Official Report 228KB pdf
The first witnesses today are from the Council of Mortgage Lenders. I welcome you to the Social Justice Committee and to our evidence-taking session on the Housing (Scotland) Bill. I apologise for the venue—although it is relatively comfortable, you seem to be rather far away. Nevertheless, I am sure that we will be able to have an important dialogue.
You have done my first job for me, convener, which was to introduce our team from the Council of Mortgage Lenders. I will say a few words about the Council of Mortgage Lenders and the bill and then we will be delighted to answer questions.
We will ask some questions and, if you feel at the end that certain aspects have been missed out that are not fully detailed in your briefing paper, I will give you an opportunity to raise those points.
All lenders active in Scotland are represented on the Council of Mortgage Lenders committee. All those active in lending on social rented housing are represented on the council's housing sub-committee. We discussed the bill as a committee and examined consultation papers. The Council of Mortgage Lenders has participated in various working groups of the Scottish Executive and Scottish Homes, such as the ministerial housing interest group, the rural partnership for change forum, the short-life working group on the impact of the right to buy and the financial viability sub-group, the findings of which have all fed into the committee. We have contributed to the review of the Council of Mortgage Lenders' submissions on the bill. The consultation with our members has been extensive and the briefing paper reflects our members' views.
We have co-ordinated the consultation with the Scottish Executive, Scottish Homes and various other groups through the Council of Mortgage Lenders to ensure that we are speaking with one voice.
Do you feel that the Executive gave you an opportunity to influence the bill before it was introduced in the Parliament?
Yes. The Council of Mortgage Lenders produced its submission—and many of our members produced their own—when the green paper was published and we have been able to comment throughout the process.
The Scottish Executive considers that a substantial amount of private finance will require to be levered into the socially rented sector as a result of housing stock transfers. Do you share the Executive's confidence that sufficient private finance will be forthcoming to substantially improve the socially rented sector?
It is important to view the Scottish requirement in a UK context. Over the next 10 years, approximately £40 billion will be needed to upgrade social housing. Lender appetite must be viewed with that fact in mind. We want the Housing (Scotland) Bill to create a level playing field across the country for social housing and lending appetite.
You have raised some concerns about the effect of the proposed extension of the right to buy and particularly about the economic viability of some housing associations. Was the Council of Mortgage Lenders involved in the Scottish Executive's working party on viability? As a result of that working party, do you think that the Executive has listened to the concerns of the Council of Mortgage Lenders and has it given you assurances about the actions that it will take to deal with problems that arise from the issue of viability?
When the proposal to extend the right to buy was mooted, lenders expressed concerns and we were invited to join the short-life working group on the impact of the right to buy—I am not sure why it was called "short-life". I represented the Council of Mortgage Lenders on that group. A sub-group, on which Ian Sillars and I sat, was formed to consider the financial viability of housing associations.
Our concerns relate not to the right to buy as a whole, but to a small proportion of housing association properties, which were funded on the basis of no right to buy. About 47,000 new-build properties were funded on the basis of no right to buy. Our concern arises from the fact that the ground rules of the funding assessment have been changed—the retrospective aspect of widening the right to buy. However, if we look forward, the implications of enlarging the right to buy can be assessed and considered.
Clearly, the CML is of the opinion that retrospective changes would be wrong in principle. However, do you accept that a change of policy in funding is sometimes inevitable and that that is a separate issue from the overall change to the right to buy?
I must reiterate Ian Sillars's point: lenders are nervous creatures and dislike things that apply retrospectively. Lenders assess lending propositions at a given point in time, taking into account various factors—they do not like the goal posts to be moved, particularly in relation to a organisation's financial or business plan. There is also an issue about the arbitrary nature of such a change and how the retrospective right to buy would apply. For example, it differs according to whether the housing association has charitable status.
My final question relates to section 9(2), which allows Scottish ministers to make an order
That section derives from the old assured tenancy. Lenders were quite pleased about that provision, but it has now been subsumed under the broader issue of how to protect tenants, public investment and private investment and how to avoid the effects of registered social landlord default or insolvency. We understand that the Scottish Executive is proposing to introduce amendments to the bill at a later stage, to set up a transparent, statutory framework to protect all parties in that context. The heritable security element of the assured tenancies will probably cease to be relevant.
You mentioned that there was an issue about 47,000 tenants in relation to the retrospective right to buy. Can you clarify where that figure comes from? I assume that it is the total number of tenants who are involved in the new-build housing associations.
I am trying hard to remember where the figure came from, but I know that it refers to 47,000 properties, rather than tenants.
That would be 47,000 tenancies.
