Investing in Affordable Housing: A Consultation

Chapter 1

INTRODUCTION

1. Last year, Firm Foundations 1 set out a vision for the future of housing in Scotland based around four key elements: increasing the supply of housing; improving choice; creating sustainable and mixed communities; and securing better value from our investment in affordable housing. Firm Foundations set out our view that affordable housing has a vital and evolving role as part of the wider housing system. In order to maximise the contribution of affordable housing to meet the needs of current and future tenants, we proposed that there should be a more strategic and competitive approach for delivering our investment. We promised to consult in more detail about how this would work and our considered proposals are set out in this paper.

2. Currently, most individual registered social landlords ( RSL s) develop for themselves the new affordable homes that they require. They are responsible for both the procurement of these new assets and for the eventual management of the homes once completed, and they have strong relationships amongst the local community. There are a number of strengths to this approach which reflect the local focus of RSL s, many of which were set up to address poor housing and to regenerate local communities. RSL s tend to be close to and understand their local areas and the housing needs of local people. RSL s also hold knowledge about what design and quality should be appropriate and should be specified for the new homes to be provided.

3. But there are also weaknesses in this approach. The average size of schemes is low, at around 14 homes, which limits the scope for process and cost efficiencies. Opportunities for specialisation in the development and procurement functions and for securing improvement in good practice are reduced. And there is an increased risk of duplication amongst RSL s because so many operate similar development and procurement functions. This situation has arisen, in part, because the incentives for RSL s to reduce costs were weak at a time when funding was readily available from both Government and private sector lenders. We have concluded that there is scope for many RSL s across Scotland to develop a more streamlined and efficient approach to procurement and management of their assets, and this underpins our approach to investment reform.

Our objective is a network of Lead Developers across Scotland in order to strengthen the sector’s approach to procurement and investment, and through which we will channel the majority of our Affordable Housing Investment Programme. This consultation document proposes how a Lead Developer model could be implemented across Scotland. It builds on the strengths of the RSL sector and the previous work undertaken to improve the procurement of new affordable housing 2. on the progress made so far this year in securing more value from Housing Association Grant, and on existing collaboration amongst a number of RSL s across the country which are seeking to deliver increased efficiencies and streamline their development and procurement processes. Our proposals are designed to accelerate and encourage these behaviours in order that the sector as a whole can increase the supply of new affordable homes and enable our investment to go further.

4. Local authorities have potential roles as house builders, land suppliers and assemblers, investors, strategists, landlords, advocates, co-ordinators and service providers. COSLA and the Scottish Government are agreed that Local Housing Strategies are at the heart of the new housing planning and investment framework. The new-style Housing Strategy will have a clearer focus on strategic outcomes, for housing and for related support needs. It is expected that the Local Housing Strategy will feed into and support the local authority’s Single Outcome Agreement. Local authorities, as strategic housing leads, should drive the delivery of local housing priorities, and new housing supply must contribute to meeting these priorities. Both central and local government accept that the immediate need is to boost the supply of affordable housing across Scotland and are committed to working together to achieve this. The proposals for investment reform set out here are intended both to recognise the role of local government in housing investment, and to strengthen the agreed strategic role of local authorities within the reformed housing and planning delivery framework which has been implemented over the past year.

5. The Scottish Government and COSLA recognise that in the longer term there is merit in further devolution of investment responsibilities to local authorities, as the strategic housing authorities, and will jointly consider this subsequent to this consultation, but accept that the immediate need is to boost the supply of affordable housing across Scotland and commit to working together to achieve that. Following this consultation, we also intend to discuss the responses with the Scottish Federation of Housing Associations ( SFHA ) before deciding the way forward.

Relationship to the Government’s Purpose and National Outcome

6. The structure, size and performance of social housing is not only a critical issue for the 610,000 households 3 living in social housing, but for Scotland as a whole. Better quality and more efficient affordable housing will contribute towards the Government’s purpose 4 of higher sustainable economic growth and the targets which underpin it:

• by maximising the provision of good quality affordable housing to many lower income groups, the social housing sector contributes towards the Government’s solidarity target of reduced income inequalities;
• by embedding higher standards of construction into future new build properties and continuing efforts to meet the 2015 Scottish Housing Quality Standard for existing stock, the sector not only contributes to tackling fuel poverty but also sustainability by reducing carbon emissions;
• through effective planning, innovative practices and a commitment to mixed communities, the sector has a key part to play in reducing spatial inequalities enabling progress against cohesion objectives;
• through wider role activities, RSL s are at the forefront of many innovative programmes to improve participation in employment;
• by working to improve the cost-effectiveness of new homes and working to limit management and maintenance costs, the sector has an important part to play in improving productivity ; and
• by increasing the supply of affordable housing, the sector is also making a vital contribution towards attracting and increasing Scotland’s future population and providing homes for its workforce.

