niche

Improves perception of accountability Assist with development of commercially attractive and

valuable services Ensure effective delivery of services Realistic regional venture that could benefit all Assists with understanding and ‘readiness’ of market

These schemes have resource implications, some have the possibility of income generation and some offer the potential of savings to the 12 districts. How these schemes might work is outlined in detail in Appendix C.

Pilot LLA based in defined geographical areaSummary

The advantages and disadvantages of different LLA models are outlined in Appendix C. The conclusion is that serious consideration needs to be given to a stand-alone model, creating a little distance between a LLA and the existing districts. This model also provides for the autonomy and business freedom that a LLA is likely to need to be viable. It is possible that by adopting an in-house model, there will be not only unwelcome restrictions on how the LLA can operate, but also difficulty in sustaining commitment from the other districts, who may feel that they do not have an equal input into the ongoing management and direction of the LLA.

If the region decided to proceed on the basis of a LLA product for Landlords that contains guaranteed rent, then a decision about who bears the financial liability would also need to be made if an in-house model was adopted. A stand-alone model operated by an external provider, contains the risk to the districts, within a separate organisation, meaning that any viability issues for the LLA would be restricted to the LLA (or its provider) and not wider Council finances. Additionally a stand-alone organisation may attract other funding opportunities that a Council embedded service may not.

The benefits outlined make a stand-alone model operated by an external provider the most commercially viable choice of model for a pilot LLA.

Staffing a LLA


If the objective of a LLA is to identify and procure or create shared accommodation within a defined geographical area, then the area should cover a maximum of two Council districts. Whilst not wanting to restrict the commercial operation of a LLA, the interaction with the relevant Council(s) will be vital to the success of the project. Working arrangements with Council Depts mean that to try to work over a larger number of districts will mean a probable reduction in the consistency and quality of services the LLA can provide.

Clearly numbers of staff will be dependent on targets for properties and the type of services offered. However, for the purposes of guiding you regarding possible financial plans, we have suggested 2.0 FTE front line staff and 1.0 FTE administrative support, who could run this LLA pilot from within a stand-alone organisation.

Services of the LLA

It is expected the LLA will focus on procuring, creating and managing shared accommodation for the term of the pilot.

It is expected that the LLA would operate similarly to a commercial Letting Agent, managing properties, issuing tenancy agreements, managing deposits or bonds, serving notices (if necessary) and acting on the Landlords behalf. Ideally the LLA would also develop a range of other Landlord services, however an inability to provide them shouldn’t preclude providers from the process.

There are some services that have a significant impact on financial plans. One example is the strong suggestion that the LLA use guaranteed rent as a product. Figures for financial exposure for rent arrears in this report are based upon offering guaranteed rent and significant allowance is made for rent arrears in the financial plan. Why guaranteed rent should be adopted as a product for the LLA is discussed fully in Appendix C.

Financial Plan for LLA

Full two-year income and expenditure plans with accompanying explanatory notes are contained within Appendix C.

A two-year pilot is suggested to give the LLA time to develop and find its niche in the market. During this time, the impact of welfare reform will become more apparent to the market, and significant lessons can be learned from this pilot about what services work and are commercially attractive to Landlords in light of these changes.

Financial Overview Table

Year 1 Year 2


Income from LLA £72,520 £226,560Expenditure of LLA £140,300 £162,250

Profit / Loss per year - £67,780 £64,310

Based on procuring and managing 48 3-bed properties per year (equating to 144 tenancies) with a guaranteed rent product, and using them for shared accommodation.

Potential Savings to the districts

The financial plan is intended as an illustration of how a LLA might be financed over a two-year pilot period. Clearly there are areas for discussion with any potential provider, not least whether any of the expenditure items detailed, (such as ‘organisational costs’), could be absorbed by the provider themselves.

Additionally significant sums are allowed for loss of revenue due to rent arrears, and it is likely that an effective provider would make savings on the amounts allowed for in the LLA expenditure table.