Yes, in effect it is the same thing. The figure emerged from the consultation between the Scottish Executive and the CML. Various papers mentioned various figures, but that number stuck in my mind.
There has been a right to buy for some time now. Are there more mortgage defaulters among people who buy their social rented housing than before? If someone who has bought their house from a council, from Scottish Homes or from a housing association returns to the social rented sector, the property that they bought will have moved out of the social rented sector permanently. That property does not return to the sector.
I am not sure whether we have information on default rates. It would be hard to find that out, because quite a few of the right-to-buy properties are sold on—they are no longer right-to-buy properties once they have been passed on to another owner.
I can add something on my own organisation's experience of lending for the right to buy. The performance of that lending is better than average, with fewer defaults. When such properties are sold on, however, the experience with the subsequent purchasers of the former right-to-buy properties is the same as for the average lending experience. The experience is more favourable for the initial purchase.
How do you feel about the mixed ownership of properties? In some cases, properties still belong to housing associations or councils while others are under private ownership. What are the difficulties in upgrading properties in such situations? In many cases, you have security over properties, but are you concerned about the capacity of individuals to deal with major repairs? If so, how should that be tackled? Should we have legislation to cover that?
We stated our concern about the lack of involvement of the owner-occupier sector under the bill as introduced. We welcomed the formation of the housing improvement task force. We view the task force's work very much as tackling just such an issue. That will become even more important when we start to deal with large-scale stock transfers that will encompass the right to buy and that will result in a pepperpotting of owner-occupiers living in an area. How can we ensure that the properties of new owner-occupiers are upgraded and maintained, given the mixed ownership? We cannot comment on that too much at this stage, other than to say that we look forward to working with the new task force to identify the issues and to come up with solutions.
Our experience on this matter comes partly from a large Scottish Homes stock transfer in Cumbernauld, which proceeded this year. That involved a high proportion of owner-occupiers in flatted accommodation. There were real issues about the ability of owner-occupiers to pay their proportion of common works and about the ability of the receiving landlord to roll out the improvement programme not knowing how many owner-occupiers would be able to contribute to it.
In your written submission, you voice concerns about the new single framework for regulating social landlords and about
That takes us back to what Ian Sillars said about insolvency and a level playing field across the UK. When the Housing Act 1996 was passed, the Housing Corporation and what was to become the Department of the Environment, Transport and the Regions had an agreement—backed by statute—to cover cases of housing associations getting into trouble. We are keen for something similar to form part of the Housing (Scotland) Bill, mainly because that would protect the tenants, the private funders and all the other parties involved.
I presume that the answer to this question will be yes, but I will ask you it anyway: will the statutory powers that you mention encourage more lenders to come forward with additional investment? To implement the new legislation, do you think that public moneys—from the taxpayer—will be needed?
I do not think that there is a funding issue; I think that we are talking about protecting any public investment that has already been made. As a lender, I get a bit nervous about the word "insolvency". We want to have procedures to avoid insolvency and to protect all stakeholders—tenants, any public body that has invested in the stock, private lenders and creditors. We want to have a framework such as is already in place elsewhere. I do not think that that will involve many funding issues.
I take it that you are referring to the legislation in England and Wales.
Yes—such a framework arose out of the Housing Act 1996. However, because of the coming of the Scottish Parliament, the framework was not implemented in Scotland. That is why we have the Housing (Scotland) Bill just now. Such a framework would be seen as a step in the right direction for the funding market as a whole.
So you would want something similar here and believe that it would not cost the taxpayers any money.
That is right.
I would like to ask about the independence of the new executive agency. In your submission, you question whether it will be fully independent and suggest that there may be political interference in its decisions. If it is perceived that the new agency is not independent, will that affect the willingness of private investors to invest in registered social landlords? If so, what other form could the agency take, so that it was more independent?
The main issue is to ensure that, somewhere in the bill, there are sufficient checks and balances. I will illustrate our concern with an example. On the one hand, the Scottish Executive could try to maximise the price that it gets for certain housing stock that it proposes to transfer to a registered social landlord; on the other hand, the Scottish Executive is responsible for the regulation, monitoring and financial viability of that registered social landlord. From the landlord's perspective, the lower the price that it pays, the more financially viable the deal is; at the same time, the Scottish Executive is trying to maximise the price. The Executive has a kind of dual role, and there must be a means of providing sensible checks and balances for the two conflicting roles—that of maximising the price and that of not wanting to imperil the organisation that will take on the stock.
Your suggestion of a regime to avoid insolvency and to keep an organisation in business, pending more satisfactory arrangements, seems quite good. However, am I right in saying that that is all reserved to the UK Parliament and that we could not therefore incorporate it into the Housing (Scotland) Bill? Are there mechanisms for getting round that?
