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

2. 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

3. The HCA’s New Regulatory Framework

4. 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

5. 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

6. 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

7. 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

8. 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

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

10. 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

11. ALMOs as Registered Providers: issues to consider

12. Affordable Homes Programme 2015-18
Grant available for new housing development from HCA/GLA for 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

13. 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

14. ‘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

15. ‘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

16. ‘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

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

18. 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

19. 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

20. 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...

21. 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

22. 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

23. 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

24. 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

25. 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