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The social housing regulator

Successful places with homes and jobs

A NATIONAL AGENCYWORKING LOCALLY

Rent reduction and Pay to Stay: What are the implications?


Life was already getting more complex for providers Gone: core assumptions

about rented products

Gone: the grant/bank debt funding model

Going: Rents always going up

More market exposure

Complex choices for Boards

Opportunities and risks

A more cyclical model


And then this happened…

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCM3H8bi3-8cCFQbbGgodVU4Mcg&url=http://www.explorewealth.co.uk/news/the-budget-2015-summary/&psig=AFQjCNFC-aH3EYCzunQDCZG2He_HMzsZNA&ust=1442488733113731


Rent Reduction

Announced in the July 2015 budget

Included as part of the Welfare Reform and Work Bill 2015

Introduces a 1% rent cut for 4 years for all social housing (social rent and affordable rent) held by registered providers

Introduction date of 1 April 2016

Currently at the ‘Report’ stage in the House of Lords (25 January 2016)

Detailed regulations that support the Bill to follow


Main aspects of the Bill 1% rent reduction to social housing stock for four years

Low cost home ownership is not included within the Bill

1% reduction to be made within the new concept of a ‘relevant year’

Introduced a new implied term into tenancy agreements overriding any contractual restrictions on rent changes

Baseline rent to be used for the reduction set at rent as of 8th July 2015, although a new general consent announced which providers can use should their annual rent setting date be after 8th July

Bill contains provisions for the enforcement of the rent reduction through the use of the regulators existing powers under part 2 of the Housing and Regeneration Act 2008.


Specifics - Exceptions

Exceptions in the Bill outline where Section 21 (requirement to reduce rent) do not apply

Property subject to a mortgagee, receiver, or other party being in possession is excepted from the Bill

Bill outlines that Regulations will outline further exceptions

Government Impact Assessment on the Bill states that further exceptions may ‘include the types of accommodation and tenants that are currently exempted from the Rent Standard will continue to be exempted’


Specifics - Exemptions Exemptions replace ‘Waivers’ under the previous rent regime

Exemptions from the rent reduction requirement are much narrower in scope than waivers under the Rent Standard.

Exemptions will only be given where the financial viability of the organisation would be jeopardised by compliance with the legislative rent reduction following implementation of a full range of mitigating actions

A detailed business case and supporting evidence will be required from the provider as part of the process for obtaining an exemption

An exemption can only be granted if the Secretary of State consents

Exemptions can be given to the whole of the provider of can be limited to defined stock

Guidance will be issued by the Regulator


Specifics – Rent Setting

Requirement around rent setting set out in Schedule 2 of the Bill

Definitions of Formula and Affordable rent expected to remain unchanged

10 % Rent Flexibility on top of formula rent for supported housing is to be retained

5% rent flexibility for General Needs accommodation is to go for new stock and all accommodation that has not had it applied to date

We are expecting the social rent floor for affordable rent to be included within the bill before Royal Assent


Rent Reduction – Next steps

Royal Assent is expected from late February onwards with the regulations (including details of exceptions to the reductions) being released as soon as possible

Boards of providers need to take an informed decision on how they will comply with the legislation

Regulator will publish guidance on exemption criteria

G&FV Standard requires compliance with “all relevant law” – likely route of regulation of the reductions


Pay to Stay

Introduced in the Housing and Planning Bill

Builds on existing scheme brought in in April 2015

Makes it mandatory for Local Authorities to charge high income tenants up to full market rent

Enables PRPs to voluntarily charge up to market rent to high income social tenants

PRPs must publish their policy on high income social tenants if they have one

The Act makes provisions for the sharing of income data with PRPs

Further detail is expected in the regulations that support the Bill



Is this the future of social housing policy?


The business model for providers is changing…

ASSETS

Right to Buy

New Develop-

ment

DiversificationHousing Market Sales

Existing Stock


And the financing of that business is becoming more complex…

LIABILITIES

Counterparty Risks

Liquidity

Existing Debt

New DebtIndex Linked

Debt

Hedging Strategies

Accounting Issues


There are some key issues for boards and exec teams to consider What is the right strategy for our business?

Where do we want to be in 5 -10 years?

What do our charitable objects means for us in this new world?

What is the right development mix for our business?

What is our home ownership offer for our tenants?


What is the role of the regulator? We don’t have the answer for your (or anyone else's)

business We seek assurance that boards and executives are

managing the business effectively and have a thorough understanding of their risks

Where we have concerns that this is not happening it is reflected in our regulatory judgements and we look to providers to remedy the situation

Where they can’t or won’t respond then we look to use our power proportionately to bring the provider back into compliance with our standards