We understand that the procedural way round that problem is to seek a section 30 order under the Scotland Act 1998. We understand that such an order is being sought and we await the result with interest. It would clearly be difficult to move forward without that.
Is that done at the instigation of the Scottish Executive?
As we understand it, yes. The Westminster Parliament will then consult and come back to the Scottish Executive. We understand that that process has been initiated. Like you, we are waiting to see how it goes.
We may be able to take that up with the minister.
I have a couple of questions about right to buy. You indicated that the level of default on right-to-buy houses in respect of the initial purchase was below average and that, once the house was sold on, it became average. Is that because of the discount that was allowable and the fact that the mortgage would be considerably less than a normal mortgage for a private dwelling house?
Yes and yes.
That being the case, I move on to the question of right to buy in respect of housing association properties. There is potential for around 48,000 such houses to be purchased. Obviously, the take-up will be nothing like that. However, assuming that there could be a take-up of 20 to 25 per cent, do you feel that the CML members would be in a position to grant loans on those houses without having to seek more funds themselves?
We can build into the equation the transactions that we will fund in future. There is not a problem in putting together a funding package, because we know what the rules are. Ian Sillars and I both sat on the financial viability sub-committee, which looked into the impact on a range of housing associations of the retrospective application of the right to buy. Indeed, we also considered the situation that would prevail given a 10-year postponement and a 20 to 25 per cent take-up.
Could you clarify something for me? You said that about a third of a billion pounds has been put into the social rented sector since 1989. Is that right?
No. What I said was that just over £1 billion has been put in and that the three organisations represented by the CML witnesses—the Abbey National, the Bank of Scotland and the Dunfermline Building Society—have put in more than £350 million of loan balances since 1989.
How many examples do you have of housing associations that have become insolvent?
I have none.
There have been none in the UK. No housing association has become insolvent, but there have been what are known as transfers of engagement. That means that the regulator has had to step in because there has been a cash flow or insolvency problem. In such cases, another housing association is brought in to take over and to safeguard the tenants and the investment.
So mechanisms are available for managing difficulties when organisations are coming close to the brink.
There is a best-value test for the Scottish Executive and the Parliament in terms of any disposals. There is a potential conflict of interest between different areas of risk, such as the regulator and, if it became an agency of the Executive, Scottish Homes. The Executive might consider disposal from a value-for-money perspective, whereas the receiving landlord might have a different perspective on value for money.
Given the significant amount of public moneys and investment involved, to whom would an independent regulator be accountable?
We might make an analogy with the Housing Corporation in England and Wales which is a non-departmental public body that reports directly to Parliament every year. It has quite strong built-in procedures for examining its internal processes. If Scottish Homes became an executive agency, we would favour a provision in the bill that would make it a duty for that body to report directly to the Scottish Parliament, and which would provide a statutory basis for the independence of the board that will oversee the regulatory function. Although we understand that there is an intention to provide safeguards within the regulations, there would be a greater degree of security if that were part of the bill.
I want to move on to the issues raised by the CML on the strategic role of local authorities. Paragraph 13 of your submission mentions your
That general comment was made from experience of local authorities throughout Scotland. Some of the authorities are very advanced in their housing and area plans, but some are not so adept. Furthermore, we have experience of dealing with local authorities that have not quite understood the needs of the private sector or—dare I say it—the registered social landlord sector in the form of housing associations and co-ops.
Is that situation widespread? On what percentage of the 32 local authorities in Scotland have you based that statement?
Although we have not undertaken any specific research on Scotland, the CML has done work on strategic planning by local authorities in Wales and in the UK in general. A couple of our reports—which I will be happy to forward to the committee if that would be helpful—suggest that local authorities' key strengths tend to be centred in the public housing sector. However, not all authorities take full account of the current role of the private sector in house building and supplying housing needs, of the sector's potential, or of how the sector can be harnessed. We would like some attention to be paid to those areas to ensure that the private sector is taken fully into account.
You have produced no real hard evidence of the experience of Scottish local authorities. Instead, you have based your argument on experience from south of the border.
We have based the argument on experience from the whole UK and from some more detailed work that was undertaken in Wales. I am confident that the findings are relevant to local authorities in general and are worth taking into account.
Okay—we can bear that in mind in our considerations. Let us move on. The bill contains provisions to allow development funding to be devolved from the executive agency to the local authorities. Would that cause any difficulties or affect the private sector's desire to involve itself in the financing of projects?