7. As well as contributing directly to delivery of the Government’s purpose, good quality and cost effective affordable housing also contributes to the set of national outcomes 5 agreed with local government, in particular:

• Tackle the significant inequalities in Scottish society

By taking a more strategic approach over Housing Market Areas, targeting resource where it is most needed and increasing the supply of affordable housing for households in relative poverty.

• Live in well-designed sustainable places where we are able to access the amenities and services we need
• By remaining committed to the principle of supporting housing developments which contribute to the creation of sustainable, mixed communities and the regeneration of existing communities, whether urban or rural. The reformed approach to investment delivery should support a mix of tenures and tackle concentrations of poverty. New developments should take account of the changing demographics and should reflect the work and advice of Architecture & Design Scotland. Our investment must support well designed and constructed residential environments which relate to the patterns of development around them, which discourage unnecessary consumption of energy and resources and which promote healthy lifestyle choices. Provide public services that are high quality, continually improving, efficient and responsive to local people’s needs

By setting clear quality thresholds for new developments and incentivising efficient and customer-focussed behaviour on the part of RSL s through pre-qualification processes and increased competition. Our proposals for investment reform are consistent with the work and focus of The Scottish Futures Trust 6. They have regard to McClelland’s recommendations 7 and the drive for shared provision of services to the public in order to aid efficiency and quality of service delivery.

8. In short, decisions about the quality, location, accessibility and affordability of our affordable housing stock will be critical in determining Scotland’s future prospects and assisting with the regeneration of our communities. A more strategic and competitive approach to our investment in affordable housing has an important part to play in realising these ambitions.

The financial and economic situation

9. Since Firm Foundations was published the financial and economic environment has changed considerably for RSL s and other business sectors. The general supply of private finance and the terms on which lenders make funds available are of major concern. We have had to consider our immediate response to these rapidly-changing circumstances and to re-appraise our longer-term goals for affordable housing.

10. Our immediate response to the emerging crisis was set out by the First Minister on 19 August 2008 8 when he announced a package of economic actions in response to the changing economic climate. One of our actions for housing, in conjunction with our local authority partners, has been to accelerate £100 million of our planned investment in affordable housing to be spent this year and next. We remain vigilant about further developments and the potential impact on the supply of new affordable homes and the wider Scottish economy.

11. We have also considered whether now is the right time to proceed with investment reform. We remain committed to increasing the choice and supply of new affordable homes; and the requirement to address the general shortage of housing supply, including affordable housing, that was the backdrop to Firm Foundations has not receded. Since Firm Foundations was published the barriers for many households that aspire to home ownership have changed from high house prices and a lack of choice in the market, to reduced access to mortgage finance. While it is not yet possible to estimate the long-term consequences of the recent financial and economic turbulence it is likely that the need for affordable housing will be reinforced. This makes it even more imperative that we increase the number of quality homes that our existing programmes can deliver.

12. It is not just home-owners, or aspiring owners, who have been hit by the credit crunch. An eventual return to the easy access to private finance at competitive rates and on favourable terms, which previously characterised lending to the RSL sector, also looks increasingly less likely. This will have consequences for how the sector structures its funding of new affordable homes in the future and how it manages its relationships with lenders.

13. Although we are seeking comments from stakeholders as to whether they share our view, our conclusion is that the financial and economic situation strengthens, rather than reduces, the need for investment reform. A more robust and increasingly sophisticated approach to business planning and asset management by RSL s will be essential to cope with a more challenging lending environment and this aligns with our proposals for selecting Lead Developers. Finally, we anticipate a need for increasingly careful allocation of resources to reflect the strategic priorities of local and central Government and to demonstrate that we have secured the best possible value for the money we invest on behalf of tenants and taxpayers.

Question 1

To what extent does our assessment of the current economic situation reflect your assessment?

Question 2