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The Chief Executive of Colchester Borough Homes Ltd submitted a report a copy of which had been circulated to each Member.
Councillor J. Young attended and with the consent of the Chair addressed the Cabinet. The current housing crisis was the worst the Council had experienced. The proposals in the report were welcomed and provided a chink of light and a way forward showing how the situation could be improved. This would be welcomed by those working in housing and those on the waiting list. The importance of housing could not be underestimated in determining life chances.
Councillor Sunnucks attended and with the consent of the Chair addressed the Cabinet to support the principles set out in the report of using affordable rents in appraisals and of charging to the affordable rent limit . However, the appraisal assumptions would be disastrous and he would address that in the Part B item. If the Council invested based on those assumptions it would run out of money. The Council needed a credible 30 year business plan for its Housing Revenue Account. The appraisals needed to be in the public domain.
Councillor King, Leader of the Council and Portfolio Holder for Strategy, welcomed the support for the principle of the proposal. He would look to see if there was more that could be done to improve transparency but there was a balance to be struck between that and the need to progress work swiftly. The HRA had not had the visibility and attention that it warranted, but the Governance and Audit Committee would be looking at it at its meeting in December.
Councillor Cory, Portfolio Holder for Resources, highlighted that Councillor Smith, who was absent, as Portfolio Holder was passionate about delivering more Council homes to those who needed them and looked for innovative solutions. The change in the local housing allowance in the Autumn Statement was welcomed. A 30 Year HRA Business Case was in place and was in the public domain and was reviewed when national housing policies or funding changed. This policy allows the Council to strike a balance between obtaining rent from tenants and implementing strategies that would enable the Council to build more houses. The policy was wholeheartedly supported It needed to be seen in the context of a national housing crisis which government needed to address, partly through a moratorium on right to buy.
Philip Sullivan, Chief Executive, Colchester Borough Homes, was invited to address Cabinet. He stressed that the report proposed more robust and challenging assumptions which better reflected the market which would support better ongoing financial management. The charging of affordable rents would mean that more schemes would become viable and become part of the solution to the housing crisis.
Councillor Goss, Portfolio Holder for Neighbourhood Services and Waste sought confirmation as to whether management fees were included in affordable rents, and why increases in gardening fees as a result of request from tenants for improved services from Idverde were not built into the management fee for two years. Philp Sullivan confirmed that the management fee was built into the affordable rent. He would investigate the issue of timescales for increases to the management fee.
RESOLVED that:-
(a) Updated development assumptions used to calculate viability be agreed, and authority be delegated to the Portfolio Holder for Housing to review and agree the assumptions annually going forward.
(b) Affordable rent be charged, up to the level of local housing allowance rate, for all new build developments, including the acquisition of new builds, that complete from 1st December 2023.
REASONS
The Housing Revenue Account (HRA) is facing a range of pressures arising, for example, from legislative and regulatory changes requiring more money to be spent to keep homes safe or compliant with the Decent Homes Standard, higher costs to build and acquire properties, higher repair and improvement work costs due to increased inflation and the requirement to achieve carbon neutral by 2050. The Council is required to prove that the Housing Revenue Account has a suitable long term business plan, over the 30-year period. With more households in temporary accommodation than has been seen in recent years, the General Fund is also under pressure. The Council will need to review spending to ensure the Council’s financial stability, whilst meeting regulatory requirements. Some non-statutory services, such as financial inclusion work and building new homes could be affected if they are not affordable within the Housing Revenue Account business plan.
However, the Council has a strategic priority to increase the number, quality and types of affordable homes. This strategic priority will be met via a mix of Section 106 housing, acquisitions (through both the acquisitions programme and through agreements with local developers), and through the Council’s new build programme.
The assumptions used to calculate viability need to be regularly reviewed to ensure that they remain up to date in reflecting the market and can be used to establish whether potential developments strengthen the Housing Revenue Account (HRA). By updating these assumptions to reflect the current benchmarking data available, it is likely to indicate that future developments will be unviable whilst charging social rent. These assumptions are commercially sensitive as at times we will be competing with other parties to acquire units.
By charging affordable rent, the Council will be able to progress with viable development opportunities, increasing the Council’s housing stock, alleviating pressure on the housing register, Housing Revenue Account, temporary accommodation and in turn the General Fund. This will assist the Council to continue delivering high quality, energy efficient homes to meet the housing need in Colchester and maintain its current stock to a high standard benefitting applicants on the housing register and current tenants. The Council can bid for Homes England funding on viable developments, strengthening its position as an investment partner with Homes England.
Setting the affordable rent, at Local Housing Allowance rates will help protect tenants from financial difficulties, if they claim benefits towards their housing costs.
The Regulator of Social Housing’s Rent Standard allows for existing homes to be converted from social rent to affordable rent if this is pursuant to a housing supply delivery agreement with Homes England. However, the Regulator of Social Housing’s current policy is not to permit this and hence the decision on whether to charge affordable rent is purely in respect of new homes being built or acquired.
ALTERNATIVE OPTIONS
Not to change the assumptions used to calculate viability or charge affordable rent on new build developments and continue to let all new developments and acquisitions of council housing stock at social rent levels. This will either make schemes less viable and will increase pressure on the Housing Revenue Account or lead to unviable schemes not proceeding, which in turn will fail to alleviate pressure on the housing register, temporary accommodation and the General Fund.
Update the assumptions used to appraise development schemes but continue to charge social rent for all developments. It is unlikely that any developments will prove viable under these circumstances. Homes England will not support a development that is unviable. The Council will be unable to increase the housing stock, failing to alleviate pressure on the housing register, temporary accommodation and the General Fund.
Update the assumptions and agree to the Council being able to charge the maximum affordable rent (up to 80% of the private rent market), without taking into consideration the Local Housing Allowance. This will improve viability of new schemes and reduce the pressure on the Housing Revenue Account, the Housing Register, temporary accommodation and the General Fund. However, this could lead to vulnerable tenants facing financial difficulty, where the Local Housing Allowance will not cover the full rent, and place pressure on the Housing Management service to manage the rent arrears.
To place the new build housing programme on hold, whilst the Council focuses on delivering on the statutory regulations for the Council’s current housing stock. This may reduce pressure on the Housing Revenue Account in the short term, however the HRA will not benefit from the rental income generated by new homes which, longer term, has the potential to strengthen the HRA. This option will increase the pressure on the General Fund and the Council will be less able to meet local housing need. More residents may require temporary accommodation, and this will have a negative social impact on Colchester residents.