Agenda item

(Cabinet Member with Special Responsibility Councillor Leytham)

 

Report of the Head of Resources and the Head of Health and Housing

(Cabinet Member with Special Responsibility Councillor Leytham)

 

Cabinet received a report from the Head of Resources and Head of Health and Housing to consider options for adopting a medium term council housing rent policy and wider medium term financial strategy for council housing, in context of housing regeneration priorities and potential future funding options. 

 

The options, options analysis, including risk assessment and officer preferred option, were set out in the report as follows:

 

Members had reaffirmed that the strategic housing regeneration priorities for the foreseeable future were:

 

(a)     To increase the supply and delivery of affordable housing schemes.

 

(b)     To complete existing unfinished schemes in the West End (the completion of outstanding housing regeneration projects at Chatsworth Gardens and Marlborough Road/Bold Street).

 

(c)     To bring empty properties back into use.

 

Options:  Future Rent Setting Policy

 

The Council needed to decide whether it wished to achieve rent convergence, as assumed by the Government, or whether it wished to set alternative rent objectives.

 

If the Council chose to move away from the Government’s social rent policy of convergence, the amount of future funding available within reserves would decrease as illustrated in the report.  In addition, there might be new or greater risks to the income available particularly through the impact of future welfare reforms, and this would affect financial and investment planning.  In particular there might be a need to increase the minimum level of HRA balances held.

 

It was recommended, therefore, that the Council established a stable method of determining the annual review of rent.

 

·               Option 1:

To continue to follow the Government’s social rent policy including convergence factors (Actual rents are increased by RPI +0.5% plus (an amount equal to the difference between the guideline rent and the actual rent) divided by the number of years remaining to convergence.  This was subject to a maximum capped increase of RPI+ 0.5% + £2 in order that rents were not subject to extremely high rent increases)

 

·               Option 2:

      To continue to follow the Government’s social rent policy excluding convergence factors (Actual rents are increased by RPI +0.5%)

 

·               Option 3:

         To establish a local social rent setting policy that supported the future investment needs of the Housing Revenue Account, drawing on the annual rent increase scenarios outlined in the report.

 

 

		Option 1: To continue to follow the Government’s social rent policy including convergence	Option 2: To continue to follow the Government’s  social rent policy excluding convergence factors	Option 3: To establish a local social rent setting policy adopting the medium term financial strategy and principles set out in the report
Advantages		·   The Government’s objectives of convergence are met. ·   Maximises the amount of money available to invest in new services and assets ·   Rents remain affordable and the housing benefit cost are met by Government	·   Rent increases are still linked to RPI ·   Money available to invest in new services and assets ·   Rents remain affordable and the housing benefit cost are met by Government ·   Reduced pressure on individual tenants’ budgets	·   The Council establishes a stable and sustainable budget capable of withstanding financial pressures ·   Rent is set in the local context to provide the financial resources needed to deliver the council’s HRA priority outcomes ·   Money available to invest in new services and assets ·   Rents remain affordable and the housing benefit cost are met by Government ·   Reduced pressure on individual tenants’ budgets
		Option 1: To continue to follow the Government’s  social rent policy including convergence	Option 2: To continue to follow the Government’s  social rent policy excluding convergence factors	Option 3: To establish a local social rent setting policy adopting the medium term financial strategy and principles set out in the report
Disadvantages		·   Rent levels not locally set in response to the financial resources needed to deliver the Council’s HRA priority outcomes ·   Increase pressure on tenants’ individual budgets	·   The Government’s policy on rent convergence is not delivered. ·   Rents are not increased above RPI  by the Government formula to achieve convergence with Private registered Provider Social rents ·   The rent levels between comparable properties will remain different across social housing landlords within the district ·   Lower amount of money available to meet existing or future needs	·   The Government’s policy on rent convergence is not delivered ·   Rents are not increased by the Government formula to achieve convergence with Private registered Provider Social rents ·   The rent levels between comparable properties will remain different across social housing landlords within the district
	Option 1: To continue to follow the Government’s social rent policy including convergence		Option 2: To continue to follow the Government’s  social rent policy excluding convergence factors	Option 3: To establish a local social rent setting policy adopting the medium term financial strategy and principles set out in the report
Risks	Future rent levels may not fit with local spending and investment needs.		Future rent levels may not fit with local spending and investment needs.	·   Insufficient funding generated to meet the investment needs of the HRA if rent levels set too low. ·   If rent level set too high formula rent and limit rent may be exceeded with implications for housing benefit subsidy limitation (until universal credit is implemented, which could raise other issues for any option).

 

 

Adopting a Medium Term Financial Strategy for the HRA

 

The main objectives of any HRA Medium Term Financial Strategy would be to:

 

·               Explain the financial context within which the council’s HRA is set to work over the medium term.

·               Provide a medium term forecast of resources and expenditure.

·               Identify the financial resources and target rent levels needed to deliver the council’s HRA priority outcomes and its rent setting policy.

·               Identify any budgetary savings / efficiency targets.

·               Provide a framework for due consideration, comparison and prioritisation of competing spending and investment needs.

·               Achieve a stable, affordable and sustainable budget capable of withstanding financial pressures.

·               Keep the above updated, setting out a clear process for regular monitoring and review.

