Deregulation and taking charge of your future

The deregulation measures relating to social housing in the Housing and Planning Act 2016 are going to have a more significant effect on the sector’s ethos and operation than any piece of housing legislation in the last 20 years.

When looked at in conjunction with policy initiatives like Voluntary Right to Buy, the cumulative impact over the next five years could be fundamental.

The key changes on deregulation include:

  • The removal of the need to obtain the HCA’s consent before disposing of social housing assets
  • The removal of the need to obtain the regulator’s consent before transferring engagements or other constitutional changes
  • Changes to the level of influence local authorities can exert over registered providers
  • The introduction of the Voluntary Right to Buy
  • The duty on a local authority to consider selling its high-value properties once they become vacant and the requirement to make a payment to the DCLG regardless of whether those assets are sold
What impact could these changes have?

Strategic flexibility

The release of the HCA’s grip will see it police rather than veto registered provider’s (RPs) key corporate strategic ambitions.

The new freedom to sell social housing assets without obtaining regulatory consent is fundamental to the strategic flexibility housing associations will exercise in the provision of wider housing.

But the most profound change is likely to be seen in the larger housing associations with potential changes in custom and practice, including a possible shift towards substantial asset-holding unregulated entities and new forms of funding. Although RPs will still need to adhere to the HCA’s standards framework, this move will offer them more flexibility and freedom in operational terms to manage their asset base.

We can see a direction of travel here with new supply potentially being more diverse and delivered in these commercial entities. There are however, many implications to be thought through including funding and not least, charitable status for the many RPs which also are charities.

Intra-group disposals of social housing assets, particularly void properties, may also prove an attractive proposition, allowing RP groups the flexibility to set rents on those properties which reflect the wider needs of their communities, rather than just the Government’s requirement.

More benefits for LSVT organisations

For LSVT organisations, the removal of the statutory restriction that applies on the subsequent sale of their stock has an additional benefit. To date, LSVT stock has attracted a security value based on its existing use value as social housing, whereas other social housing stock has been able to achieve a market value (subject to tenancy) value. That differential, which would create significant development capacity for LSVT entities if unlocked, should now be consigned to history.

LSVT organisations will also benefit from the regulations which are expected to be passed at the end of this year. These will reduce the level of local authority influence over RPs, removing the “golden share” present in the constitutions of many LSVT organisations.

This doesn’t necessarily mean that the relationship between LSVTs and local authorities should be broken – on the contrary we are now seeing more positive conversations between the two bodies about joint working.

In exercising those new found freedoms, RPs will need to adhere to the regulatory framework – particularly if a regulatory downgrade would result in significant consequences for their cost of funds. We can expect funders to take a greater interest and differentiate – with the impact already becoming visible.

Less freedom for local authorities

The freedoms that private RPs will get are not however, extended to local authorities. Arguably the reverse is true as their ability to set up their own private RPs will, it seems, be compromised by the local authority influence regulations.

Add to that the requirement for local authorities to dispose of high value voids and you can start to see why local authorities and housing associations may have similar interests, especially considering the four year rent reduction (in real terms) both entities will be absorbing.

For those local authorities that see stock transfer as the best long-term solution for themselves and their tenants, a new LSVT model is likely to be necessary – one that can provide tenants with assurances over the long-term use of housing as social housing (given the new freedoms explored) and one which is financially viable for both the local authority and the LSVT organisation in a world where HM Treasury will no longer provide funding to fill any viability gap.

Although it’s still early days for the Act and the true impact remains to be seen, now could be the time we see more joint ventures between local authorities and private RPs and between RPs. The use of contractual joint ventures or vehicles which are outside the regulatory regime, may hold the key to a solution that’s mutually beneficial for both parties.

For further information, please contact partner, Jonathan Jarvis or senior partner, Andrew Cowan at Devonshires Solicitors.

This blog first appeared on on 23 September 2016.

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