Some form of check and balance should be included in the bill. For example, a local authority could be involved in setting up a local housing company to take receipt of its existing stock, and might duly transfer all the stock to that local housing company. We would like to ensure that development funding is allocated by a local authority reasonably even-handedly, between its own local housing company and, perhaps, a housing association that has been active in the area for many years and has a good development programme. We would like the bill to contain a check and balance to ensure that funds are distributed evenly between the local housing company and the developing housing association.
Let us move on to grants and improvements. Concern has been expressed about the level of funding that is being prescribed for repairs and improvements. Do you know the scale of the problems in the private rented sector? What kind of money should the Executive allocate to that sector? Should the moneys for repairs and improvements be ring-fenced?
There are quite a few questions there. We examined the grants that were paid over the past six or seven years and found that the amount had been reduced substantially. The figures are recorded, so it is easy to see that.
The issue is linked to the right to buy. Cathie Craigie probably knows from the situation in Cumbernauld that an extension of the right to buy puts more onus on the new owner-occupier to ensure that they provide for future repairs. They may need to be made aware that such provision may be needed.
I accept the fact that we should perhaps wait for more information, but what about the idea of ring-fencing? Some people are suggesting that the moneys for repairs and improvements should be ring-fenced, as they were a few years ago. On the other hand, local authorities and others tell us that it should be for the local authority to determine the need in its area.
The figures show that, since 1994, private sector grants have been reduced from £92 million to £37 million, possibly as a consequence of not ring-fencing. That suggests that ring-fencing should be considered seriously. There seems to be a problem when local authorities are under financial pressure.
In your submission, and in Alistair Berwick's comments, you highlighted people in Cumbernauld and the extension of the right to buy, and how that relates to recovering costs from owner-occupiers and encouraging them to become involved in repair and improvement schemes. Owner-occupiers have a duty to maintain their properties before CML members will lend to them. While there is nothing in the bill to encourage people to make use of repair and improvement grants, we might have an opportunity to introduce mechanisms to encourage them to do so when the Scottish Parliament addresses the law of the tenement. Do lenders have powers to encourage borrowers to become involved in repair work, so that they fulfil their obligations to maintain their properties in good order, particularly with regard to the fabric of the property and common repairs? You suggest that the Executive should do more, but can you do more?
When we interview a mortgage applicant, we make it clear that they have an obligation to maintain their property. We always stress that that is part of the financial equation that they are signing up to. Where essential work must be done to a property, it is in the lender's interest as much as the borrower's to get it done. Lenders readily make available additional loans to help with repairs and improvements. Usually there is no problem, and lenders are more than happy to assist. It becomes more difficult where people own a house outright and they need funds for repairs.
I was thinking more about somebody who has a mortgage, but who refuses to get involved in repair and improvement. There are measures—although I cannot remember what they are—that lenders can use to encourage borrowers to be involved. Do you have any experience of putting those measures into action?
It is in the general mortgage agreement of all funders that one should keep the property in reasonable condition. I am sure that that is in the small print somewhere. However, it is extremely difficult to advise somebody while stipulating that they must keep their property in reasonable condition. We cannot get round that requirement, but at the end of the day it is their house. As long as they are making payments on the loan and they are up to date, it is extremely difficult for us to say, "We think that you need a new roof now." It is not within our remit to be involved in that.
We might not even know that the borrower is being chased to participate in mutual repair work.
Are there any final questions from the committee?
I want to pick up on the issue of repairs. Cathie Craigie's point is important, not just for the CML, but for tenants who are sitting in properties in which the owner-occupier refuses to pay for their share of repairs and they cannot get the repairs done. You are saying that there is not a lot that the Council of Mortgage Lenders can do. Is part of the problem that perhaps only one tender is submitted, and the cost is prohibitive? Would it be beneficial if tenants and owner-occupiers were able to get independent, best-value costings?
There are a few points to consider in relation to recovery. For example, can one recover under the terms of the sale? We are dealing with flatted accommodation, because it is in such accommodation that communal repairs and improvement are needed. Under the sale agreement, is the feu holder able to recover from the owners a proportion of the cost? Sometimes the agreement is silent, and sometimes one can recover the cost only of repairs, but not of improvements. It is a grey area, and many problems will come out of the woodwork with community ownership. This issue must be addressed in statute.
I will pursue the general question. It has often been said that a problem with people buying under the right to buy, with a discount, has been that they have bought at the limit of affordability. In other words, as you implied, they can pay the mortgage on the property, but if a major roof repair, for example, is required there is a major difficulty. I understand that that problem is dealt with more satisfactorily in Sweden and other Scandinavian countries, where there are advanced sinking-fund arrangements. Does the Council of Mortgage Lenders have any ideas from its experience here or elsewhere about how the problem might be tackled? For example, there could be a sinking fund, which would be part of the right-to-buy arrangements where there are divided properties. Perhaps the mortgage lenders could collect periodic contributions along with the mortgage payments.
