Pouring money down the drain

Fans of the Right to Transfer may have wondered where I’ve been these last many months, well the truth is that there hasn’t been much I could say.  The Right to Transfer (RTT) process at Bushbury Hill EMB has been in a holding pattern, hopefully I’ll have some more interesting news in the near future.

In the meantime there has been one useful clarification over the Right to Transfer process which I can give an update on.  The Department for Communities and Local Government have made it clear that any RTT application must fully cover the cost of not only the HRA debt attributable to the stock to be transferred, but the cost of any redemption premia if that debt is repaid early.

Attributable debt

Under HRA self financing all stock owning authorities in England have HRA debt.  For a partial stock transfer such as an RTT proposal, the a portion of this debt is attributed to the homes being transferred – this should be a fair proportion based on the condition, type and rents of the stock.  The purchase price paid by the landlord buying the stock has to be enough to cover repayment of this attributable debt.

Debt Repayment Premia

However, if the local authority intends to use the transfer proceeds to pay off the attributable debt then it will incur debt repayment premia – they have to pay for the loss of interest that would have been due if the debt was not repaid early.  For a tenant group to have a business plan approved by the HCA it will have to demonstrate that the price paid to the local authority will be enough to cover the attributable debt plus any premia.  There is no Government funding available to assist with any shortfall.

Money down the drain – why pay interest twice on the same capital?

It is safe to say that stock owning councils have HRA business plans which involve borrowing money in order to invest in their homes or build new ones.  You may be wondering why any local authority would therefore want to send any capital receipt from transfer and send it to the Treasury instead of putting it to good use in their community. Doing this means that they end up paying two lots of interest on the same amount of capital – the debt repayment premia on the attributable debt and then interest on new borrowing for the same amount to support their HRA business plan.  It creates an unnecessary transfer of  money from the local authority to the Treasury . This money is no longer available to invest by the council, which is effectively pouring its tenants’ money down the drain.

Can’t you think of anything better to do with the money?

The real reason for a local authority to say that it wants to repay the attributable debt is to drive up the cost of the transfer in an attempt to stop tenants exercising their statutory Right to Transfer.  However in light of the housing crisis, building some new homes would be a better use for the money.

Clarity is a good thing

It would be better if DCLG required local authorities seeking to repay attributable debt to demonstrate they had no borrowing in their HRA business plan and therefore no use for the capital receipt.  On the plus side, at least tenants now have a clear position form which to work, in order to make an RTT proposal fly they will have to ensure that they can come up with a business plan which will cover the attributable debt and debt repayment premia.  It is the fate of Bushbury Hill EMB as the pioneer of the Right to Transfer to iron out all the wrinkles in the process and hopefully make things clearer, if not easier, for other tenant groups in future.

 

Right to Buy 2 & the 1% rent cut: time to use the Right to Transfer

In June 2015 In his keynote speech to the recent National Federation of Tenant Management Organisations (NFTMO) national conference, SHOUT’s Tim Morton warned of the dangers to social housing presented by the Government’s proposal to extend the Right to Buy to housing association tenants.  The issue being the forced sale of “high value” council properties in order  In response Leathermarket JMB, a TMO based in the London Borough of Soutwark tweeted: Right to buy for housing associations may mean that Leathermarket JMB may never let a council home ever again

Right to buy for housing associations may mean that Leathermarket JMB may never let a council home ever again #NFTMOconf15

— Leathermarket JMB (@LeathermktJMB) June 13, 2015

They subsequently followed this up with: Lawyers tell #NFTMOconf15 ALL @lb_Southwark council homes class as high value for sell-off under Govt Hsg Asn #righttobuy plans

Lawyers tell #NFTMOconf15 ALL @lb_Southwark council homes class as high value for sell-off under Govt Hsg Asn #righttobuy plans

— Leathermarket JMB (@LeathermktJMB) June 15, 2015

This is a pretty stark thought, that a community led housing organisation might never let another home to a person or family in housing need.  This is bad enough, but this is also an existential risk to TMOs in high value areas – as stock is sold off, the viability of the TMO will reduce.

Leathermarket JMB manages about 1500 homes, if just 5% of those homes become vacant each year then they would see 75 properties sold off in the first year alone.  After just 8 years, they would have lost more than a third of the stock they manage and after 14 years they would be down to just below half (732) – and that is not taking into account any Right to Buy sales.

