Community Land Trust Fund

Delivering Affordable Sustainable Housing
Context setting:

Homes & Communities Agency (HCA) requirements

Funding through the Homes & Communities Agency (HCA) is not essential, but the large majority of CLTs have relied on funding from them in order to develop affordable housing.

The HCA operates a number of funding streams, under the general heading of the Affordable Housing Programme or the Affordable Housing Guarantees Programme.

Originally, the HCA envisaged that all of the 2015/18 programme would be allocated by a one-off bidding round, but only around 50% of the programme was allocated.  The remainder of the Programme was to be allocated through Continuous Market Engagement, which allows Investment Partners to present individual schemes or programmes as and when they reach a sufficient level of certainty to proceed.  However, government has now decided that a significant proportion of the unallocated programme will be sued to subsidise the provision of Starter Homes developed by private housebuilders, and sold at a 20% discount from market value.

The reductions in capital subsidy have been offset to a significant extent by the ability to increase rents from social rent based on the National Rent Regime, to affordable rents of up to 80% of local market rents.  That change from capital subsidy to increased rents (and thus housing benefit) is likely to create significant problems in terms of affordability and eligibility for housing benefit amongst lower paid households.

Under the present arrangements, funding through the Affordable Homes Programme can be accessed in two ways:

  • Framework Delivery Contracts with Investment Partners, i.e. RPs that develop regularly.  The HCA’s objective is to reduce the number of its Investment Partners by allocating larger programmes to a smaller number of organisations or consortia.  CLTs could only access that if they were accepted in to an existing consortium – bidding for this funding stream closed on 3 May 2011.
  • Single project applications for small organisations such as CLTs, through the Community Grants Programme.  This funding stream is aimed specifically at community led housing projects, and CLTs are seen as a key element in that.  The new Investment Contract for this programme is still being developed, although it is known that only affordable rent and HomeBuy will be funded through this programme.

To receive HCA Affordable Homes Programme funding, organisations must be accredited as Investment Partners.  This involves a complex qualification process considering “good standing”, financial and technical capacity.  Qualifying criteria can be found at www.gov.uk/government/publications/affordable-homes-programme-2015-to-2018-qualification.

Those qualification criteria state: “For community led organisations, we will seek to ensure that our assessment processes are proportionate to the scale of funding sought to improve access to funding for community organisations where proposals meet an identified need and offer value for money.”

That same website also explains the spatial mapping of housing need behind the HCA’s priorities.  They have published maps of four indicators reflecting different aspects of housing need at local authority level:

  • Households in temporary accommodation
  • Housing benefit recipients
  • Indices of deprivation
  • Ratio of lower quartile house price to lower quartile earnings.

If an organisation is deemed to qualify as an Investment Partner, then payments of grant are secured either through regulation (for non-profit distributing organisations such as CLTs) or an extremely complex grant agreement (in the case of profit distributing organisations). However, the ultimate manager of the housing MUST be a Registered Provider.

Funding systems have been set up with regularly developing housing associations and other organisations in mind.  The bidding, programming and audit requirement require a high degree of knowledge of the system, and any CLTs accessing Affordable Homes Programme funding have usually been obliged to employ a housing association as its development agent, or a specialist expert in Administration of the HCA’s Investment Management System.

Rents are subject to control where HCA funding has been provided:

  • Social rent levels must be in accordance with the National Rent Regime – however, funding is no longer available through the Affordable Homes Programme for new provision let at social rents.
  • Affordable rent levels can be up to 80% of the 30% decile of local market rents.  Affordability will be linked back to lower quartile household incomes and Local Housing Allowance, and will require agreement with the local authority.  This could be contentious.
  • Shared ownership lease rents must be in accordance with the current SHG rules.

A further requirement of HCA funding is that the landlord of the homes must be a Registered Provider by the time that they are let.

For financial years 2016/17 to 2019/20, government requires all Registered Providers to reduce rents by 1% per annum.  That requirement does not apply to CLT’s which have not received HCA funding, and which are not Registered Providers.  Those unregistered bodies can continue to increase rents at CPI +1% per annum.

Applicants are not required to be registered at the time of making application for that grant funding, so the process could go in parallel.  However, the legal/contractual implications of not being an RP at the time of a grant application are formidable.  On the other hand, if a CLT does not intend to be the landlord at completion, they do not need to register.  So if the CLT intends to lease the completed properties to a housing association, that requirement can be avoided.  Alternatively, another RP could develop the properties, and then hand over the freehold to the CLT once completed, as long as the CLT is also a RP.

In light of the requirement that all properties owned by RP’s are subject to a reduction of 1% per annum in rent for the financial years 2016/17 to 2019/20, the advantages of HCA registration are far less than they were in the past.

Registration and regulation

Responsibility for registration and regulation of Registered Providers transferred from the Tenants Services Authority to the HCA on 1 April 2012.  The criteria for eligibility as a Registered Provider include:

  • Financial situation
  • Constitution
  • Arrangements for management.

The eligibility criteria specifically identifies CLTs as organisations which may register if they are to provide social housing on the basis of:

  • Social rent
  • Affordable rent
  • Shared ownership, shared equity, etc forms of low cost home ownership.

The HCA’s regulatory requirements cover issues relating to:

  • Governance arrangements
  • Risk management and control
  • Business planning and monitoring
  • Accountability to and empowerment of tenants.

The HCA Regulatory Panel handles the registration of new Registered Providers, as well as regulating them thereafter.  Registration is a complex process, albeit a lighter approach is adopted for CLTs and other smaller, community-based organisations.

The process is in two stages, the first of which establishes the principle of whether the organisation is capable of becoming a Registered Provider.  The Stage 2 application covers matters of:

  • Governance
  • Management and tenancy issues
  • Business planning and reporting systems.

Experience to date of the HCA’s so-called light touch regime has been challenging, particularly in relation to stress testing financial forecasts.  However, the Appraisal Toll is accepted by the HCA as an appropriate basis for project appraisals, business planning, and stress testing.