 

Given the challenges and risks, the following principles should underpin any medium term financial strategy adopted:

 

·               Continue to ensure that the Decent Homes standard and local standards are maintained.

·               Support any other specific HRA priority outcomes as adopted.

·               Inform and support the adopted rent setting policy.

·               Maintain balances, earmarked reserves and provisions at prudent levels.

·               Continue to strive for greater efficiencies from within the HRA.

 

In essence, the HRA MTFS would draw together all the key strategic financial aspects for the council housing service, to help inform its future direction.

 

It was proposed that the Council adopted in principle a HRA medium term financial strategy, to provide a stronger financial planning framework in support of the Council’s legal and regulatory requirements as a registered provider of social housing.  If Cabinet approved this approach, the detailed content of the draft HRA MTFS would be brought back for Member approval.

 

The development of such a strategy would incorporate sufficient flexibility to enable the Council to look beyond the needs of the existing stock, facilitating the consideration of stock replacement through acquisition or new build as well as the HRA’s contribution in a wider housing regeneration context.  This would involve measures such as establishing an Investment Reserve Fund separate to the existing Major Repairs Reserve.  The extent of the funds available in reserves would be very much dependent on the rent setting strategy adopted.

 

To support the development of any medium term financial strategy, therefore, firstly the Council would need to establish its rent setting policy and associated targets.

 

 

HRA Medium Term Financial Strategy Options Summary

 

	Option 1: To adopt a HRA medium term financial strategy underpinned by the principles set out in the report	Option 2: Do not to adopt a HRA  medium term financial strategy
Advantages	·  The Council has a financial context within which the Council’ HRA is set to work over the medium term ·  The Council identifies the financial resources needed to deliver the council’s HRA priority outcomes ·  The Council has a medium term forecast of resources and expenditure ·  The Council establishes a stable and sustainable budget capable of withstanding financial pressures	None
Disadvantages	None	·   The Council will not have a framework on which to base its financial decisions relating to the HRA ·   A short term approach to budgeting and rent setting would continue.
Risks	Financial and other forecasts underpinning any MTFS prove unsound – this risk would be managed through monitoring and review processes.	Financial risks are not managed nor controlled in a strategic context - the council may not have sufficient funds to meet the revenue or capital needs of the HRA, surpluses could arise for which there is no clear purpose, or rent increases could fluctuate unnecessarily.

 

 

Rent Setting Policy

 

The options analysis showed that all options provided for a sustainable HRA and provided headroom for investment in service improvements and increasing the housing stock.  All the options ensured that the currently identified service and investment needs were met, subject to the principles underpinning any medium term financial strategy being adhered to and no major unforeseen matters arising.

 

Option 1 of continuing to follow the Government’s social rent policy would ensure that social rent levels between comparable properties across social housing landlords within the district became the same.  The greatest amount of investment headroom was expected.  Rents would still remain comparatively affordable.

 

Option 2 would result in rent levels between comparable properties remaining different across social housing landlords within the district but would produce a lower rent increase for tenants.  The amount available for additional investment would be less than under Option 1.

 

Option 3 would ensure that the Council set its rents to provide the financial resources needed to deliver the Council’s HRA priority outcomes.  Again it would result in rent levels between comparable properties remaining different across social housing landlords within the district, but was expected to produce a lower rent increase for tenants.  The amount available of additional investment was also expected to be lower than under Options 1 and 2, depending on what level of increase was actually set.

 

The requirement on the Council was to ensure that the HRA remained viable and sustainable, and provided the financial resources needed to deliver the Council’s HRA priority outcomes.  Ultimately, if Council wished to provide for the widest investment opportunities, then Option 1 was considered most appropriate.  If a lower level of investment was acceptable, however, Option 3 might be more appropriate and if so, Cabinet was requested to indicate its preferred annual percentage increase.  Whatever rent setting policy route was chosen, it would be subject to regular review, thereby giving the opportunity to respond to changing circumstances.

 

 

HRA Medium Term Financial Strategy

 

With Option 1 the Council could ensure that it had a financial context within which the HRA could work over the medium term, identified the financial resources needed to deliver the Council’s HRA priority outcomes and provided a medium term forecast of resources and expenditure.

 

 

 

Councillor Leytham proposed, seconded by Councillor Hanson:-

 

“(1)      That the recommendations, as set out in the report, be approved.”

 

Councillors then voted:-

 

Resolved unanimously:

 

 

(1)        That Cabinet adopts in principle a HRA medium term financial strategy and sets a rent policy that supports the future investment needs of the HRA housing stock, and enables the Council to consider using HRA funding in a wider regeneration context.

 

(2)               That Cabinet confirms that it does not intend to meet the rent convergence requirement as recommended by Government.

 

(3)               That Cabinet approves a medium term rent setting policy with rent increases being capped at no more than 3% per annum.

 

Officers responsible for effecting the decision:

 

Head of Resources

Head of Health and Housing

 

Reasons for making the decision:

 

The decision fits with the objectives and resource management framework set out in the Corporate Plan.  Adopting a HRA medium term financial strategy and rent policy underpinned by the principles set out in the report would help ensure that sufficient funding was available to meet the present and future needs of the HRA housing stock.  In addition the Council would be able to look beyond the needs of the existing stock and consider stock replacement through acquisition or new build, and to also consider its housing contribution in a wider housing regeneration context.