Spending Round submission from the Chartered Institute of Housing

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1 Spending Round submission from the Chartered Institute of Housing May 2013

2 About CIH The Chartered Institute of Housing (CIH) is the independent voice for housing and the home of professional standards. Our goal is simple to provide housing professionals with the advice, support and knowledge they need to be brilliant. CIH is a registered charity and not-for-profit organisation. This means that the money we make is put back into the organisation and funds the activities we carry out to support the housing sector. We have a diverse and growing membership of more than 22,000 people who work in both the public and private sectors, in 20 countries on five continents across the world. Further information is available at: CIH contacts Gavin Smart, Director of Policy & Practice, Chartered Institute of Housing gavin.smart@cih.og Abigail Davies, Assistant Director of Policy & Practice, Chartered Institute of Housing abigail.davies@cih.org 2

3 Introduction Housing is central to this country s economic and social success. As government continues to tackle the weak economy, building new homes is a quick and efficient way to deliver economic activity it has a strong multiplier effect and produces good financial returns on public investment. Government can play a key role in getting homes built. As a nation we have failed to build the number of homes we need for decades. History shows that the only time in the post-war period that we have built the numbers of homes we need has been when the state has played an active role and invested directly at scale. Our spending round submission shows how affordable government investment can be a solution to our housing supply problem. It could help to provide 70-80,000 new affordable homes a year and provide more effective support to our home ownership market. Building on this scale would provide a huge boost to our economic performance too. Approaches to existing homes are just as important as the focus on new supply, because a well functioning housing market supports labour mobility, business investment and personal access to assets. Alongside these economic benefits, good housing provision delivers a significant social impact that underpins wellbeing and enhances the effectiveness of spending on health, education, crime and on other related policy agendas. This spending round offers government the opportunity to use investment in housing to address our housing supply crisis and drive our economic recovery. Our submission shows how that can be achieved. 3

4 The current context The housing context in England continues to be challenging in terms of availability, affordability and accessibility. Fundamentally these challenges are driven by a lack of adequate supply. We have failed to build sufficient numbers of new homes for more than thirty years and current constrained availability and poor affordability is a direct result of this. The market is also evolving as established tenure trends and patterns are shifting. This indicates a need for proactive national policy and funding that can help to shape the market and encourage it to operate effectively. Such a strategy must have a target to significantly increase the number of new homes built at its heart and must recognise the role that direct state support and investment will need to play if this target is to be met. Our continuing and increasing need for greater numbers of new homes is driven by the nature of the demographic changes our country is facing. By 2035 the population is expected to have grown by 11m 1 - in England this will be a 19% increase 234,000 new households are expected to form each year to By % of our population will be over 65 years old, compared to around 17% today 3 - a significant change in housing needs and aspirations 1.5m people are thought to need specially adapted accommodation 4, and more than 1m people are expected to be living with dementia by In the face of these changes our performance in providing the new homes we need has been inadequate. Recent DCLG figures show that only 102,000 new homes were started in the year to end of March , around 19% of which were sub-market housing. This compares to a post-credit crunch peak of 112,800 in the year ending March New starts on site is a key leading indicator of the likely future supply of new homes and numbers at these levels give no indication that we will close the supply gap any time soon. New planning permissions are another important leading indicator. 144,427 planning permissions were granted in the 12 months to March 2013, up from 118,723 a year earlier. This was the highest figure since 215,445 permissions were granted in the 12 months to March , but still someway short of that level. Completions of new homes peaked at around 200,000 7 a year in still some way short of being able to address new household formation and the 1 ONS, November TCPA ONS 4 English Housing Survey 5 DCLG, housebuilding statistics March quarter HBF, Housing pipeline report Q DCLG, Net Housing Supply in England 4