Loss of stock on this scale would be devastating for a TMO as it would have serious implications for the level of allowances, and as such the viability of the organisation.  It would inevitably mean job losses and a degradation of services to tenants.  The TMO would lose economies of scale and have to provide services to fewer home but spread across the same geographic area with less money to do it.  Overheads as a proportion of total income would increase.

It is not just the financial impact that is of concern, but the effect on the community as the tenure mix of the community would be radically changed in a short period.  Most TMOs are quite used to managing mixed tenure communities and in the right balance this is a normal and healthy state of affairs.  In flatted estates, the interests of tenants and owner occupying leaseholders are often closely aligned and many TMOs have leaseholders as members and active participants.

However we know that 40% of homes sold under Right to Buy are now owned by private landlords, there is clearly high demand for ex-council properties as rental investments.  With the sale of empty homes at market value this pro[portion is likely to be far higher because you won’t have the contingent of former tenants who could only afford to buy because of the discount.  In areas with lots of high value properties this will lead to a rapid change in the tenure mix in the community.  A large increase in non-resident landlords and private tenants with no more security than 6-12 month assured short-hold tenancies is not going to do anything good for community stability and cohesion.

The impact of the 1% reduction in social rents

It is not just the prospect of the sale of empty homes that makes the Right to Transfer the obvious course of action for TMOs – the prospect of 4 years of 1% rent reductions should have them seriously considering it too.  TMOs with few exceptions operate using allowances from their local authority landlord, these being a proportion of the rental income.  Landlords hold the whip hand with regards to the level of allowances (my own TMO has had frozen allowances in recent years as the landlord increased rents) and tenants should be under no illusion as to what rent reductions will mean for their allowances.

1% may not sound much, but when compared with the anticipated CPI+1% increases, the real difference after 4 years is 8-12% in real terms – assuming inflation at 1-2%, if it gets higher than that then the damage is much worse.   For long term business plans the situation is compounded as future rent increases are now based on a lower starting point, so the cumulative effect on income over 30 years is massive, one estimate I’ve seen is that it blows a 20% hole in the business plan.  It is safe to say that faced with reductions on this scale, landlords will have no choice but to pass the reduction on to TMOs through reduced allowances.  If I were a local authority facing cuts to my own services  I may not be able to resist the temptation to make my managing agents take more than their fair share of the pain.  Either way, TMOs will have to try to continue to deliver services to tenants with much less money than they had planned for.

A very toxic brew

For TMOs facing the combined threats of rapid loss of stock through forced sale of voids and significant real terms cuts in allowances the future looks bleak.  For some it may mean that they cannot continue in management at all – it is a very serious existential threat.

The solution – use the Right to Transfer

This is where Right to Transfer comes in as a highly attractive alternative.  It would avoid the prospect of the sale of empty homes to fund Right to Buy for housing association tenants, thus stemming the haemorrhage of stock needed to remain viable.  It would also allow the TMO to plan a viable business case based on the whole rental income, rather than being dependent on a fraction of the rent paid in allowances.  The rent reduction would still be painful, but with the whole rent to play with there would be far more scope to manage – tenants would not be propping up council services through their rent and they would be able to plan investment to make best use of resources to suit their local needs, not rely on a borough wide plan subject to the competing interests of the local authority and the agendas of local politicians.

I say use the Right to Transfer because it puts power in the hands of tenants, but I would expect enlightened local authorities facing similar challenges, to be keen to work with TMOs on community led transfer.  Tenant ownership and the preservation of social housing has to be a better option than the prospect of stock loss and managing decline that may well be the alternative.

The Tory Right to Buy for HA tenants is fundamentally unfair

“Sell council houses to subsidise HA RTB sales? And I though I was mad.”

Part of me thinks that this election proposal to extend the Right to Buy (RTB) to housing association (HA) tenants is actually an admission by the Tories that they have no chance of winning a majority in this election.  In this case there is nothing to lose by floating crazy policies which you know have no chance of ever getting through coalition negotiations.

An unfair transfer from poor to rich

However, on the off-chance that they are serious, there is a serious unfairness at the heart of the proposal which will see the poorest communities subsidising the better off.  The money to pay for the policy is meant to come from selling off council houses, but only a minority of local authorities still own any housing stock – about 100 out of 326 English authorities.  This means the entire burden of funding a national policy will fall on this minority.

This would be bad enough in its own right, but if you consider the disparity between the LAs that own stock and those that don’t, it is actually much worse.  This is because the LAs who retain their council homes tend to be those urban and with more deprived communities and those who have no stock are on average leafier boroughs or rural, with wealthier populations.