I will speak briefly about sinking funds, and perhaps my colleagues will cover the other parts of Robert Brown's question. Setting up a new sinking fund at £20 or so a month might not address the problem, if the problem has arisen now and the roof needs to be replaced and will cost X thousand pounds per owner-occupier. It would be okay if one set up a sinking fund for a brand new building.
Or for a housing association property that has been brought up to scratch and may not need such a repair for 10 years.
Potentially, that would be okay, but there will not be a complete match between the sinking fund and the requirements on that building over the term. There will be a high impact of expenditure at certain points, when the sinking fund may not be sufficient to meet it. The sinking fund offers a way forward, but there may need to be pump priming.
Would mortgage holders be prepared to become involved in innovative arrangements? For example, a housing association may have completed its renovation programme and have houses that are in good nick, but after 10 or 15 years new roofs or whatever might be required. In such a situation, it would be possible to set up a sinking fund without immediate problems arising. Are mortgage holders interested in becoming involved by helping with the collection of money along with mortgage payments? Is there anything that your people could do to help, given a suitable regime or statutory encouragement?
It comes down to administration, at the end of the day. If such a scheme were implemented, it would affect the price of mortgages. It is the responsibility of the owner-occupier to contribute to a sinking fund, in the same way that they pay their mortgage each month.
In the context of multiple ownership in buildings, that may be the theory, but it does not work that way in practice. The result would be a situation such as that in the 1970s, when a huge amount of public money was going towards stopping the roofs of red sandstone buildings falling down. Is there willingness on the part of mortgage lenders to be involved in new sorts of arrangements that would encourage or compel owner-occupiers to take a long-term perspective?
One of the problems with the right to buy has been the way that the conditions of sale have been applied at the outset. There is no consistency in factoring arrangements. Sometimes they cover repairs and improvements; sometimes they do not. A starting point would be to have a structure at the outset in right-to-buy sales, so that there would be a consistent approach.
I want to make a final point on that—it is an important area. With the extension of the right to buy, more houses that were previously in housing association ownership will come on to the market, and ownership will be divided. You suggest that there would be merit in considering the standard terms and conditions that go into the conveyancing documents. Has the CML done any work on the sort of thing that would be needed?
Different local authorities have different terms and conditions, a number of which are robust, so there is already a model that could be applied to right-to-buy sales. Housing associations fund further repairs, but we have not considered fully what we might do if the right to buy was extended to individuals to ensure that those individuals can maintain their houses. The proposed extension of the right to buy might take place a while before the housing improvement task force completes its work, so there may be a lack of synchronisation.
It is important that there is a link between extending the right to buy and making potential purchasers aware of their obligations in the long term, which are not simply to meet the payments on a £12,000 mortgage each month. We would be keen to be involved in addressing that.
Thank you. I indicated that I would give the witnesses an opportunity to sum up on any points that they feel have not been fully covered in questioning. Is there anything that the witnesses want to add?
We have covered most of the areas that we touched on in our briefing paper.
Once you have reflected on the evidence that you have given, we would be more than happy to receive further information from you if there are points that you would like to bring to our attention. You indicated that you would send at least one report to us, which we look forward to receiving. I thank you for your attendance today.
I will say a few words of introduction.
On that point, there may be issues on which you feel constrained, given what your new role might be. If you indicate at any time that you feel constrained in that way, we will take note and address the matter with the minister. We will not give you a row for not answering.
Thank you.
You said that you thought that the bill was good news for Scottish Homes. What do you think the bill will mean for tenants in the social rented sector?
Carole Oatway may want to say something about how we can try to raise standards through our regulatory function. That is her responsibility.
We welcome the opportunity that the bill presents to offer a single regulatory framework that is designed to ensure that all tenants, regardless of who their landlord is, enjoy the same standards of service. We can contribute a number of elements towards the social justice agenda in that regard. We can make inroads into raising standards and equality of opportunity in relation to access and the management of housing. We can do some work to tackle some of the more obvious effects of the reliance of people on low incomes on the social rented sector by ensuring that the quality and the management of that housing is of as high a standard as it can be.
Do you think that you have a role in re-establishing the credibility of the social rented sector for people who can afford to buy their homes? Currently, people seem to believe that if someone can afford to buy their own home that is what they should do. Is there a case for re-establishing the benefits of the rented sector for folk other than those who simply cannot afford to buy?