Although not identified within the financial plan, potential savings or reallocation of resources for districts could be identified and factored into this process, as a realistic financial plan is finalised. Budgets such as staffing costs for single homeless & sustaining and procuring PRS tenancies, rent bond pots and elements of Temporary Accommodation budgets, particularly if used for single homeless, could be considered. It is reasonably clear that the procurement of shared properties is a benefit that would lead to significant savings for the districts (within the geographical area selected for this pilot).

In the illustrative financial plan the scheme is virtually cost neutral to the districts over the two-year pilot period. Obviously funding would be required in year one, until the LLA was at a stage where revenue generated matched expenditure. This funding would need to come from the districts and could be part of negotiation with a provider, or a more formal tender process.

External Funding

Crisis UK have recently announced new funding and the following is taken from their website;http://www.crisis.org.uk/news.php/653/new-funding-for-crisis-private-renting

“Crisis will use the money to develop eight schemes across England which will work with local landlords to create more rooms for rent in shared accommodation. These will be selected through competitive bids from existing schemes on the Crisis Private Rented Sector Access Development Programme. Crisis will be inviting applications over the summer.


The schemes will create new housing options for people under the age of 35 who are homeless and have no family commitments. In addition to developing sustainable schemes, Crisis will use the schemes’ experiences to identify learning and good practice to disseminate nationally.

The sharing programme will work with schemes in a range of different housing markets and, as this will be a collaborative programme, funding will go to schemes that have a track record in sharing their experiences and learning. Up to £90,000 will be available per scheme over 18 months.”

There are providers in your region that may be eligible for this funding and interested in both this LLA project and the Crisis scheme. Therefore, an opportunity for taking forward this pilot as collaborative work, part funded by external funding should be explored without delay.

Regional Quality Referencing Team (QRT)The Service

There is an argument that raising the perception of the ‘quality’ of tenants on welfare benefits is as much about marketing as actual work undertaken. That said, this report clearly shows that if work on this issue can be co-ordinated effectively, there is the potential for massive knock on benefits for all the districts, if this barrier to procurement is lowered.

Objectives:

Set up a team to develop and co-ordinate a regional quality Tenant referencing system and standard Ensure the referencing system is supported by all the districts and is marketed as part of a new ‘tenancy

ready’ program Team to develop pre-tenancy training to support the scheme and plug gaps identified for claimants,

particularly in light of welfare reform Team to target the bigger Landlords and Agents inside and outside the region to ‘sell’ the benefits of the

new system to potential investors and those who have previously not worked with this client group

Any ‘tenancy ready program’ or new approach to improving standards, (whether of Tenants or of processes) will take time before the value can be recognised as something of a tangible benefit to the market:

This happens for Landlords through establishment of a track record of improving tenancy sustainment, Tenant behaviour, better relationships and therefore smoother running of their tenancies.

This happens for Tenants and Councils by demonstrating improved access to good quality accommodation.


However, this will only happen when all parties, (Councils, other Housing organisations, Landlords and Tenants) ‘buy in’ to the scheme.

If Landlords do not ask Tenants for the ‘tenancy ready reference’ then it becomes irrelevant. If Tenants without a ‘tenancy ready reference’ can access accommodation as easily as they could with the reference, again it becomes irrelevant. If Councils do not insist on the scheme for everyone coming through their housing system, then without enough numbers on the scheme, it becomes a nice niche product, but without wider influence.

Therefore a major part of the QRT teams’ work would be to market the scheme to all parties, in particular the larger Landlords and Agents who can more quickly have an influence on the market. For example, if major Agents ask for this ‘tenancy ready reference’ from clients coming through their door, they start to raise the profile and benefit of the scheme, far more so than a smaller Landlord with 1 or 2 properties. As already stated this marketing work should include work outside of the region with potential investors.

The ‘tenancy ready reference’ will also need an associated training program so that where gaps are identified in a persons reference, they can be met with relevant training or signposting. This particularly needs to concentrate on the issues associated with Universal Credit, such as;

Ability to get online and to manage their account online Sensible budgeting advice and support Help with accessing and setting up bank accounts and ‘jam jar accounts’

It is not intended that this team also provide ongoing support for these Tenants, as it is hoped that this would be picked up by the ‘Rapid Response team’ outlined below. The objective is simply to improve the perception of the quality of tenant, giving more opportunity for them to access the PRS and more chance for them to self-manage their tenancy successfully.