5 backlog of unmet need. It has since fallen back to no more than 118,400 homes a year (year ending June 2012), with only 108,000 completed over the last 12 months 8. Around 22% of completions in the last 12 months were submarket housing a decrease on previous years as the affordable rent programme beds in. The provision of new homes by private developers has been quite consistent, but has rarely exceeded 150,000 new homes a year in the last 60 years. There is little prospect of private developers alone providing the numbers of new homes we need. Previous higher rates of new home building, across the 1950s, 60s and 70s, were characterised by home building supported by direct government investment at scale. The consequences of this inadequate level of supply can be seen in poor affordability in both the home ownership and rented sectors. House prices are 2% - 18% lower than their pre-credit-crunch peak, but this increase in affordability is offset by higher deposit requirements 9 The average house price is 8.6 times the average wage Growth in market rent levels has been steep, particularly in London, with a household income of 25,000 needed in even the cheapest regions for market rent to be affordable The new affordable rent product is not affordable for all households in some regions rents at 60% of market prices require an income of 20, For some households this means that they are unable to house themselves adequately at all and as a result homelessness is on the rise. Levels of homelessness increased by 10% last year 11 with local authorities accepting a statutory duty to help 53,450 households The use of temporary accommodation increased by 9% 12 It costs about 5000 per year to house a homeless household 13. Given that there is no immediate evidence to suggest the supply of new homes will improve, estimates of the future cost of both renting and owning show projected continued deterioration in affordability. Market rents are projected to rise by 3.9 per cent over the next 12 months 14 House prices are projected to rise by 5% by The evidence clearly shows the degree to which we have failed to build sufficient homes to meet our needs and illustrates the consequences that this has for families 8 DCLG, housebuilding statistics March quarter Hometrack May Hometrack May Statutory Homelessness: October November 2012, Statistical release, CLG 12 Statutory Homelessness: October November 2012, Statistical release, CLG 13 LGA 14 RICS Residential Lettings Market Survey 15 Ernst & Young Item Club 5

6 up and down the country who face increasingly unaffordable housing costs or in some cases homelessness. The case for action is powerful and urgent. It is important to recognise that addressing our housing crisis would bring benefits above and beyond dealing with the imbalances in our housing market and the misery they cause. Investing in housing produces major economic benefits. Research shows that for every 1 invested in construction 2.84 of economic activity is created in the wider economy 16. Few other sectors can boast such a high economic multiplier effect, or can deliver new infrastructure at speed. Less than 8% of the construction industry s materials are imported, so the benefits of construction activity are retained by the UK economy and not lost abroad. Public financial support for investment in housing and construction offers excellent value for money with 56p of every 1 invested returning to the Treasury. Our submission demonstrates how government can use the spending round to deliver both investment and policy changes to address our failing performance on housing supply, improve access to home ownership and prevent homelessness, and at the same time deliver a powerful boost to our economic recovery. 16 Construction in the UK Economy: The Benefits of Investment updated report for UK Contractors Group by LEK, May

7 Summary of our main points The current spending round offers government the opportunity to drive economic growth, address our housing supply crisis and bring increased stability to the housing system. The measures we recommend in this submission show how government can achieve these targets Having recognised the economic value of housing, government can enhance housing-related economic activity by creating consistency in policy to support efficiency and confidence in the industry. The UK needs stability in the operation of the housing market, and stability for organisations whose business is to provide homes, to enable delivery and reduce the negative impacts of a fluctuating market. Development and management of housing involve significant risks which can be better managed in a context of medium-long term certainty and simplicity, for example around income that can be generated from sale/rents; public funding programmes; and regulatory frameworks. Where stability and simplicity are enhanced, risk is reduced and output can increase. This underlines the need for both short-term and long-term commitments to housing in this spending round. Short term interventions in the market to address immediate challenges help maintain activity and can contribute to economic stimulus, but longer term measures are needed to give clarity of direction, consolidate these gains, normalise the market and address more fundamental problems that hinder its performance. Rents: Government should retain the current rent setting framework for social landlords so that landlords providing homes at social and affordable rents are able to increase rent by up to RPI plus 0.5% annually until Supply sub-market housing: Government should make 2bn of funding available per year from to provide grant or equity funding that would enable registered providers of affordable housing to deliver between 55-65,000 new affordable rent, social rent and shared ownership homes a year depending on the programme mix chosen. Within this 2bn, a separate funding stream should be made available so that registered providers can viably deliver specialist and supported housing with rents at social rent levels. Government should conduct a fundamental review of longer term funding for submarket housing. This review should explore different ways for public funding to support provision of sub-market housing, and specifically explore the role that public expenditure should play in supporting new affordable housing provision, as well as making a clear commitment to a defined measure of affordability for low income households. Supply - increasing local authority capacity: Government should raise Housing Revenue Account debt caps by 7bn to increase the potential for local authorities to invest in growth through financing housing development, enabling up to 75,000 homes to be delivered over five years. Open market housing: Government should support local authorities to issue mortgages direct to households currently excluded from home ownership by 7