There is an opportunity to do that if people see that the social rented sector has high-quality housing that is managed to a high standard. It is true that what you have described is very much the case in Britain. There are several examples throughout Europe of places where people see social renting as something to aspire to rather than something to fall back on.
Have you had any discussion with your tenants about their situation following the change in Scottish Homes' role?
We are in constant dialogue with our tenants and have been over the past few years as we seek to transfer our houses to community ownership. We have made it clear to our tenants that that is our strategy. The final say in all cases rests with the tenants. By the end of October, we will have about 4,000 tenants left. We are in discussion with them about how we will deal with issues associated with Scottish Homes no longer existing. The larger part of the properties are in ballot areas—as we call them—in estates where there are firm plans for onward transfer to housing associations. We will continue that dialogue.
Did you have any input into the drafting of the Housing (Scotland) Bill? If so, to what extent did your tenants inform that input? Did you consult your tenants on what should be in the bill?
There was no direct consultation with tenants on the bill. We have a reasonably good idea of the views of our tenants because of the nature of our relationship with them. In particular, through the stock transfer process, we sit down with tenants to discuss options, the strategy for their areas and so on. That allows us to get a feel for the sorts of issues in which tenants are interested.
To what extent will the additional work load that will result from the regulation of local authority landlord functions have resource implications for Scottish Homes? Are those being addressed?
The general presumption is that our level of revenue expenditure will not increase. The staffing increase in Carole Oatway's section will be made up from downsizing elsewhere in the organisation. There will be a reduction because of the transfer of houses and of housing management staff. We have on-going discussions with the Scottish Executive on the resources that we need to execute our various functions.
What arrangements have been made to allow tenants to choose their new landlord? I know that some of your housing stock is not the most attractive in respect of house type. What choice will tenants have?
That is an issue for the board of Scottish Homes. We keep our board up to date with how we are progressing the programme of transfers. One of the issues that has been raised is what becomes of residual stock when we become an executive agency. The board has made it clear that its principle is that the tenants must have the final say; the tenants must agree in a ballot. The board has repeated that several times and that is the line that we take.
The bill details how Scottish Homes' relationship with its tenants might be managed in the case of any dispute. Concern has been expressed that the courts may be called on too quickly to resolve disputes. Are you concerned about that? How might we strengthen the bill to allow a better method of dispute resolution between tenants and landlords, and between tenants organisations and landlords?
The bill provides for tenant participation as a statutory right and we support that. We have always taken the view that it is better to get buy-in from all the various stakeholders in the decision-making process. We use a range of methods to do that, including newsletters and public meetings. We also ensure that tenants are adequately aware of what might be required and have access to independent sources of advice. Scottish Homes has those mechanisms in place and we foresee them continuing and being built on as part of the tenant participation arrangements in the bill.
I am still concerned that individuals or even associations may have to have recourse to the law. Would not it be better to have in place some sort of independent arbitration arrangement, which would be less costly for individual tenants, tenants associations and landlords? If you have not given much thought to that, perhaps you might do so and get back to us.
We have not given that much thought. We can get back to you on that if you wish.
We would like to consider that in the context of the existing arrangements for dealing with disputes, including the ombudsman service. We expect there to be a proper complaints procedure whereby issues of concern can be ratcheted up through a whole range of mechanisms, so as to avoid costly reference to the law. There are existing mechanisms, but we need to examine them to ensure that they are fit for purpose in the context of the new legislation.
What about the rights of your staff? Do you plan to maintain all your regional offices? What will happen to staff in regional offices that you plan to close? You talked about downsizing in order to take on the new functions. Did you consult your staff about staff transfer before drafting your proposals?
There were discussions with staff in January. I have spoken to everybody—not individually, but in groups—to bring them up to date with the direction in which we are going. Our logic—if that is the right word—is first to determine exactly what the organisation will do and what its role and functions will be. The next stage is to determine whether the shape, structure and size of the organisation are fit for purpose. We are right in the middle of that process at the moment. The paper that the committee received from Jackie Baillie is the Scottish Executive's first formal announcement on our future role and purpose. We needed that to make progress on restructuring.
So you are not yet at the point of deciding which regional offices you might or might not need?
That is right. We are not at that point yet. There will be further discussions with COSLA about the role of regional offices. There is some comfort for staff in the bill itself, as their terms and conditions will be no worse than they are. That gives them some interim comfort until we resolve the shape and size of the organisation.
What is your experience of community regeneration? How will you develop the appropriate relationships with the local authorities, which clearly have the lead role in that area? What advantage is there in your agency also being involved? Is not that likely to lead to duplication, working at cross purposes or a failure to deliver change because of the council's local view and your national view? What impact will the extra burdens have on your agency in delivering what is primarily a housing function?