The significance of having this managed by a regional team is;

The consistency of the scheme, (and hence the confidence a Landlord or Agent can have in its worth) The numbers on the scheme (and hence the greater value attached to the scheme) The increased marketing opportunities and influence, particularly with the bigger Landlords and groups

such as the NLA

Staffing the scheme

This is covered as part of the Rapid Response Team proposal below


As traditional referencing is not comprehensive, (even for non-benefit claimants), the aspiration for this service has to be to develop a charging structure at some point. It is likely that if the scheme proves successful, that a change to the process could be made so that the request for a reference comes from the Landlord or Agent, at which point a charge could be made, much in the same way a current credit check is charged for. However, being realistic this will be some way in the future and to make sensible financial projections for this here would not be practical.

Regional Rapid Response Team (RRT)The Quality Reference Team (QRT) above is designed to assist procurement by influencing the front end of the procurement process and addressing Landlords concerns at this point. The Rapid Response Team is designed to influence the procurement process through sustaining tenancies and reducing ‘hassle’ for Landlords (and Tenants) where issues may arise during a tenancy.

It is accepted that this role is usually completed by Housing Options teams within the district Councils, but as with the QRT, the significance of having this managed by a regional team is around consistency and the increased marketing opportunities and influence, particularly with the bigger Landlords and groups such as the NLA.

The Service

Objectives:

Set up a team to develop and co-ordinate a regional ‘rapid response’ intervention and sustainment service for ‘tenancy ready tenants’ who are experiencing issues with their tenancy

Ensure the scheme is supported by all the districts and is marketed as part of a ‘tenancy ready’ program, and circumstances where the RRT can be used are clearly specified

Team to work closely with the QRT to identify ongoing needs and support for tenants, targeting issues created by Universal Credit, in particular where budgeting and money advice are the issues

Neither the QRT or the RRT are intended as active PRS procurement teams for the region. It is expected that active procurement will still lie with the district Councils and individual claimants. Both of these teams are intended to improve the environment within which claimants can self-procure and self-sustain PRS accommodation. This in turn should free up Council resources to deal with more complex need cases. This needs to be bourne in mind when assessing whether the cost of the service is justified.

The RRT will be expected to develop a number of intervention strategies, referral mechanisms and close links with support agencies that can provide longer term or more detailed help as required. The initial purpose of the


RRT will be to sustain the tenancy, but in partnership with all parties, rather than by simple advice on statutory rights.

It must be remembered that this service will only be open to those Landlords and Tenants participating in the ‘tenancy ready scheme’, and as such parties will have already engaged with districts and these schemes. Therefore if issues do arise, if they can be dealt with quickly and without the need for formal action or “hassle” as a Landlord might describe it, the reputation of all parties is going to be enhanced, thus continuing to improve the PRS procurement environment across the region, as well as preventing homelessness.

Staffing the schemes

The QRT and RRT schemes could be run initially with 3.0 to 4.0 FTE officers across both teams covering the region. The cost would be in the region of £90,000 /£120,000 per year, meaning an investment of between £7,500 and £10,000 per district. These are relatively small amounts if the outcome can be to make PRS procurement easier and more self-managed by the client.

Work will need to be undertaken to ensure that capacity and equalizing access to the teams is clarified at the outset, so that the teams do not fail through capacity issues, or districts become disengaged because they cannot access the services. Early work on estimated referral numbers and timescales should be undertaken, so that service level agreements with the districts can be put in place.

It is suggested that the teams would be ‘hosted’ either within district Councils or embedded within the pilot LLA, which would have benefits of cost savings, potentially levering in external funding (as outlined previously), establishing a clear brand and joining up the various elements of this PRS procurement work.

Additionally, joining these teams up with the work of the LLA, would allow services to be effectively trialed before use with the more general PRS market. A shared accommodation scheme is likely to be a naturally difficult environment, requiring interventions and assistance to sustain tenancies. This would allow the teams to develop broad skillsets, which could then benefit the districts and general PRS procurement and sustainment.