If all HAs are to be reimbursed for the RTB discounts, this means that the money for HA sales in LA areas with no council homes has to come from outside the area – from LAs that do own stock.  On average this will see a transfer of assets from already poorer areas, to already richer ones.

Beggar Wolverhampton to help Elmbridge

Esher, Elmbridge Borough, Surrey

For example, Elmbridge in Surrey a very pleasant place and typified by high incomes and very high property values, transferred its own council houses, so has nothing to lose from this policy.  However if an HA in Elmbridge sells a home through this RTB scheme, it will get reimbursed the full market value (likely to be a large sum) by the Government, so be well placed to build a replacement.  But how is this to be paid for?

Heath Town estate, Wolverhampton

In order to give money to the HA in Elmbridge an LA that does own stock will have to sell some homes.  For example, a place like Wolverhampton, one of the most deprived parts of the country, where the council owns lots of homes but is characterised by low property values.  Even the smart parts of the city don’t command huge house prices and on a typical housing estate a  nice modernised 3 bed semi might only be worth £75,000-£100,000 on the open market.  How  many of these homes would poor Wolverhampton be forced to sell in order to send money to wealthy Elmbridge?

No such thing as a free lunch

The Tories want a free lunch on RTB, but it will actually come at a real cost to some of the poorest in society.

Let’s not forget that you cannot simply sell council homes and use the whole receipt to fund the scheme.  There is attributable housing debt attached to all council homes which would have to be repaid, early repayment also attracts an additional cost.  The selling LA would also suffer loss of future income which would need to be recompensed or risk detriment to the current tenants.  The net receipt would therefore be far lower than the sale price.

In the example I have used, Wolverhampton could well lose two council houses to fund RTB discounts in Elmbridge which would see little net loss in affordable housing.  It is hard to see how this is anything other than a regressive redistribution of wealth from the poor to the rich.  Not only is the Tory proposal a bad one, it is also grossly unfair and will tend to increase inequality.

When is a promise to tenants not a promise?

Apparently the answer to this, in connection with the Right to Transfer, is when it is contained in the HRA business plan of a local authority.

In order to make an informed decision in the transfer ballot tenants must be able to compare and contrast the transfer proposal with the stay with the council option.  It is also crucial that tenants be able to rely on the promises made by the new landlord in the Offer document, which is why these are enforceable through the transfer agreement.

On one side, therefore tenants have promises which they can rely on, with mechanisms to gain redress if they are not delivered.  So you would think that in order to make a proper comparison, tenants should be able to compare like with like.  Sadly this is not the case, as the entries in the “stay with the council” column amount to very little of substance.  This is because the HRA business plan can be changed at any time.  So the tenants pursuing their Right to Transfer have to make hard promises to deliver what they say if transfer proceeds, but the local authority is under no such obligation.  You may think that it is easy to make claims that you will never have to deliver and therfore such claims cannot be relied on, I would agree.

This being the case, it is unfair to tenants that the local authority can present a case to tenants, which it knows it will never have to deliver.  There is currently nothing to prevent a local authority amending its HRA business plan with the intention of sabotaging a Right to Transfer by magically increasing the amount it intends to invest in the transfer area.  What tenants must understand is that there is also nothing to stop the council using the same magic to take away that planned investment the day after they vote to stay with the council.

It is worth bearing in mind that these decisions are political and there is nothing to require politicians to behave honourably as long as they act legally and within their code of conduct.  So if politicians think they can win a transfer ballot by temporarily padding the HRA spend in the relevant area, the unscrupulous will do it.

So what is a tenant to do when voting in the transfer ballot?  First, is to weigh carefully the true value of legally binding transfer promises as compared with the transient nature of the HRA business plan.  The second is to judge each landlord on its track record, which has delivered on its previous promises to tenants and which has promised spending and then singularly failed to deliver.  These issues won’t be in the Offer document, but tenants need to give them careful consideration – it’s not just what you are promised, but how far you trust the party making the promise.

Democracy delayed is democracy denied

There will be a general election in May 2015; we know this because the current Parliament only has a mandate from us until that date. How would we feel if MPs attempted to carry on ruling without an election? Jolly cross, to say the least, we wouldn’t take it lying down. We don’t really do revolution in the UK, but Charles I was the last leader who tried to rule without the consent of the people through the ballot box and he ended up with his head in a basket.