8 mortgage rationing. Government should also continue the currently enhanced level of protection offered to home owners under the SMI system (Support for Mortgage Interest payments). Supported housing: Revenue funding for supported housing through the Supporting People programme should continue at 1.75bn per year as per the 2011 settlement adjusted for inflation - with the recent Department of Health investment in specialist housing with care retained and mainstreamed. The allocation of funds to local authorities for housing-related support services should be distinctly identified in the overall formula grant. In addition government should state a clear expectation that this money will be spent on housing-related support at local level and that a focus on non-statutory services and preventative approaches will be maintained. Homelessness: The Preventing Homelessness Grant should be maintained at its current level of 160m p.a. and the ringfence around it retained within the overall local authority settlement. Also its use should be tracked to maintain the valuable focus on homelessness prevention. At the same time, because the majority of finance to deal with homelessness is not protected (as it comes from local authorities General Funds), there should be no further significant reductions in funding given to local authorities. Decent Homes: Capital funding and a continuing, modest, programme to assist stock transfers (where supported by tenants) should be made available to remove the remaining Decent Homes backlog as soon as possible after DFGs: National funding for Disabled Facilities Grants (DFGs) should continue at 200m per year, with extra value derived from this funding through increased use of loans and equity loans. Welfare: Welfare spending should not be subject to the proposed cap on Annually Managed Expenditure (AME) spending. Government should make provision for a Discretionary Housing Payment budget of 250m for 2015/16 to provide support to those households unable to change their personal circumstances to respond to their changed entitlement under the new welfare system. In addition, government should carefully evaluate the impact of the social sector size criteria policy and, if required, amend it to avoid causing significant hardship to households who are unable to access alternative accommodation and cannot meet their additional housing costs. Supporting areas with weak economic and social performance: In areas with the most challenging local economic circumstances, state investment is needed to enable local economies to generate their own growth. Certainty about funding streams and policies that support regeneration should be given as soon as possible, with focus retained on areas already mid-way through regeneration. Any new funding streams or mechanisms must have the ability to direct funds towards regeneration objectives and align infrastructure and community resources to support and sustain economic growth. 8

9 Rent setting for sub-market rented housing Proposal: Government should retain the current rent setting framework for social landlords so that landlords providing homes at social and affordable rents are able to increase rent by up to RPI plus 0.5% annually until Summary: The inflation link in the current rent framework has been central to landlords ability to secure sufficient private finance to deliver on their business plan commitments including investment in new homes, existing assets and neighbourhoods. Following the 2008 financial crisis lender confidence is much less certain and any move away from the rent setting framework that has delivered long term revenue certainty to social landlords could threaten not only access to, and pricing of, new finance, but also the security and pricing of the sector s existing loan portfolios. Moving away from the current approach to rent increases now would be detrimental not only to landlords ability to participate in future government affordable housing programmes but also to their ability to deliver existing long-term commitments to Decent Homes and renewal programmes. Welfare policy must be aligned to support this rental policy. Around 60% of tenants claim welfare benefits to help pay their rent, and so it is necessary to retain the link between actual rental costs and housing-related welfare payments to ensure the investment potential linked to rent increases can be secured. For stock retaining local authorities, whose rent increases are effectively limited by the Rent Rebate Subsidy Limitation rather than by HCA regulation, any successor to RRSL in the Universal Credit system must allow increases of RPI + 0.5%. In the interim, it is important to stress that landlords will use the rent settlement to fund activities that make a broad economic contribution and support placeshaping. The economic return from these activities will help to offset public spending requirements, especially when investment and procurement is conducted in a way that adds extra value. In addition, some of these activities will help benefitdependant and low-income households to improve their employment prospects, either helping them to afford a slightly higher level of rent or reducing benefit reliance over the medium term. 9

