Affordable Homes Programme Framework for Package Proposals

Contents  Outline of model and drivers  Products deliverable under the programme  Working in a local context  Conversion of existing properties  Package offers  Assessment and negotiations  Contracts and review  Next steps

Affordable homes – Spending Review outcome  Government investing over £6.5bn in housing over the next 4 years, including over £2bn to make existing social homes decent and £4.5bn to fund new affordable homes. Target to deliver up to 150,000 homes over 4 year period (incl est. 60,000 from commitments). Forecast of £2.3b related to existing commitments  £4.5bn includes provision for: - Affordable Rent - Bringing empty homes back into use - Mortgage Rescue - Places of Change - Gypsy and Traveller sites  Majority (c.£2b) directed to the delivery of homes for Affordable Rent (including empty homes) option of Low Cost Home Ownership allowed for.

The Delivery Model for new supply of affordable housing  ‘Something for something’ deal with providers  Provider package proposals will cover both delivery of new homes, and conversion of existing homes: -Proposals for conversions of existing stock to affordable rent (plus shared ownership or market sale) -Information on capacity generated through conversions, contributions from own resources and other sources (e.g. RCGF) being applied to deliver new homes -Proposals for a 4 year programme of new homes and HCA investment being sought. Covering identified schemes (initial years) and indicative numbers for the future years.  Following assessment and negotiation of offers, delivery of agreed packages will operated on a framework basis. Flexibilities will be built into the frameworks. HCA acting as co-investor, alongside delivery partners.  An ‘across programme’ approach, moving away from scheme by scheme.  Close collaborative working with local authorities, for both the HCA and providers will be critical.

Products deliverable under the programme  Affordable Rent will be the principle element  But will also include: Affordable Home Ownership Mortgage Rescue Hostel provision through the Places of Change scheme Gypsy and Traveller sites, and Empty Homes packages (using product options offered for temporary and permanent solutions)  Social Rent in exceptional circumstance – e.g. supported housing, family homes (where issues of benefit caps) or regeneration schemes involving relocation of existing social tenants. A strong case needed.

Affordable Rent  A form of social housing  Let at up to 80% of market rent (inclusive of service charges)  Must be provided by Registered Provider, subject to TSA regulations. Revised tenancy standard being developed.  Not subject to the rent restructuring policy for social rented housing  Fixed term or Assured tenancies, according to needs. A minimum of 2 years tenancy, up to lifetime (older people, vulnerable leaseholds and families)  Maximum rent level assessed to reflect individual property characteristics, using RICS valuation method.  Annual increases of up to RPI + 0.5%, with rebasing of the rent on each new tenancy

Affordable Rent continued  80% of market rent a maximum, not a fixed requirement. But providers expected to maximise financial capacity by working to 80%  HCA would need to understand how any proposal to charge lower rents would help to meet particular needs.  May be circumstances where this is appropriate e.g. to keep rents within the Local Housing Allowance or fragile local rented market.  At end of tenancy, if provider does not issue a further tenancy, it will be required to offer reasonable advice and assistance to the tenant to find alternative accommodation  Option of selling the property to tenant on shared ownership terms  About flexibility

Affordable Rent continued  Affordable rent is intended to allow greater flexibility, focus state support on those in greatest need for as long as they need it and secure greater value for money for available investment.

Other Products  Affordable Home Ownership: -will consider proposals including affordable home ownership as part of overall mix for schemes – supported by Local Authority and fitting local housing market -value for money important -proposals that only include affordable home ownership will not be considered -strong presumption against subsidising on S106 sites -two options of shared ownership or equity loans (branded as Home Buy) -no Rent to Home Buy or Intermediate Market Rent

Other Products continued  Affordable Home Ownership: - No change to eligibility requirement (up to £60k household income) clear priority for assisting existing social tenants -targeting and marketing plans -Shared Ownership including HOLD and Older Persons Shared Ownership. Same terms of 25% to 75% equity purchase, and rent of 2.75% on unsold equity (cap of 3%) -Equity Loans – 85% of purchase price

Other Products continued  Supported Housing: -where case proven may be at social rent -HCA funding only for provision or improvement of accommodation, cannot fund other services -providers to gather information at appropriate stage re: local strategic prioritisation; details of service(s); intended outcomes; identified revenue funding source; and exit plans or alternative uses HCA may request information to support firm proposals. Covered in Quarterly Reviews as proposals are firmed up.

