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Crystal ball time: Croftons’ predictions for 2016

14 January 2016 • Mike Nuttall

Most in the housing sector will be pleased to see the back of the ‘annus horriblis’ that was 2015. But the challenge will continue in 2016 as the implications of last year’s radical policy announcements become clearer, and housing providers look for ways to rise to the challenge and secure their long-term future.

So if ever there was an opportune time to get the crystal ball out it’s now; at the start of another year in what many will look back on as an era-defining period for the sector. We asked the housing and regeneration experts here at Croftons to give their predictions for the year ahead, and here’s what they said.

A ‘slow lingering death’ for RTB?
Julie Loggenberg, Property Partner

“Despite pressures in the sector, 2016 should see growth in development. The housing sector has taken a deep breath since the budget, reassessed its position and financial forecasts, and is now moving again. RPs need to generate income so new housing for sale will feature strongly in the coming year, compounded by Government’s clear emphasis on home-ownership. We have seen significant activity by clients wishing to kick start their development programmes, dust off DEV Cos and hit the ground running.

“Shifting of assets may well become fashionable if the Government also follows through on relaxing the consents regime. Putting boards in control of asset disposals, as opposed to the HCA, should significantly increase commercial activity.

“The Government, whilst now backing down from legislation to force sales of housing stock, have indicated that they expect RPs to be mindful of their general duty to promote home ownership. This is due to be set in law in 2016 by the Housing & Planning Bill. Affordable rent has and will continue to give way to sales on many schemes where flexibility in tenure can be applied. The debacle over how the Right to Buy extension will work may well rumble on through 2016, but is likely to be allowed a slow lingering death if it is to remain only a voluntary programme (at least for now).”

More risk, more rumblings…
Jo Savage, Head of Governance & Regulation

“Clearly given the changes in 2015, 2016 will see RPs having to find different ways of working to maximise income, such as using commercial subsidiaries for development and market activity to provide different tenures and more flexible rent setting. We’ll also see an increase in new activity, such as offering services to other RPs or outside the sector.

“Given the changing working environment I expect a more risk-based and commercial approach to be taken by RPs. Organisations will need to weigh up risk v reward, and Boards will need to be more challenging and risk-aware than ever. Linked to this we’ll see more RPs implement investment policies and make different investments.

“No doubt more RPs will consider mergers (both mergers of equals, and mergers of smaller organisations into groups) and other partnerships, including partnerships with LAs, developers, other RPs and outside the sector, Contractual Joint Ventures, and CSGs.

“Look out for more rumblings on the RTB – one RP has already vowed not to renew its NHF membership because of the poor RTB deal. Hopefully a clear picture of the real impact will become clear, but I expect dealing with queries and applications will take up more admin resources than actual completions. And how will councils make up the shortfall in practice? Have they got any high value stock left? Will the ALMOs have to sell stock?

“The de-regulation package announced to secure the re-privatisation of RPs will give greater freedoms for disposals by RPs which will increase income and greater stock efficiency and better asset management – but this also means robust governance and decision making processes must be in place, and a possible increased role for regulatory judgements.”

Nervousness and uncertainty around tenancies…
Melanie Dirom, Housing Management Partner

“Fixed-term and flexible tenancies have been around for several years and have been used in some areas more than others but the Housing and Planning Bill could see the end of security of tenure with no tenancies available for more than a five year term. I expect this to create a degree of nervousness and uncertainty to communities as housing providers are much more then ‘a landlord’ and the concept of sustaining communities is nothing new. Arguably, if a tenancy cannot be for more than five years, it will remain to be seen if that property is going to encourage a long term community investment by the occupiers or if these properties will merely become a ‘half way house’ between rented and aspirational home ownership.

“The announcement that the ‘pay to stay’ regulations will be voluntary for housing associations was met with positivity by the sector. There was a concern that the £30,000 household income limit (or £40,000 if in London) thresholds which would attract a market level rent would be seen as a disincentive for families to ‘better themselves’ with their income.

“The voluntary ‘pay to stay’ for housing associations may see some of our clients increase their rent for higher-income tenants but this will be at their discretion and in line with their own policies, rather than a mandatory rise. There’ll no doubt be differing take up from RPs given it is now voluntary as real consideration will need to be given about whether the income outweighs the administrative cost.”

Tension at the top?
Simon Leighton, Managing Partner

“The implications of the 1% rent reduction will continue to dominate in 2016 with reductions in head office and sub office space, including subletting, and an increase in sharing costs and services with other housing providers likely. Also, as uncomfortable as it is to discuss, a reduction in the number of senior staff, as funds are re-deployed to keep front line services operational. Linked to this I think we will see a substantial increase in merger discussions – it’s hard to see how a number of smaller RPs can continue to fulfil their target objectives, without reducing their central office costs.

“Government “favour” is unlikely to return any time soon until their perceptions are changed in relation to business efficiencies and surpluses. And with homeownership the clear priority from Westminster, we’ll see an increase in RPs developing for starter home sales or shared ownership sales. Although according to the Joseph Rowntree Foundation, only 3% of new social tenants will be able to access, there are good development opportunities available for the sector. I expect a small decline in numbers of low cost rented property and an increase in the diversification of use of current stock, for example, for shared housing for the under 35s or for housing refugees.

“RPs will broaden their business plans in relation to different housing services markets, but we could see an increase in tensions within RP boards and executive teams in relation to vision. The sector is inspirational in its values in supporting those most in need of good quality affordable housing, and yet how viable is this offering in some regions and parts of the sector?”

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Croftons is the trading name of Croftons Solicitors LLP, a limited liability partnership registered in England and Wales with number OC343375. The term ‘partner’, if used, denotes a member of Croftons Solicitors LLP or a senior solicitor of Croftons Solicitors LLP with equivalent standing and qualifications. A full list of members is open to inspection at the office. Croftons is authorised and regulated by The Solicitors Regulation Authority (SRA) number 508041. Croftons has its principal place of business at The Lexicon, Mount Street, Manchester, M2 5FA.



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