10 Supporting new supply of sub-market rented housing Proposal 1: Government should make 2bn of funding available per year from to provide grant or equity funding that would enable registered providers of affordable housing to deliver 55-65,000 new affordable rent, social rent and shared ownership homes a year depending on the programme mix. Within this 2bn, a separate funding stream should be made available so that registered providers can viably deliver specialist and supported housing with rents at social rent levels. Summary: Fundamentally, sub-market housing is a crucial part of a balanced approach to new supply. There will always be households that cannot meet their needs in the open market and so a mix of social rent, affordable rent, and shared ownership homes is required (different price points to cater for varying types of household). Government grant helps providers of sub-market housing to make their financial capacity go further it underpins the speed and volume of new supply. A 2bn grant programme would enable housing associations and other providers to lever in between 24bn and 28bn of private finance to complement government s investment, offering excellent value for money to the public purse. At a time when output of new homes is well below estimated need, providers of social and affordable housing have proved that they can maintain delivery. Therefore support for delivery of new sub-market homes will be central to realisation of the much needed economic gains from new housing supply over the next few years. Some short-term tweaks will help to maximise delivery using the funding model introduced in A reduction in the number of funding pots, greater flexibility on the amount of grant offered for different types and location of housing, and more use of strategic masterplanning rather than design briefs when public land is contributed all reduce providers costs when securing public funding and enable delivery that suits a wider range of local circumstances. Changes to the lead partner framework could ease participation of smaller providers in development, giving access to financial capacity that is currently beyond reach. Funding should be allocated to take account of strategic considerations not just the number of homes to be provided but also how the type of homes provided can shape and improve local markets. In addition it is essential that the regulatory framework supports the responsible generation of surpluses to cross subsidise new supply. Government has committed to devolve funding by creating a Single Local Growth Fund. The idea builds on the previous Single Regeneration Budget and Total Place, and as such appears to have potential in terms of local focus and coordination. However it raises difficult questions about the appropriate spatial level for operation, accountability for decisions and outcomes, and the efficiency of multiple funding administration structures. Government has already set tests of success for a Local Growth Fund and detailed proposals for devolution of funding, whether or not including housing funding, should pass these tests clearly before proceeding. 10

11 Proposal 2: Government should conduct a fundamental review of longer term funding for sub-market housing. This review should explore different ways for public funding to support provision of sub-market housing, and specifically explore the role that public expenditure should play in supporting new affordable housing provision, as well as making a clear commitment to a defined measure of affordability for low income households. Summary: The affordable rent model is unlikely to be sustainable in the longer term given the rate at which it consumes provider financial capacity and asset security. In addition, as grant reduces and requirements on grant recipients increase, the attractiveness of bidding for grant reduces. Over the longer term, use of capital investment to support delivery of sub-market homes is more cost effective than providing revenue support to help households meet their needs in the open market. Without grant investment in sub-market housing, output against projected need will decrease, creating a drag on local economies and other burdens on public funds. A fundamental review of longer-term funding should consider affordability to the customer and financial capacity of provider. A successful review will provide clarity on how private finance, affordability, public funding, provider capacity and rent levels can be most effectively balanced to deliver appropriate levels of new supply and reduce demand on other public funding streams. The review should conclude by

12 Increasing local authority capacity to contribute to new supply Proposal: Government should raise Housing Revenue Account debt caps by 7bn to increase the potential for local authorities to invest in growth through financing housing development, enabling up to 75,000 homes to be delivered over five years. Summary: Research shows that lifting Housing Revenue Account (HRA) borrowing caps by an additional 7bn would allow local authorities to build 75,000 new homes over five years, creating 23,500 jobs and creating 5.6bn of economic activity. Self-financing for council housing created significant financial capacity in councils and ALMOs. But their ability to make best use of it is restricted by government controlled borrowing caps which strictly limit their ability to take on HRA debt. Local authority housing has very low levels of existing debt (around 17,000 per home) and so has the potential to support much higher levels of new investment. Current borrowing caps limit the total new local authority housing debt to 2.8bn, well below the levels at which they could borrow sustainably. Research shows that, were the caps lifted or removed, councils would currently make plans to invest a further 4.2bn and, if encouraged to invest, their maximum potential borrowing appetite might be an additional 7bn over five years. This would support a build rate of 15,000 homes a year, a 13% increase on 2012 new supply rates and would add 75,000 new homes to England s housing stock over five years, a significant contribution at any time, but especially during a period when house building is at an all-time low. This level of borrowing would be well within the levels sustainable from rental income and well below total local authority financial capacity, estimated at 20bn to 27bn. Local authorities have a long track record of borrowing prudently and sustainably and they comply with the CIPFA Prudential Code for Capital Finance. Indeed, CIPFA have argued that borrowing caps are unnecessary since borrowing can be controlled properly under prudential rules. Additional local authority borrowing would add to total public sector debt levels under current fiscal rules; but the marginal increase in borrowing would create significant economic benefits and provide thousands of much needed new homes, complementing those produced by housing associations and private developers. A programme of 15,000 homes a year would support around 23,500 jobs a year providing a total value to the economy of around 5.6bn per year. And because every 1 invested 56p returns to the Exchequer, allowing Councils and ALMOs to invest in housing in this way is excellent value for money. 12

