How to get more homes for less

Mark Henderson, the Chief Executive of the social enterprise Home Group a leading national provider of affordable and supported housing, says higher rents for those can afford them means more homes can be built

With a 60% reduction in capital funding and the planned cap on housing benefit of £400 a week, the provision of affordable housing has been right at the forefront of the post CSR debate.

We all knew the settlement was going to be tough, but we must, as a country, address the massive financial challenge that faces us.

But the deficit is not the only challenge. Britain faces a housing crisis. Last year only 118,000 new homes were built in England – the lowest since the second world war. We are building 56,000 too few homes each year.

For years demand has outstripped supply. Waiting lists have grown ever longer and the gap - the difference between housing demand and supply - will have widened to over 1.1 million by 2020.

Home Group is non political, but it is very clear that the system is now broken.The government must press for reform of social housing – it is no longer able to address the needs of some of those most vulnerable.

My message to Grant Shapps as Housing Minister is that as a third sector social enterprise we can do much more for less.

We believe that there are three simple steps that the Coalition can take to enable us to work together towards meeting the government’s ambitious target of 150,000 new homes by 2015.

1. Increased flexibility

We must be clear that people who can afford to pay more ordinarily should pay more. Flexibility of tenure and moves to intermediate rental contracts which are 80% of the market rate are a step in the right direction. We await the details of how this works.

Such flexibility could provide additional income against which to borrow. In the recent past new build has required significant financial support. It is quite clear that the government alone will not continue to provide that and we will need to look to the market. We desperately need new build.

But if a social enterprise like Home Group is to fund the extra homes we require we do need serious reform. Increased rents and flexibility on tenure are however, not the only way we can generate extra revenue.

At a time when we are seeking to innovate our scope for creativity and to act commercially is limited by our status as a social enterprise.

Before the election David Cameron called for ‘social enterprise 2.0 – more innovative, dynamic, flexible and responsive’. Yet the current legislative framework does not allow us to do that..

We would welcome further changes that would allow us to offer a greater range of additional services, improve our environmental sustainability, invest in our asset base and do more to create healthier communities.

We are asking the government to remove the obstacles to increased social enterprise.

2. Remove historic grant from our balance sheet

Home Group currently has a balance sheet of over £1bn. However within our balance sheet is the assumption that the historic grants we have received to build housing would be repaid in the event that we
sold the properties.

At Home we want the ability to convert the historic grant into equity in return for increased development toward the government’s aim of 150,000 new homes.

The grant does not sit on either the Communities and Local Government or HM Treasury books as an asset. In short there is no adverse impact on the public finances to formally writing the grant off.

The impact of removing this grant from our balance sheet is significant – at a stroke our balance sheet would increase and our gearing would reduce. This would allow us to negotiate a significant increase in borrowing from the private sector to reinvest in building more homes.

Let us take Home Group as just one example. We currently have £656m of historic Social Housing Grant sitting on our balance sheet. As a sector we could realise billions of pounds of additional funds to build extra homes.

3. Direct Payments

Borrowing capacity, like equity within a property, cannot be utilised unless the income is also there to support increased borrowing. With the introduction of a universal credits system, if Housing Benefit payments are not made directly to Registered Providers this will negatively impact on our income related borrowing capacity.

Protecting direct payments to Registered Providers is an essential element of making social housing sustainable – our banks calculate our current risk profile in part on this assumption. With modern methods of electronic payments and bank transfers it should be possible to protect or hypothecate this via the escrow facility and still deliver some form of universal credits.

We recognise that new customers will be concerned about the possibility of paying more rent. And very many existing customers will be worried about cuts to their benefits or tax credits. We will work to mitigate this were we can.

But we would not want to stand in the way of the positive social outcomes that will emerge from eroding dependency. We share the belief that a working society is a healthy society. A workless society spreads despair and hopelessness.

We know how hard that can be but an innovative approach to housing can be part of the solution. We are not just housebuilders. At Home Group we view ourselves as a third sector social enterprise. We help to create communities. In our day to day work, we are supporting individuals, helping them to return to mainstream society. Sadly that is not the tone of the current debate.

At Home we want an open dialogue with government about how the third sector can be part of the solution. We are convinced of the ability to use the opportunity the CSR presents to deliver more for less.

Mark Henderson
Home Group
[email protected]