HCA listens to flexibility arguments in Empty Homes Bidding Guidance

The HCA has published its long-awaited Bidding Guidance for its part of the £100million empty homes programme. Whilst the flexibilities offered may not go as far as some would have liked, the HCA is to be credited with listening to many of f the points that practitioners have made to them over the last few months. The programme is not as rigid as we might once have feared, given statements that have previously been made by HCA staff at meetings. Bad news first... First, however, the bad news. The main element here is that bids are due by 23rd January 2012. In the light of the innovation that the HCA would like to see and the potential flexibilities offered, that is a far-too-restrictive time-scale. Potential providers have lacked any real sense of what the options might be and, in most cases, will not have had time to develop the partnerships or prepare legal documentation needed to implement the more innovative solutions. We will be making representations to extend the proposed time-scale significantly, possibly via a rolling programme or multiple bidding cycles, so that innovation really can blossom. Another piece of possible bad news is that the HCA has conducted some kind of value-for-money exercise which has produced benchmark grant figures that look challenging for Private Registered Providers operating in some parts of the country, given the fact that properties must be let at Affordable Rents. The benchmark grant for a five-year lease in London is projected to be £13,000. That works out at £2,600 per annum. If the rent is set at 80% of market level then that could cover the diminished rent accruing to the landlord but it won't leave a lot to cover on-costs. So there will need to be tough negotiations with private owners. For local authorities, strategically committed to empty homes work, willing to pick up some of the revenue costs associated with intensive supervision and negotiation that can be part of leasing schemes, and very possibly benefitting from the accommodation to meet statutory housing duties, this might prove attractive. We suspect that traditional Private Registered Providers, genrerally risk-averse, will not feel very encouraged by these grant targets in high demand areas. it is also disappointing that existng social housing has been excluded. We fully recognise the issue of double-subsidy but there are "pump-priming" options applicable to the re-use of some social housing that need not have involved double-subsidy but would simply have meant the injection of much-needed cash up front to kick-start home-steading or short-life housing (with grant to be recovered in due course). True, there seems to be another option available - in the form of the £50miliion new money announced by the government in Laying the Foundations - but this new money looks set to be restricted to limited geographical areas. A further restriction is that there seems to be no scope to charge the high rents that have been available in the TSHG and TEH programmes for temporary accommodation for homeless households. (The homes created under this new programme need to be affordable according to PPS3 "affordable housing" criteria. This is normally interpreted to mean sub-market rents if homes are rented). This does not seem an unreasonable restriction but it will reduce the numbers of homes that can be produced for the capital available compared with a more liberal approach. We would have preferred to have seen higher rents reflected in lower grant rather than ruled out altogether. Payment-on-completion is still a requirement although the Guideliness do mention the possibility that this might be waived in exceptional circumstances. We think most local authorities and other RPs would be able to cover the up-front cash requirement but that is not a given. Whilst smaller, self-help organisations might struggle with this restriction - and they should be able to benefit from the non-HCA (Community Grants Programme) funding stream where we assume a different regime will be put in place. And the minimum five-year lease period has been retained. And now the good.... Community and self-help organisations Whilst the indicative amount for self-help organisations is £10million, the Bidding Guidelines hold out the possibility that the amount could be "as much as £30m, if sufficient high quality bids come forward". Flexibilities on offer The flexibilities offered by the HCA beyond what they have originally suggested are as follows: Innovative products: despite the insistence on Affordable Rent as the main rented product, the door is left open to other options includng home-steading and shared-ownership. We hope this means that the HCA will negotiate schemes outside its well-developed rule-book, treating innovative products as sui generis. If so, there is considerable scope for developing new schemes. Grant recycling: this has been a major lobbying-point for the Empty Homes Network. The Guidance notes: Bids may therefore include proposals to create or contribute to a revolving fund for the reinvestment of funding in delivering further properties as loans are re-paid. In assessing value for money, we will take account of the first property brought back into use for the funding requested – but innovative approaches to create revolving loan funds are encouraged, and providers should set out their proposals, including on-going monitoring and reporting arrangements as part of their bid. There is contradiction here which will have to ironed out: namely the expectation that value-for-money should be demonstrated in the first property in the chain. That simply doesn't make sense as the point about grant recycling schemes is that they are pump-priming and the true value-for-money can only be assessed over the life-time of the grant as it is recovered and re-invested. If the value-for-money has been correctly assessed on the first property, no residual value would logically be available to be recovered for further re-investment. We will therefore, again, be making representations to ensure that the value-for-money exercise takes the additionality provided by the revolving loans into account. Length-of-time empty: the HCA is now talking about "two years empty" being the average across the programme rather than for each individual bid and setting an indicative minimum of 6 months empty. (Still no detail on what the start- and end-points of the period empty are). Purchase-and-repair will be assessed against normal Affordable Rent value-for-money criteria - in other words, no special favours. Our stated position is that Purchase-and-repair should be outside of the £100million for exactly that reason: it already fits within the main programme and, being grant-hungry, could put a big dent in the available £100million. Standards: the Decent Homes Standard is required for most leased homes. We understand that these standards are less demanding than the current TSHG standards. Higher standards are only required for homes where the lease length is more than 10 years. Investment Partners status: although most if not all local authorities are Registerd Providers only a small minority are Investment Partners. Investment Partner status is a mandatory requirement (though of course this can be achieved through partnership with an existing IP). However, the bidding guidelines offer an element of comfort for organisations such as local authorities or small housing associations that are only likely to bid for money through the empty homes prrogramme: "For organisations who are not existing HCA Investment Partners, and who seek qualification only for the delivery of empty homes funding, we will seek to ensure that our assessment processes are proportionate to the scale of funding sought and take into account that works will be undertaken to existing properties."I Conversions: grant is available for conversions of commercial properties. These are likely to be expensive in grant as they are the equivalent of purchase and repair - and again we would prefer to see these falling within the main Affordable Homes Programme. In conclusion We think there is scope to integrate schemes based on these bidding guidelines into mainstream local authority empty homes initiatives if sufficient time is given for bids to be worked up and partnerships to come together. It will be helpful too if a realistic model of grant recycling can be implemented. We would encourage local authorities, in particular, to grasp the nettle by exploring their options for bidding for funding directly or with other partners. There is to be a template for bids downloadable from the HCA's Affordable Housing Programme - empty homes page, along with guidance on supporting statements.. But these documents were not yet available at the time of writing.