13 Open market housing Proposal 1: Government should support local authorities to issue mortgages direct to households currently excluded from home ownership by mortgage rationing. Summary: Enabling local authorities to write a greater amount of new mortgage business would help increase access to home ownership and produce value for local authorities by creating a mortgage book that could be sold on in the future. LA mortgage books could reasonably be expected to produce a level of return as well as creating a saleable asset, as they have done in the past. As a result this proposal could be treated as a financial instrument under government accounting rules consequently producing no immediate government spending commitment. Proposal: Government should continue the currently enhanced level of protection offered to home owners under the SMI system (Support for Mortgage Interest payments). Summary 2: SMI has been effective in helping under-pressure home owners to stay in their homes, reducing the demand on the wider housing benefit bill, reducing pressure on the affordable housing sector, and helping to keep repossession numbers low. The amended SMI conditions have been an effective policy intervention and should be retained. Since January 2009 mortgage holders have been able to apply for SMI support after a reduced waiting period (13 weeks rather than 39 weeks) and in the case of working age benefits the upper limit on eligible loans has been set at a higher level ( 200,000 rather than 100,000). This enhanced level of support is due to end on 1 April HMT estimates the additional cost of the current enhanced scheme as 90 million in its final year of operation. Assuming a fall in unemployment the cost might be expected to be slightly lower (2013/14 cost is 95 million). We recommend that these arrangements should be retained for the 2015/16 financial year to offer continued protection to home owners affected by the continuing challenging economic environment. 13

14 Supported housing Proposal: Revenue funding for supported housing through the Supporting People programme should continue at 1.75bn per year as per the 2011 settlement adjusted for inflation - with the recent Department of Health investment in specialist housing with care retained and mainstreamed. The allocation of funds to local authorities for housing-related support services should be distinctly identified in the overall formula grant. In addition government should state a clear expectation that this money will be spent on housing-related support at local level and that a focus on non-statutory services and preventative approaches will be maintained. Summary: Housing support services play a key role in enabling people to understand how to manage and maximise their resources (financial and otherwise) so they can sustain a tenancy. With a secure home environment they can engage with training and/or employment opportunities and this helps to deliver the government s ambition to move people away from long term dependency on welfare. Inclusion of the Supporting People programme in the local authority formula grant settlement at a time of significant reduction has been problematic. The level of reductions and number of services lost/reduced have been difficult to track, due to the removal of the ring fence and changes to national data collection. CIH s own work with service providers and commissioners shows that, for some areas, severe reductions, coming on top of the ongoing efficiencies of previous years, have meant loss of valuable services, the withdrawal of some providers and reductions in service quality/benefits. The full impact is only likely to emerge in the next few years. Unfortunately with homelessness, unemployment and underemployment rising; a renewed focus on offender management; and rent increases/benefit cuts creating additional barriers for young people to access and maintain stable tenancies, demand from the dominant client groups accessing housing support is likely to increase. Housing related support services remain mostly targeted at people who are either unlikely to qualify for statutory support, or who struggle to access it without help. The emerging trend in many local authorities where Fair Access to Care (FACS) criteria are applied is therefore concerning, as it removes support from people without statutory needs, does not capitalise on the preventative benefits of these services and risks increasing demand for high cost services at later crisis points. More information is presented in the forthcoming CIH paper The Future Shape of Housing Support. 14