Although the people of Scotland rejected independence in the 2014 referendum, it was fairly universally accepted that it was their democratic right to decide the matter. The SNP had a popular mandate to hold the referendum so any attempt to thwart this would have had serious political, legal and constitutional consequences.

Unfortunately the tenants of Bushbury Hill have had their legitimate aim of holding a ballot on tenant led stock transfer held up for close to a decade now. The chance to decide their future for themselves is all they ever have asked for.   The tenant board are elected by the tenants and have pursued transfer with the express support of their community. Over the years the EMB has repeatedly sought the approval from tenants via tests of opinion, consultations and votes at general meetings.

As we approach the anniversary of tenants serving the local authority with a Right to Transfer notice, tenants are quite rightly asking “when will I be allowed to vote?” They might well look at their fellow tenants in Gloucester, Salford and County Durham and think it unfair that they have all had the chance to vote on transfer, in spite of starting the process after Bushbury Hill.

It is my view that whatever the philosophical objections for opposing the tenants’ transfer proposal, it is unsupportable to delay the ballot a moment longer. The tenants of Bushbury Hill are ready to vote, they have the legal right to vote, so let them decide.

Want to know what tenants want? Try talking to them

Bushbury Hill information house

As part of our Right to Transfer process in Bushbury Hill we have recently opened what we call our Information house on the estate. Open five sessions a week, including evenings and Saturdays it offers every tenant a chance to come and chat to us about the transfer proposal. It also gives us the chance to find out from tenants which of our proposed improvements they would like to choose and if they will need the back garden fencing programme.

New fire suite

Don’t take offence

We know exactly what tenants want because we pounded the streets and asked them. Because our estate is nearly all houses with large gardens, three quarters of tenants need new fencing. It may seem a minor issue, but a decent fence means you can enjoy your garden in privacy and security. By and large tenants rub along just fine, but unwanted intrusions by next door’s dogs and or children can quickly grate. If you have a 100ft garden as many in Bushbury Hill do, the cost of fencing it yourself is many hundreds of pounds. Many of our tenants simply do not have this kind of money.

Ask and then listen…

It is this personal interaction with tenants that has given the board such a good understanding of the needs of our community and shape the transfer proposal accordingly. It may seem to be obvious, but if you want to know what your tenants want from the Right to Transfer (or anything else) then a conversation is the best way. This involves not just asking questions, but also listening to the answers and capturing them in a way that can be used. We have a very simple survey that we are using.

…Or not

Being led by the needs and wishes of our tenants is in our DNA as a tenant led organisation but it does beg the question, why would any landlord want to do otherwise? What I really cannot understand about the local authority’s opposition to transfer is that they have never taken the time to talk to the tenants in Bushbury Hill about the issues. How a local authority can possibly reach a meaningful conclusion about what is in the tenants best interests without engaging with the tenants is beyond me.

Right to transfer offers written by councils that oppose them? This is illogical.

The current statutory guidance on consulting tenants about a housing transfer was published in July 2009 and takes no account of tenant led schemes under the Right to Transfer (RTT) which had been enacted in 2008 but not implemented by regulation until December 2013. This means that the Offer Document to tenants is the responsibility of the very council that opposes the tenants’ wishes which is illogical.

The 2009 guidance states:

Tenants need to understand why the local authority is proposing to transfer their housing (Annex 1, Para.9)

However in RTT cases the council is not proposing the transfer, in fact they are opposed to it. This internal contradiction demonstrates why it makes no sense for the Offer to come from the council.

Just as the housing transfer manual has been re-written to acknowledge the tensions inherent in RTT and transfer some responsibilities from councils to the tenant group, the guidance on tenant consultation similarly needs to be updated.

RTT is a tenant led process, the proposal to transfer is that of the tenants, not the council and so the Offer should be produced by and from the tenant group. To get to offer stage the tenants have already complied with a regulatory framework and the RTT statutory guidance, they can just as well comply with the guidance at consultation stage.

The substance of 2009 guidance is still sound, I don’t think it would take much to update it to include tenant led transfers and make it clear that the offer belongs to and comes from the tenants with the accompanying duty to take proper account of the guidance.

Being a trailblazer means having to work with the existing structures, even if they are no longer quite fit for purpose. Whilst this is not always easy, it does flag up those issues that need to be addressed so that RTT can work properly. So let’s hope that future RTT have a new version of the guidance that empowers tenants.

