Speech

New era for rented housing

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Mark Prisk's speech to National Housing Federation.

Introduction

I am delighted to be back with you, here in Birmingham.

Last year I said I wanted to listen. And you in turn said you needed to know what the funding position would be, post 2015. And you added (for good measure) that you needed a longer term rent policy, to achieve sustained investment.

Well I heard you. That’s why, in June, we set out our policies for post 2015, 2 years before the current arrangements end. And it is also why we have set rent policy for not 3 or 5, but for 10 years. So you now have the long term certainty that you need.

Now, clearly, we won’t always agree. But I strongly believe in an open constructive relationship, and I am delighted that Matthew and David share that view.

Today, I want to talk about where we have got to, and where we are going.

I will set out the latest progress for both the affordable and private rented sectors; and explain how this will work in practice, after 2015.

But, I’d also like to talk to you about the challenge we all face as our population ages, with 60% of our household growth aged 65 years and older. It is a significant challenge that’s been neglected for too long. It is not just about building more homes, but thinking about the type, design and location of those homes, and also what support people will need as they grow older.

Wider context

Twelve months ago, our housing markets were still struggling. Both demand and supply were stuck, and confidence was low. And housebuilding rates were still recovering from the period under the last administration when they fell to the lowest level in peacetime, since the 1920s.

But since the spring, there have been encouraging signs that the housing markets are beginning to turn the corner. Housing construction orders are up 30% since last year, the highest for 5 years; developers are set to increase their outputs by at least 10%; and the latest quarterly figure for first time buyers is at its highest in 6 years.

These changes in the owner-occupier market have been helped in part by the launch of the Help to Buy Equity Loan scheme. In just 5 months we have already seen nearly 12,500 families reserve a home. But the scheme hasn’t just been popular with the public. Ten key lenders, who represent over 75% of the mortgage market, have signed up, and over 700 housebuilders have registered to sell Help to Buy homes. Indeed, over 80% of those house builders are either small or medium sized businesses.

Of course, there have been those who have criticised the scheme. It’s been claimed that it could fuel house price inflation. Yet this ignores the scale and character of the scheme - over its 3 year existence, the Help to Buy loan would represent just 2% of all sales.

And these concerns about demand also ignore our Housing Strategy which tackles both demand and supply side factors.

We have, for example, reformed the planning regime. We’ve simplified the National Planning Policy Framework, from over 1,000 pages to just 47 and condensed 7,000 pages of planning guidance, into 2 easy-to-use web pages. The early signs are encouraging, with planning approval rates at a 10 year high of 88%.

And over the last 12 months we have helped unlock large sites, which had got stuck in the system. So far 10 large schemes have been unlocked bringing forward 68,000 homes to buy, to rent, with many affordable homes as well.

A good example is Cranbrook near Exeter. It’s the first new settlement to be built in Devon for 600 years. Our intervention (through a recoverable loan) means that the whole development can now take place, bringing together schools, the town centre, shops, workplaces and transport links.

And our intervention means we can help ensure that these developments become sustainable communities and not anonymous estates.

We are also freeing up surplus public sector land. We have already sold land for 58,000 new homes and plan to release land for a total of 100,000 by March 2015.

From that year the Homes and Communities Agency will become the default disposer of central government’s public sector land. This will ensure that we engage as a single experienced team with developers and builders. And we want councils to match us in turning redundant land and buildings into family homes.

Let me turn specifically to the privately rented and affordable housing sector.

More homes to rent, more affordable homes

While I passionately believe that we should help everyone who wants and can afford to buy their own home, I also recognise the importance of our rented sectors. They have been neglected for too long by governments, both blue and red. Indeed, the number of affordable homes actually fell by 420,000 under the last administration.

But over the last 12 months we’ve started to turn the corner.

For the private rented sector (PRS), we moved quickly to implement the Montague Review. We introduced the Build to Rent fund and the new Housing Guarantee schemes were launched. The Build to Rent fund will stimulate development, by supporting off-the-shelf investment opportunities. Worth £1 billion, it’s proving highly popular in the market.

Bids for the first round are currently going through due diligence, but I can say that the first contract at Centenary Quay in Southampton has already been signed. With further contract signings imminent, we decided that we can now move forward and so I announced last week that our second round is open for business, with a minimum of £400 million available.

Alongside the Build to Rent fund are the two Housing Guarantee Schemes. Together these will underpin up to £10 billion of long-term investment debt, supporting purpose-built, private rented and affordable homes. These guarantees offer a long-term commitment by government to the sector, which has (in the past) all too often been absent.

In June, I announced the appointment of Affordable Housing Finance (AHF) PLC to deliver the Affordable Housing Guarantee, worth up to £3.5 billion. There has been a very positive start and AHF is already evaluating the first applications. Indeed several more applications are about to be made from providers from across the country.

We are now also able to consider direct applications for the Private Rented Guarantee Scheme, which will operate hand-in-hand with the Build to Rent fund. Several potential borrowers are already discussing applications with my officials.

We are also seeking to raise standards and drive out bad practice in the PRS. That’s why we’re supporting local authorities in cracking down on those minority slum landlords who exploit people with ‘beds in sheds’. And it’s why we are changing the law to require all letting and managing agents to be part of a redress scheme, making it easy to hold them to account.

We want the PRS not just to provide greater choice to tenants, but to be a better sector.

Affordable homes

Turning to affordable housing, the last year has seen real progress. Under the current Affordable Homes Programme, over 84,000 new homes have already been delivered, and we are well on track to meet our 4 year target of 170,000. And this has been achieved while also moving to a new business model which levers in £3 of private investment for every £1 of government grant.