15 Homelessness Proposal: The Preventing Homelessness Grant should be maintained at its current level of 160m p.a. and the ringfence around it retained within the overall local authority settlement. Also its use should be tracked to maintain the valuable focus on homelessness prevention. At the same time, because the majority of finance to deal with homelessness is not protected (as it comes from local authorities General Funds), there should be no further significant reductions in funding given to local authorities. Summary: Homelessness and rough sleeping are increasing. Statutory homelessness was up 10% in 2012 and rough sleeping up 6% on the previous year. 17 This is reflected in the increased demand for support among those who were statutorily homeless and owed a housing duty, now standing at 17.3% of locally funded support services. This reverses a previously steady decrease, and is expected to continue. The previous reduction in numbers in this client group was in part due to the impact of Supporting People services, 10 years of concentration on housing options and homelessness prevention, and the dedicated homelessness grant. Homelessness has significant negative consequences for the individuals concerned and for public services; consequences that last for longer than the period of homelessness. The majority of funding to deal with homelessness comes from local authorities General Funds, and pressure on local authority budgets has led to reductions in services to prevent and address homelessness. Further cuts to the Formula Grant allocated to local authorities would result in authorities ability to respond to homelessness being severely limited. Alongside the impact of budget cuts, councils ability to work in new ways to tackle homelessness is not necessarily reducing costs. For example the new power to discharge homeless duty into the market rented sector has led to more people seeking housing related support to sustain their market rented sector tenancy. Retention of the ringfence around the Preventing Homelessness Grant would help to protect services that address the costly problems caused by homelessness. Combined with increased national attention on how Supporting People funding is used, and the potential to pool health, housing and social care budgets at local level, the recent upward trends in homelessness could be arrested and reversed

16 Decent homes achieving the standard Proposal: 700m for capital funding and a continuing, modest programme to assist stock transfers (where supported by tenants) should be made available to address the remaining Decent Homes backlog as soon as possible after Summary: While the HRA settlement in April 2012, combined with the decent homes backlog funding through the Homes and Communities Agency, will enable much of the remaining backlog in the local authority sector to be addressed, there will still be a backlog in By 2010, 92% of the social housing stock had met the Decent Homes Standard. The HCA programme will reduce the backlog by a further 128,000 homes, and many local authorities will be able to tackle part or the whole of their backlog either with this assistance or through the HRA self-financing settlement. However, the borrowing headroom that resulted from the settlement is unevenly spread, which means that some councils will still have significant backlogs in 2015 that cannot be financed from their HRA. Removal of the remaining, currently unfunded, backlog could be achieved by a combination of self-financing, selective stock transfer, lifting of borrowing caps or additional funding similar to that which the HCA is currently disbursing. Development of a plan to eliminate the backlog using these methods should involve review of the potential remaining backlog (and capacity to sustain decency) and assessment of what additional funding may be required for a further programme to assist LAs either to retain and improve homes or to transfer them to another landlord. Initial estimates suggest that the scale of the backlog by 2015 will be approximately 125,000 homes. We estimate that funding the remaining decent homes backlog under the same approach as previous spending rounds would cost 700m.This funding would only be for councils that cannot achieve the Decent Homes Standard using HRA reform or HCA funding in the period. 16

17 Disabled Facilities Grants and financial support for home adaptations Proposal: National funding for Disabled Facilities Grants (DFGs) should continue at 200m per year, with extra value derived from this funding through increased use of loans and equity loans. Summary: Disabled Facilities Grants, administered by local authorities, are an important funding source for disabled people that enable people to continue living independently. They are known to be good value for money, not least because of their contribution to preventing need for costlier medical treatment and accommodation options. This contribution to the prevention agenda was recognised by the Department of Health in as it contributed 20m towards the fund. Demand for DFG funding is high so it is important that local authorities can get best value from the funding available. For example the provision of an effective Occupational Therapist service is critical to this. It may be possible to stretch the funding by working in different ways, as some local authorities already do, for example by offering secured loans rather than grants to owner occupiers so that funding can be repaid when their home is sold. Where appropriate, DFGs can be used to help people move to more suitable accommodation rather than funding adaptations to their current home, and it may be beneficial for councils to explore greater use of this option where costs could be reduced and personal needs adequately addressed. 17