The purpose is to broaden the role. You have asked quite a complicated question, to be honest, and there are a number of aspects to it. There is no doubt that local authorities must be in the lead, and there is no doubt in our minds that we must complement their role and add value. If we cannot make a beneficial impact, we will be failing in our duty.
The current arrangement is that you hold housing development funds. The local authorities may have views on where those funds should go, but you will not release the money unless you get your way. I have some concern that that is exactly what will happen with community regeneration. You control the funds. In spite of the fact that local authorities allegedly have the lead role, I fear that unless they comply with your wishes and so you release the funds, it will not happen.
I do not share your concerns. The key is not my wishes but the minister's wishes.
I did not mean to personalise the issue. I was referring to Scottish Homes' view.
One big advantage of the bill is the creation of local housing strategies. That is the mechanism that will ensure that there is a clear identification of housing priorities. Responsibility for that lies with the local authority, which will consult other key players. Those strategies will be based on guidance, which is being prepared at the moment. I believe that that will make for much greater clarity about the priorities and where investment should be targeted.
I will concentrate on how housing stock transfer may impact on the new executive agency and on housing associations. We have heard that Aberdeenshire has pulled out of stock transfer, so six local authorities are now considering it. If stock transfer takes place, it will mean a doubling in the size of the housing association sector. Will the executive agency be able to cope with the additional work load? Will housing associations be able to cope with the additional work load and with such a large, rapid expansion?
Carol Oatway will talk about how we might handle the expansion.
I am fairly confident that, as an agency, we will be well placed to build on the experience that we have had over many years in regulating the RSL sector. The sector has a huge diversity, ranging from organisations with one house and 10 bed spaces to organisations that own more than 5,000 houses. We have processes in place that enable us to regulate those organisations effectively.
Sandra White will probably have guessed that I am a fan of the housing association movement. It has a good record, stretching over more than 20 years, and has shown a capacity to expand and adapt. We are now talking to it about the wider role that it could play in community regeneration, building on its strengths and local connections. Some housing associations are concerned that they may be swamped by a large number of bigger housing associations. We must discuss the impact of the changes on them. We liaise regularly with the Scottish Federation of Housing Associations. I trust the associations' resilience, but their concerns are real and we must talk the issues through with them.
Housing associations have said that they are frightened that they will be swamped by the number of houses in the stock transfer. In Glasgow, 92,000 houses will be transferred. You said that you are confident that you can handle larger organisations, but you mentioned a figure of 5,000; we are talking about 92,000. I know that, beneath that figure of 92,000 houses that will be transferred to the Glasgow housing association, 32 other associations will want to be involved, not to mention the tenants associations. Would it be advantageous to stipulate the size of a more manageable housing association, rather than transferring 92,000 houses to one huge housing association?
As for our capability to deal with such a large organisation, the skills that are required to be an effective regulator are probably the same for an organisation with 5,000 houses as they are for one with 80,000. There are complex business issues relating to treasury management and corporate finance, as there is a need for additional inputs and external support. We are working closely with the various interested parties in Glasgow on that.
Under the bill, will you regulate houses—for example, in Glasgow or elsewhere—regardless of whether they are involved in stock transfer?
We will regulate the housing management functions of local authorities, their homelessness strategies and their factoring arrangements. That is part of the bill.
By what timetable do you envisage that the stock transfer and the regulation will take place, and what time scale will the involvement of the other authorities and the housing associations follow in Glasgow? I am sorry to use Glasgow as an example, but it is the situation with which I am most familiar. I know less about the other five situations.
We work closely with the Executive and the various interested parties, such as Glasgow City Council. My understanding is that the ballot is planned for November. That is the latest information that I have had.
The bill contains proposals for dealing with disputes about nominations for homeless people between local authorities and housing associations. Are the arrangements adequate? Should the new executive agency have additional powers to direct RSLs that refuse to house homeless people?
I am fairly confident that the concern that RSLs will resist playing their part in dealing with homelessness will largely not be realised. Such landlords have a good social conscience. For example, RSLs provided houses for more than 6,300 homeless people last year. That represented 42 per cent of RSLs' total allocations. RSLs are not waiting to be asked by local authorities to deal with people who come to them through statutory homelessness provisions. That is a good starting point.
You have spoken about what will happen when you are no longer a landlord and about your involvement with tenants. However, we have taken evidence suggesting that there is an anomaly in the position of your remaining tenants. You will undoubtedly have some tenants left, as you will not be able to get rid of all your housing stock because of various problems—we explored that issue when you gave evidence before. Is it fair that Scottish Homes tenants will not benefit from the single Scottish secure tenancy from which all other tenants in Scotland will benefit?