Other Products continued  Mortgage Rescue: -Funding available 2011/12 and 2012/13, small amount in 2013/14 for applications in the pipeline (no new applications in Spring Will discuss with RPs whether part of syndicate to support mortgage rescue. Expecting existing lead providers to continue their role. -Seeking greater value for money -Lead providers to work with local authorities to determine likely levels of Mortgage Rescue cases over the period. -A finite programme requiring careful management, and prioritisation

Other Products continued.  Empty Homes -£100m indicative budget -LAs lead in determining local empty property strategies -Providers expected to respond as part of package proposals -Options for short term affordable rent or permanent affordable rent or home ownership solutions -Value for money a key consideration -LAs encouraged to use HCA resources alongside own resources as part of Empty Homes Strategy -Potential use of income from New Homes Bonus

Other Products continued  Places of Change programme: -Proposals invited from providers to develop new hostels or improve existing, inadequate hostel provision for homeless people -Accommodation will be the priority for funding but expect to see proposals for joined up provision of services and accommodation. -Not just about accommodation -But large-scale non-accommodation proposals will not be considered

Other Products continued  Gypsies and Travellers sites: -Value for money a key consideration -Funding for new sites and additional pitches one existing sites will be given priority over refurbishment proposals -Permanent (up to at least ten years), temporary or transit sites considered -Interested in new solutions – including RPs buying land for local community groups to build and manage sites or shared ownership proposals High level ‘indicative’ expressions of interest in participating in Places of Change and/or Gypsies and Travellers programmes, as part of package, where specific proposals not yet worked up.

Other Products continued  Works to Existing Stock -Will also consider proposals for re-improvements or major repairs to existing stock; e.g. remodelling supported or older persons stock extensions or loft conversions to provide additional accommodation -Funding of repairs exceptional  Home Ownership for social tenants -we will continue to fund Right to Acquire and Social Home Buy on an as needs basis.

 Providers must work closely with local authorities in putting forward packages and developing proposals, to ensure fit with priorities  HCA will seek information on discussions with LA(s) (pre and post submission of proposals)  HCA will work closely with LAs in investing in new supply – express LA support will be sought (as proposals firm up).  HCA will work with LAs on on-going basis (building on existing work and relationships) in delivering the packages –to accommodate LIP priorities, –to act as enabler between LAs and providers receiving investment to allow LA priorities to be delivered –Where requested, supporting LAs through our wider enabling role to bring forward new supply –Incorporating LA land and resources to meet needs through the 4 year programme using commissioning opportunities as appropriate. Working in a local context

 Critical element in generating additional financial capacity.  Agreement to convert only given where RPs commit to use extra capacity for new supply  Will consider package offers which include a range of conversion and/or disposal options, including conversion to shared ownership, market rents or outright sale.  Expect proposals for conversion/disposal to reflect a strategic approach to local asset management consistent with local housing needs, providers to have consulted LA partners on their approach.  Scope to generate development capacity through conversions will not be uniformally distributed between areas, and may not match areas with opportunities for new supply  We recognise that ring fencing capacity for re-investment in new supply in a narrow area is unlikely to enable the new model to work in practice Conversion of Existing Properties:

Conversion of Existing Properties: continued  But we will encourage providers to aim to reinvest in new supply within the same broad LIP areas.  Investment Partners are invited to consider whether they wish to offer conversions of existing 2008/11 AHP commitments for Social Rent to Affordable Rent  Providers should also actively consider converting Intermediate Market Rent/Rent to Buy properties at relet, to affordable home ownership  Unlikely that 100% conversion of relets in a location will be acceptable.

Package Offers  No groups of providers prevented from submitting proposals – but will need existing stock to convert or access to other resources to minimise HCA investment  Want providers with capacity to participate and for existing partnerships to continue in developing consortia bids, and provide a route for smaller rural and community based providers to access resources  Overall offer –Indicative quantum of new supply –How capacity generated  Level of detail sufficient to establish: –that offers are credible –that proposals meet identified needs and address priorities –broad impact and geographical spread of the proposals –comparisons between providers, particularly of value for money

Package Offers continued  Recognise that it will not be possible to be precise about all details of the 4 year programme. On-going engagement will be needed  Understand need for flexibility (eg volume and location of re-lets in any area)  Contract captures at high level proposals and delivery intention  Review (all aspects) on open book basis  Adjust parameters, across the range of variables, based on progress