Housing transfer manual 2015/16

100 million) for the next transfer programme and the publication of the stock transfer manual for 2015/16.  Their press release takes an interesting angle, promoting it as an opportunity for tenant empowerment through the Right to Transfer (RTT).  The first Para reads:

Council tenants wanting more influence and control over their homes will have access to a share of £100 million.

Council tenants wanting more influence and control over their homes will have access to a share of £100 million to do just that, Housing Minister Kris Hopkins announced today (14 July 2014).

Mr Hopkins said the fund will help unlock further investment in maintaining and building social homes across the country.

Since November 2013, tenants living in council housing have had a right to request that the management of their homes be transferred to a housing association – and that the council cooperate in that process.

From today, tenant groups wanting to exercise this Right to Transfer will be able to bid for a share of this £100 million fund to help that process, with the money becoming available from next year.

The £100 million fund is also available for councils wishing to transfer their stock, with proposals that provide good value for money and have the support of residents.

In my view it is a good thing that the RTT is being promoted in this way and crucially that the stock transfer programme remains open for business with funding available to support it.  I led a workshop on RTT at the recent National Federation of TMOs (NFTMO) and it was full, so there is definitely the appetite for RTT within the TMO world.

Whilst I welcome the push behind RTT there is no prospect of TMOs making much of a dent in £100 million, even if debt relief is needed.  So I can only assume that the Government also expects some local authorities to be making applications for this round.

Speaking of applications, the 2015/16 transfer manual now includes two versions of the application for transfer (Annex A) to be submitted to HCA as referred to in my previous post.  This recognises that it makes no sense for applications for tenant led transfers to come from the local authority.

Tenant led application to HCA

The newness of the Right to Transfer (RTT) means that all involved are feeling their way through to a certain extent.  This means that some of the well understood processes for large scale voluntary transfers are having to be rethought.  One example of this is the formal submission of a transfer proposal to the Homes and Communities Agency (HCA).

To date LSVTs have all (nominally) had the support of the local authority concerned.  It was therefore logical that the council make the application to the regulator.  With RTT the local authority is not in favour of the transfer and may be actively hostile.  It was therefore anomalous that the application pro forma in Annex A to the March 2015 Transfer Manual only allowed for applications with the support of the local authority.

Whilst councils involved in a RTT situation would be likely to comply with their statutory obligation to co-operate with the tenant group exercising the RTT, it was still odd that the elected members would have to pass a resolution giving support to a proposal that they did not believe in.  From the tenants point of view it was also a potential stumbling block which would allow their council to obfuscate or delay the process.

This situation has been resolved by a common sense approach from the HCA who have come up with a RTT version of the Annex A pro forma where the application comes from the tenant group.  This is eminently sensible and puts control where it should be – with the tenants.  The requirements and need to make a strong case for transfer are still there, but it is for the tenant group to make the case.  This is great news for Bushbury Hill EMB due to the tight timescale we’re working to, but will also make things clearer for other tenant groups in future.

When choosing a partner, choose a good ‘un

I reported earlier that the tenants in Bushbury Hill had chosen Wrekin Housing Trust as their proposed transfer partner.  Is it serendipity or good judgement that their choice has just won a best landlord award at the recent UK Housing Awards? They won in the Large social landlord of the year category. My boss doesn’t like this picture but as she didn’t blag me an invite…

Wrekin Housing Group at the UK Housing Awards

I’m not suggesting that tenant groups looking for a transfer partner base their invitations on the shortlist of various awards, this certainly wasn’t a factor our Board were even aware of when selecting potential partners.  However performance, regulatory rating, financial stability and reputation are all relevant factors.  We asked Wrekin to take part in our selection process based on our good experience of working with them over a number of years.

The alternative to invitation is to have a completely open process and run it more like a tender, this has merits as you will reach a wider pool of potential partners and may unearth a hidden gem.  I know that LATMOS (in Lambeth, London) ran an open beauty contest and this generated considerable interest.  They chose to join WATMOS who are based in Walsall, so this shows that the best fit is not always on the doorstep.  The beauty contest has merits, but does require more time than Bushbury Hill had available.

However tenants make their choice my advice to groups using the Right to Transfer who want to transfer to a partner to be clear about their long term objectives and priorities and make this the basis on which they shortlist potential partners.  Tenants are not beholden to choose the highest bidder, finding the best fit for your group involves more than looking at the bottom line.