Some commentators doubted this could be done, but it is being achieved. Many of you and your staff have been at the heart of this transformation and you can and should take pride in these results.

It’s vital, however, that we complete the job and deliver those 170,000 homes. Not just because it’s government policy, but because people need those homes now.

After all, in the midst of talking about housing numbers, we must never forget (and I will not forget) that building homes is about providing that most basic of needs, namely shelter. It’s a need we all share and one which is essential to a healthy, happy life. For me building more homes is about people not policy.

Now, as you know, in the Spending Round in June the Chancellor set out our longer-term policies for the sector. We will invest £3.3 billion over 3 years from 2015. With private investment of up to £20 billion, this will deliver up to 165,000 new affordable homes.

But to fulfil this programme we will all need to rethink our whole approach, and be more innovative.

Let me give 1 example. The new Affordable Rent to Buy scheme.

Over the summer we have worked with the sector to design this scheme. It will help people who need a limited period of support - in the form of a sub-market rent - to help them achieve their aspiration of home ownership. The money will fund new build homes, let at affordable rents, for a fixed period of around 10 years before being sold, with the sitting tenant getting the first chance to buy. We want to continue working with you in the sector, so we can start delivering these homes at the earliest opportunity in the new Spending Round.

We’ll fund this differently to conventional affordable housing. Rather than grant, we are looking to provide investment in the form of equity loans at competitive rates. Recoverable investment is an innovation, and it’s one we hope will deliver more affordable homes at good value for money for the taxpayer, while giving you, as the providers, flexibility as part of a wider approach you take to your assets.

But we will also need to maximise the value we get out of every pound of grant funding. We will do this through what we call ‘something for something’ deals. In considering bids for grant, we will expect providers to bring forward ambitious plans for maximising their own financial contribution, with a rigorous approach to efficiency, and clear plans to maximise cross-subsidy from the existing stock.

Under the current programme, a modest level of relets have been converted to Affordable Rent, or sold and the proceeds reinvested. There has been a wide spectrum of outcomes, with some landlords having a target of 50% of relets, while others are doing none. Under the next programme we expect providers to take a rigorous approach in looking at relets and asking how they could best help build more homes to help more families. This will be a significant change, especially for some providers.

Now we recognise that this sector comprises a broad variety of players - of different origins, different sizes and different resources and capabilities.

So, while I am clear that there is a need to make better use of your asset base (conversions, sales, and organisation efficiency) I know that there is no one benchmark. Instead we need to encourage a shift in culture of the sector and organisations to one which seeks continuous improvement. Always think: how can we do more, and be better at what we do.

There are good examples in the sector already.

I know, for example, that Hyde has achieved £7 million cash savings this year, rising to £10.5 million next year, through a process of rationalisation across the group - which has included centralising procurement, office and support services.

Fabrick Housing Group, working with Middlesbrough Council, was able to continue regeneration work by signing a Joint Venture, which has enabled them to benefit from capitalising future revenue streams that the council was entitled to because of a previous Large Scale Voluntary Transfer.

And Affinity Sutton is achieving annual ongoing savings of £5.7 million from mergers, and this year have achieved headline efficiency savings of £13.4 million.

Now at my recent round table meeting I heard a plea for central government to encourage local authorities to work more closely with registered providers. I agree. I understand that the Federation will be working with the Local Government Association, and following the round table I am able to confirm today that my department will host a summit in the late autumn to help facilitate this work.

Housing an older society

Turning to the issue of older people, it’s a great thing that people are living longer. Indeed the population of over 65s is growing at over 3 times the rate of the rest of the population. And by 2030 those over 85 will have doubled since 2010. This is a significant change.

However, the challenge is to maintain a good quality of life in older age, especially for our ‘older old’.

We recognise the value of helping older and disabled people live in their own homes. Despite the huge financial pressures, we secured over £725 million to help people who wish to stay in their own home, under the Disabled Facilities Grant (DFG). And over the last 2 years we have also found an additional £60 million for DFG.

It’s also why, following the adult social care white paper, we are providing at least £200 million for specialist housing for those needing care.

I am pleased to say that both these funds have now been recognised in the Spending Round announcement. Some £220 million has been secured for the DFG in 2015 to 2016 (a 19% increase on the funds for 2014 to 2015) alongside a further £115 million for the specialised housing fund.

Perhaps most importantly, the Spending Round also set up the Integration Transition Fund. This £3.8 billion fund for health and social care services will take forward the government’s joint thinking on how to improve these services and how to improve the quality of life of those who depend on them.

Together with my colleague, the Minister for Care and Support, Norman Lamb, I very much welcome the contribution that David Orr and others have given at a recent meeting we held to explore these issues.

We will be holding further roundtable meetings to focus on the barriers and solutions to the challenges we face.

It is really important that we fully address the needs of people, especially the elderly, not simply expand the supply of homes. It’s a really important issue and we’re open to good ideas.

Conclusion

So, ladies and gentlemen, I believe that much has been achieved over the past 12 months.

Confidence has returned to the markets, with many more people now saying yes to homes.

A bigger and better private rented sector with institutional investors providing quality, purpose-built homes.

And real progress in building 170,000 more affordable homes, with settled grant and rent policy enabling development for years to come.

And it’s founded on a Housing Strategy which is broad in scope and long in vision. One which tackles both supply and demand. Which helps tenants, as well as homebuyers. And one which recognises that alongside new homes, we need to make the very best of existing building and land.

There is no single solution to our housing needs. And nor will we overturn a generation of undersupply in a single parliament.

But I believe that, working together, we can ensure that people will have the homes they need now, and for future generations.

Thank you.