In reality the work of the QRT and RRT is likely to be hugely beneficial not just in improving the PRS procurement environment, but in complementing homelessness prevention work carried out by the districts. As such, although the districts would have to assure themselves that the schemes would help them with tenancy sustainment and reducing their own workloads, if they can, then savings from internal budgets, in particular TA costs, PRS procurement and homeless prevention budgets could be used to fund these teams.Regional Landlords Business Club (LLBC)A Landlords Business Club is essentially a ‘working group’ of Landlords and Agents, who work with the districts to resolve issues that affect Landlords and tenancies in the region. The LLBC can also act as a consultation group


for district and wider schemes and policies, ensuring that any PRS work remains current, commercially attractive and well communicated to the Landlord network.

The Service

Objectives:

Develop a group of Landlords and Agents from across the region to meet regularly as part of ongoing service development, problem solving and improving communications with Landlords more generally

Ensure the scheme is supported by all the districts and that influential Landlords and Agents are targeted to become members of the group

The LLBC should be facilitated and attended by officers who can take a regional view, influencing and advising the districts as required

Due to the larger geographical nature of the region, consideration should be given to developing the group as an online group, through use of social media or webchat facilities, backed up with less frequent face to face meetings

Staffing the scheme

Ideally the LLBC would be facilitated and managed by the QRT as part of their ongoing work to improve communications with Landlords and the perception of Tenants on benefits. If this was the case then there would be no additional cost (to those outlined earlier) in providing this service.

In order to be successful, LLBC Landlord members would need to be able to see that information and help it provided, had a tangible influence and outcomes in terms of policies, and services. This is why it is vital that a regional LLBC is attended by only those that would be able to influence regional issues.

In reality, we are saying that to have a LLBC, attended by all the district Councils would be unviable. A more effective way to make this work regionally is by linking the LLBC to the QRT and RRT outlined earlier. These teams would have genuine influence regionally within their areas of work, and the LLBC could form a vital part of their ongoing development, as well as communicating back to Landlords and Agents the effectiveness of the work of the teams.

The timing of LLBC development is important, as Landlords and Agents are notoriously intolerant of spending their time on a project that can’t influence. Therefore the LLBC should be developed by the QRT and RRT, and not prior to their existence.

In terms of numbers for a LLBC, a list of upto 12/14 names could act as rolling members, but individual meetings work best with no more than 6/7 Landlords or Agents in attendance. This is intended as a ‘Business Club’ rather than a Landlord Forum.


In terms of practicalities, it maybe that the LLBC is developed as an online group with scheduled meetings still held. This could be achieved through use of social media or webchat facilities. Equally a combination of face-to-face meeting and pre-meeting online discussions might be an appropriate way forward.

Conclusions & Action Plan

Conclusions

Any feasibility study is a risk assessment and therefore, once risks, costs and critical factors have been analysed, the study will leave the Client with the decision as to whether they wish to proceed knowing the risks.

However, we believe that a regional LLA focusing on general PRS procurement is not a viable solution to addressing the needs of the districts at the current time.

With Universal Credit imminent, it is going to become increasingly difficult to procure in the PRS for clients in receipt of welfare benefits. This is also going to impact on the available resources districts have, as more people are likely to require assistance and support

Therefore, a new approach is required, one helps people access the PRS more readily, on a more self-help basis, but with the support of the districts, rather than the other way around. We believe the four compatible schemes we have identified in this report can help change the PRS environment in the region, making finding accommodation more of a self-responsibility, but with tools facilitated by the districts.

The pilot LLA could have a significant impact on alleviating single homelessness, with the possibility of expanding to address more general homelessness cases and/or a wider area in future. External funding may be available to complement any funding the districts can provide. For reasons outlined, an external provider is likely to be best placed to run the LLA pilot for the districts, and it is suggested that you speak to a number of these potential providers in the region to see if they can deliver a scheme similar to the one outlined in Appendix C.

We have demonstrated in the financial plan, a likely cost neutral scenario for the LLA pilot.

However, the creation of a Quality Referencing Team and Rapid Response Team do have major resource implications. Both are vital to the longer-term benefit of the PRS market for benefit claimants in the region.

Additionally we feel that the districts will reap long term benefits of the outcomes of both teams, not just in improved relationships with the PRS, but by creating a better PRS environment for most benefit claimants, also by freeing up their resources to deal with the more complex and difficult cases.


