ALMOs as Registered Providers: pros and cons Roger Jarman, HQN Associate 26 June 2015

What I will cover... Canter through changes in HCA regulation Affordable Homes Programme Investment partnerships Accessing HCA/GLA grant Registering your ALMO as an RP: Benefits Disbenefits/risks Discussion

The HCA’s New Regulatory Framework

Regulatory Framework In the light of the changes in the sector the HCA looked at how the regulatory framework needed to evolve... ...hence new Governance and Financial Viability Standard and a Code of Practice published March 2015 HCA priority: protection of social housing assets  Protect taxpayer investment Protect tenants  Maintain investor confidence: continued growth in supply

Regulatory changes Key requirements for RPs: Don’t put assets or viability at undue risk Skills and capabilities of board to match activities Active stress testing Maintain records of assets and liabilities Boards to certify compliance with Governance and Financial Viability Standard

Code of Practice Regulator remains committed to co-regulation Not a return to guidance notes and circulars  Expands on Governance and Financial Viability Standard content  Aid to how compliance can be achieved  Regulator will have regard to the Code but enforce against the Standard

The new model – modes of operation for the HCA The HCA will use its quarterly survey to provide an ongoing early warning system regarding larger providers’ short-term viability Two modes of operation: Periodic In-Depth Assessments (IDAs) Annual Stability Checks But not applicable to RPs with less than 1,000 units

Regulating the Standards Useful summary of new approach in Regulating the Standards, HCA, June 2015 Sets out: HCA operational approach Data and information requirements Regulatory judgements Regulatory notices and gradings under review Other statutory activity

Regulating LA Registered Providers Only consumer standards applicable No data return requirements Regulatory notices published where regulator judges serious detriment

Regulating RPs with less than 1,000 units, ie, developing ALMOs Economic and consumer standards applicable Limited data requirements applicable Not required to complete quarterly survey Not subject to annual stability check Not subject to periodic in-depth assessments Subject to annual review of financial statements and, if relevant, the audit management letter and, if developing new homes, regulator normally seeks and assesses financial forecast information Regulatory judgements not applicable Regulatory notices issued where the regulator has evidence that provider is in breach of an economic standard or for serious detriment finding

ALMOs as Registered Providers: issues to consider

Affordable Homes Programme 2015-18 Grant available for new housing development from HCA/GLA for 2015-18 Affordable Homes Programme £1.25bn in London and £1.7bn for the rest of England Traditional RPs are showing some reluctance applying for grant funding because of ‘strings attached’ [especially in London(??)] Local authorities and/or their ALMOs are well placed to access available funding

Affordable Homes Programme 2015-18 ...(cont’d) Prospectus issued January 2014 by HCA Initial bids by 30 April 2014 to cover 75% of allocation But there is ‘continuous market engagement’ (CME) too... All indicative proposals for firm schemes by 30 May 2016 New supply defined as: New build Rehabilitation including acquisition and works ‘Re-improvement’ of stock

‘Investment partnerships’: the conditions to be met Providers of new homes using grant funding must register with the HCA Properties to be let at affordable rent or sold under shared ownership terms; with rent increases at CPI + 1% No overlap with other schemes Submission for grant must set out the following: Unit mix and size Tenure (AR/SO) Any specific provision (eg, supported housing) Rural scheme (or not) Estimated scheme costs plus amount and sources of funding

‘Investment partnerships’: the conditions to be met ...(cont’d) Statement needed setting out how scheme promotes efficiency in construction and creates/safeguards jobs/ apprenticeships ‘Qualification questionnaire’ must be completed: This tests prospective partners for technical ability to deliver, financial ability to deliver and overall financial standing Last two years’ audited financial statements required...and ‘additional financial checks can be made’ Construction to meet design and quality standards

‘Investment partnerships’: HCA expectations Sales should be used to generate resources to build new homes The building of smaller properties preferred Use of New Homes Bonus/CIL/S106 to support new house building Open Book basis of accounting VfM should be demonstrated

HCA requirements of developing RPs during construction process Operating with IMS Certification processes Audits during and after construction

Councils and their ALMOs: accessing HCA/GLA grant Under the 2008 Act (by default) local housing authorities are registered providers. ALMOs must register with the HCA in their own right if they want to directly access grant funding Different scenarios are evident for developing Councils and their ALMOs (for example): Derby – ALMO registered as RP – both the Council and the ALMO have been developing new housing in the City Newcastle – uses Leazes Homes (an RP) as developer Cheltenham – ALMO registered as RP Shropshire NE Derbyshire – ALMO registered as RP Stockport

Council as RP with ALMO as development agent – standard model New stock owned by Council but managed by ALMO HCA audits Council to check compliance As the Council’s agent, the ALMO meets all the compliance conditions imposed by the HCA HCA regulates the Council to ensure the Finance, Governance and other Standards are met

Registering your ALMO as an RP: benefits Access to development grant Possible access to private finance Registration might be beneficial where an partner authority has little borrowing capacity and land to develop; less so where these conditions do not apply Tenants do not have RTB but...

Registering your ALMO as an RP: disbenefits/risks Meeting initial registration criteria Compliance with requirements for development funding and ongoing regulation Changes sought/needed to Mems and Arts (eg, over working outside original district) – consent needed Resources generated from business activity ring fenced for social housing purposes Relationship management with the local authority can be complex and challenging especially where delivery is through a consortium ALMO cannot access RTB receipts from the local authority for development funding Issues around securing loans from the local authority for funding

Other issues to consider... Potentially giving HA tenants the RTB: Stock likely to diminish over time RP business plans thrown into doubt with development programmes cut back/abandoned Complications when ALMO is brought in-house if, as an RP, it has built its own stock – consent needed

Other issues to consider... ...(cont’d) Tenure of board members – different rules apply to RPs cf local authorities/ALMOs Registration criteria, consents framework, etc, are due to be reviewed following recent review of the regulatory framework

There are other means to boost housing supply... Using the provisions of the Localism Act, local authorities can create companies to develop new housing (possibly through joint ventures) Opportunity to build for private rent and sale Profits can be used to develop housing at affordable/social rent LB Newham is one authority that is following this approach More traditionally, working with other partners, eg, housing associations

Roger Jarman, HQN Associate jarmanroger@aol.com Will securing RP status for your ALMO bring your authority and its residents long-term benefits? Or is it just not worth it? Roger Jarman, HQN Associate jarmanroger@aol.com