Package offers – information requirements New Supply:  Quantum of new homes to be delivered  Indicative location – by LIP area and LA (if known)  Anticipated mix of homes, covering for example: larger homes number of homes in rural areas anticipated delivery of supported housing and homes for the elderly  Anticipated tenure of homes  Timing of delivery (anticipated outputs by year)  Estimated average and aggregate scheme costs (for each HCA administrative area)  New HCA investment requested (for each HCA administrative area)  Anticipated income from net rental stream of new homes proposed  Affordable home ownership – estimated aggregate and average sales values, and anticipated average contribution from purchaser

Provider offers – information requirements continued New Supply:  Estimated provider contribution from existing capacity  Anticipated quantum of homes delivered at nil grant through S106 agreements.  Outline of draw down requirements for new investment by year and HCA administrative area (payment at completion)  Outline of firm schemes and indicative proposals  Outline of design and quality standards Conversion of existing stock:  Estimate of indicative number of re-lets to be converted to Affordable Rent, and proportion of total relets this is anticipated to represent  Estimated number of re-lets to be converted to other tenures  Indicative location of anticipated conversions by LIP area (and LA if known)  Anticipated annual rate of conversions  Estimated average rent levels (and service charge)  Estimate of additional borrowing capacity generated from re-let conversion.

Package Offers (general aspects)  Achieving procurement efficiencies – procurement statement required  No need for providers to maximise delivery pipelines in a way which drives up costs  Expect providers to maximise S106 agreements which can be delivered at nil grant. Reserve the right to test economics of individual schemes through delivery appraisal model. Will make the model available to local authorities to use in negotiations on S106 sites  Supplementary information required for affordable home ownership proposals outlining individual targeting and marketing plans to maximise purchase of properties by existing social tenants.  Skills and employment statement

Assessment/negotiation  Single set of negotiations per provider or consortia led by an Agency ‘lead investor’ team  How do offers meet identified needs?  How do offers deliver local priorities identified in LIPs? Will verify fit with LAs  Is provider maximising capacity within proposals –Volume, proportion and income from conversions –Rationale for charging less than 80% of market rents (if applicable) –Assessment of broad balance across proposed areas between capacity generated by conversion and new supply, and the efficient use of that capacity  Test realism of proposals

Assessment/negotiation continued  Value for money (comparative) –Costs and investment – aggregate value for money – across high and low cost areas –Number of conversions required to support new supply –Payment profiling requirements –Nil grant/s106 delivery –Use of RCGF and DPF –Driving costs down/not competing for early delivery  Assessment of capacity/impact on viability (regulator)

Assessment/negotiation continued  National aggregation and moderation to assure the consistency of assessment and overall extent that need is matched to supply. Will consider: -Degree to which need is met and areas of potential under and over supply -Aggregate value for money -Payment terms -Comparison ratio of voids conversion to new supply -Comparison of rent levels across areas between providers -Proposals for use of RCGF Key objective of considering aggregate impact of proposals against need to ensure it does not lead to over supply, or conversely areas of need not being addressed. May require reviews to proposals before a package is agreed.

Contracts and review  Standard Form framework contract covering delivery of new homes and conversion of existing to new tenures  Covering defined schemes (for early delivery) and indicative proposals for latter stages of programme  Recording aggregate costs, levels of investment, outline delivery forecasts and parameters and range of flexibilities which will be considered within frameworks, an open review process  Will require local authority active support prior to our investment in new schemes

Contracts and review continued  Annexes covering: New Homes -amount of investment to deliver specified number of homes -broad locations of new homes -broad mix -average anticipated costs -indicative number to be delivered through S106 at nil grant -amounts of RCGF to be applied -outline of payment terms for new supply Existing Homes -proportions of voids to be converted to affordable rent or other tenure, and anticipated total number -anticipated timescales for conversions -outline locations at sub-regional (LIP) level -investment capacity generated

Contracts and review continued  Quarterly and open book, comparing assumptions with actual delivery  Look back at actuals and look forward to forecast delivery, for conversions and new supply  Agree flexibilities and variations to contract as required  Variation could require increased levels of conversions, reduced HCA investment or increased affordable housing supply  Will consider: Pace and volume of conversions and comparison to starts against milestones Income generated from conversions, impact on ability to deliver Delivery of outputs – starts and completions Costs of delivery Evidence of need and LA support as schemes are firmed up

Affordable rent – next steps  Developing programme framework  Stakeholder and provider engagement  Framework and information requirements – January/February  Partner offers and negotiations – February to April/May?  First contracts – May/June?