There is an opportunity to link these teams closely with the work of the LLA, possibly levering in external funding to facilitate the process. If that was not felt desirable, then the 12 districts need to give serious consideration to how these teams might be funded, as the benefits of an improved PRS across the region should not be under-estimated. There are also important logistical issues such as capacity and equalizing access to these schemes, that will need to be agreed if the schemes are to be successful.

Additionally, the ‘cost’ of not doing this work should also be considered. As PRS procurement and sustainment becomes more difficult, costs of that procurement, funding temporary accommodation and dealing with evictions are going to increase for all districts.

The Landlords Business Club is the final important component and complements the work of the other three schemes. The success of the QRT and RRT depend upon Landlord engagement and assistance, and therefore a low resource scheme such as the LLBC can have huge benefits is raising the profile of the work, getting the message out to Landlords and Agents (both in and outside of the region), and establishing the schemes as integral to a healthy PRS in the region. How the group meets and is managed need to be considered, and use of social media and webchat technology should not be dismissed.

The final conclusion is to state that any business (and that is what a these four schemes effectively are), are only as good as the people who develop, operate and manage them, as well as the systems within which they operate. It is essential that you ensure that staff, (or organisations in the case of the LLA), working within these schemes have business acumen, knowledge and personality that allows them to work with Landlords and develop the services as outlined in this study. Additionally, we have built into the financial plan a sum in the first year for you to purchase expertise, to develop and launch the LLA.

There are considerable issues to be resolved before you can develop this project further and launch these schemes. The considerations and issues highlighted in this report are now, along with these conclusions, used to set out a basic implementation action plan that you will need to consider to take this project forward.

North East Region Inside Housing Solutions

Implementation Action Plan


Action Point Issues ActionsPre-Development Partnership working

LLA Development

Agree which districts wish to take this project forward and set up a working group to assign tasks and monitor progress of development

Agree process for LLA procurement Identify potential providers for LLA, possible geographical locations for the LLA and hold

initial discussions with these potential providers Identify planning barriers to creating shared accommodation (if they exist) Assess whether schemes can be joined up (embedded in the LLA?)

Pre-Development Resources Agree budgets and develop a financial plan (based on the plans in Appendix C?) Procure expertise to support procurement of LLA and development of other schemes Identify resources required from partners and decision making processes required Identify how any funding gap will be met: External funding? Identify potential savings to districts if schemes hit targets, can these notional savings

be reallocated to these projects?

Pre-Development SkillsetStructure

Develop structure and reporting mechanisms for the schemes Identify locations where the schemes will be based Identify skillsets required in staff and potential providers of the LLA Undertake LLA procurement process Develop QRT and RRT set up process

Development TargetsMonitoringSystems

Identify and implement appropriate back office and data management systems Agree targets, capacity and strategy for schemes Agree referral processes and systems for schemes, in particular equalising access to

schemes for districts Develop internal processes and procedures for schemes Assess how brand will be established and marketing strategy Identify potential members for LLBC and consider online facilitation of group

Development ProductsSupport

Develop ‘tenancy ready certificate’ and process Identify how tenancies will be supported, managed and resources prioritised Identify other regional support that can be used for QRT and RRT Develop tenant training programs and ongoing training tools

Development CommunicationsMarketing

Develop communications strategy and tools, including website / social media Develop scheme paperwork, literature and marketing tools Investigate effective initial marketing strategies for schemes Publish service specs, standards, terms of business, policies etc..

Development Skillset Ongoing assessment of staff and organisational skillsets to ensure they are adequate

Launch MarketingEvent

Develop LLBC once QRT and RRT are set up Arrange LLA launch event with provider Ensure comprehensive PR and marketing linked to launch Develop partnership working with Landlord Associations

Ongoing LLA MonitoringLLA Development

Close regular monitoring and support systems in place for LLA during pilot period Ensure LLA provider has flexibility to change products, systems, marketing as required

without lengthy decision making processes

Documents

Background · Web viewPurpose This independent study is initial research to test the feasibility of establishing a local lettings agency, (LLA), in the North East region. There is