18 Welfare spending Proposal 1: Welfare spending should not be subject to the proposed cap on Annually Managed Expenditure (AME) spending. Summary: CIH is particularly concerned about housing benefit (or the housing element of universal credit), both because of the implications for tenants wellbeing and because of the effects on social landlords incomes and their ability to invest in their stock and services. Government has already implemented a significant programme of welfare policy reform and spending reductions. The full cost of the new welfare regime should now be funded and not subject to further ad hoc reductions. The measures already introduced as part of welfare reform have already created the risk of significantly increased arrears for landlords, as demonstrated by the results from the direct payment demonstration projects which show average arrears rates of 8%, 60% higher than normal. Increased arrears reduce landlords ability to invest in new homes and wider service provision. Increased arrears also threaten both future and current funding arrangements for landlords. Moody s rating agency has referred to the risks created by welfare reform in its recent decision to downgrade the credit rating of 29 housing associations. While the current projection is that housing benefit expenditure will rise from an estimated 23.8 billion this year to 25.9 billion by 2017/18, it should be recognised that the pressures on the budget arise largely from external factors rising rents (especially in the private sector) and the prevalence of unemployment and low-paid work. In addition to allowing the flexibility provided by the classification of welfare spending as AME to continue, CIH also urges government to consider ways to control the budget without making ad hoc additional budget cuts, e.g. through measures to ensure that housing is available at much more affordable rents. Proposal 2: Government should make provision for a Discretionary Housing Payment budget of 250m for 2015/16 to provide support to those households unable to change their personal circumstances to respond to their changed entitlement under the new welfare system. Summary: Welfare reform has introduced some of the most fundamental and wide ranging changes into our welfare system since its inception. As a result, many households will have seen radical changes to their entitlement to receive help with their housing costs, but not all will have been able to adjust their circumstances in response. Government has already signalled its willingness to use Discretionary Housing Payments to assist households affected in this way. Given the number of households affected and the continued slow rate of our economic recovery, it is likely that the process of transition to the new welfare regime will require longer than government anticipates. The Discretionary Housing Payment budget should 18

19 therefore be retained and extended to 250m pa to assist households who are impacted by the changes in the welfare system but unable to respond. Proposal 3: Government should carefully evaluate the impact of the social sector size criteria policy and, if required, amend it to avoid causing significant hardship to households who are unable to access alternative accommodation and cannot meet their additional housing costs. Summary: The social sector size criteria policy has currently been in place for just two months. CIH remains deeply concerned about its impact and the likely significant hardship that some households will suffer as a result. In many cases these will be households whose housing arrangements had previously been compliant with the requirement of the welfare regime, but following the introduction of the size criteria policy now find their housing costs not supported and have little prospect of moving or raising funds to cover the difference. Alternatively they may find that the only way to source a home of the appropriate size is to move to a market rented home which is likely to have a far higher rent and so increase their entitlement to support with housing costs. This is a policy whose financial and social consequences, for the public purse as well as for households and landlords, could be far greater than the savings and efficiencies intended. Careful evaluation of the social sector size criteria, with a commitment to making policy adjustments if it is demonstrated to be not working as intended, will help to mitigate any sizable undesirable impact. 19

20 Supporting areas with weak economic and social performance Proposal: In areas with the most challenging local economic circumstances, state investment is needed to enable local economies to generate their own growth. Certainty about funding streams and policies that support regeneration should be given as soon as possible, with focus retained on areas already mid-way through regeneration. Any new funding streams or mechanisms must have the ability to direct funds towards regeneration objectives and align infrastructure and community resources to support and sustain economic growth. Summary: The consequences of the 2008 financial crisis have been both extreme and long lived. Some areas with the most challenging local economic circumstances now face the task of attempting to generate recovery in very hostile economic circumstances. In this situation it is unlikely that the market alone will be able to support regeneration, and state investment will be needed to pump prime local economies for growth. Failure to re-invigorate weak economies can lead to terminal decline, negative social and economic consequences, and high demand for public spending on health, crime, education, housing etc. Focus on areas already mid-way through regeneration should be retained, so that they can maintain momentum. Early announcement of post-2015 funding will give confidence to current investors/stakeholders and will enable regeneration areas to lever additional future investment. This certainty should enable smooth ongoing delivery of programmes, enabling adherence to commitments and timetables. Alongside public funding streams, regeneration projects use and combine a range of policies such as the Community Infrastructure Levy, New Homes Bonus, local flexibilities around Section 106, and reinvestment of Right to Buy receipts to deliver viable programmes. In a difficult delivery environment, consistency of funding and policy over the short-medium term is essential it helps maintain viability and reduces the amount of costly revision and redesign required to see through a lengthy project. Commitments to funding and policy in this spending round should not preclude reviews and exploration of ideas that would introduce new approaches over the longer term, however. In the future it would be helpful if administrators of the proposed single funding pot were able to use funds to support regeneration objectives aligning infrastructure and community resources to support and sustain economic growth in weak economies. 20