That is a fair question. We forecast how many tenants we would have at a projected date of change. The lowest projection was about 1,000 tenancies. It was on the basis of that relatively small number that we decided to make one change rather than two. As Hugh Hall said, it now seems that we will have between 3,000 and 4,000 tenancies. That is perfectly reasonable and just means that tenants are taking longer to decide to go to ballot—we have never pressed them to go at a speed at which they would feel uncomfortable. Given that changed projection, we propose to make representations to the Scottish Executive to determine whether our tenants could be put in the same position that everybody else will be in.
The right to buy has generated much comment from professionals and tenants in housing associations throughout Scotland. Hugh Hall said that he was not worried that the extension of the right to buy would threaten the viability of housing associations. Has Scottish Homes commissioned any research on the right to buy? Can you share any research with the committee to show why you are so confident on that point?
I will begin by commenting on an earlier question to the CML, which was whether the number of houses that would be affected retrospectively was 47,000. In fact, the number is 43,000. We are the source of that figure. In their annual returns, associations let us know how many of their properties already have a right to buy and how many do not. Using that information and information on the charitable or non-charitable status of associations, we reached the figure 43,000.
You mentioned pressured area status, on which the committee has taken a lot of evidence. It has been suggested to us that there might be a reluctance or a difficulty in obtaining pressured area status. Do you have any concerns about the operation of the pressured area scheme? How easy will it be for an area to gain that status? Is the proposal the right way to protect areas in which there are few homes in the social rented sector?
I was on the working group that previous witnesses mentioned. We were concerned to get the balance right between asking local authorities for information to demonstrate that there was a need for the designation and not overburdening them with the need to produce excessive material that would cause them difficulties in securing designations. My recollection from the discussions in that group is that the local authorities' overriding concern was not that the mechanism would be difficult to implement but that the mechanism should be made available to them before the introduction of local housing strategies, which are scheduled to start in 2003. There was a general agreement that that was appropriate and that, where necessary, the designation of pressured areas should be possible before local housing strategies were put in place.
As part of the work that led you to the 2 per cent take-up estimate, did you do any work on the differential take-up in various parts of Scotland or within cities? That might impact on certain organisations.
The data that we used were from the national house condition survey. The problem is that it is difficult to break that information down into individual local authorities because of the sample size. We were able to consider the factors that are likely to cause a higher or lower take-up. A young household was more likely to take up the right to buy, as were the higher income households or people who lived in non-flatted property. Different combinations of those attributes can be found in different parts of the country. The conclusions were that it is likely that there would be a lower than 2 per cent take-up in Glasgow, something like a 2 per cent take-up in the rest of the urban areas and a take-up of just over 3 per cent in rural areas. I say that from memory, but I can confirm the figures in writing.
Did any of your figures take into account the levels of rent increases?
No.
Could you give us some idea of the impact of the right to buy on the balance of housing stock in each area? What impact will it have on the strategic function of local authorities? Is there an independent assessment of needs and demands for public sector rented housing and the balance of stock available?
The expectation is that local authorities, through their local housing strategies, will take the lead on a needs assessment of the local areas—we will support that where we can. The impact on the balance of stock depends on what happens once a right-to-buy sale has occurred.
You indicated that the right to buy would tend to be exercised on non-flatted, larger accommodation. Unless the registered social landlords have an adequate supply of a range of houses, they will be unable to meet the demand for public sector housing. Right to buy will have an impact on the balance of stock; that demands planning and provision. Has appropriate research been done on that? What mechanisms will be put in place to secure an appropriate balance of provision in future?
The impact of right to buy in particular areas depends on what happens next. If a tenant buys a house and stays in it—and would have stayed in the house anyway—there will be no impact. Our evidence on the impact of right to buy over time, which draws on work done in rural areas, is that about three quarters of the people who have bought under right to buy since 1980 still live in their property. About two thirds of the other quarter of properties have been bought and sold by local people, usually at a price discount in comparison with the mainstream market. If we work through those fractions, it is clear that about 8 per cent of the property sold under right to buy since 1980 has been sold to people who might be considered non-local. However, some of those people will have come into an area for employment or other reasons.
Is it true that the bulk of houses that have been sold are two and three-bedroom self-contained properties?
Yes.
There has been a significant reduction in the availability of such properties, which are what people who are likely to remain in the public rented sector desire. People aspire to such houses and once those houses are sold—irrespective of whether the houses are sold on—they are, obviously, unavailable. However, if such houses remain in the rented sector, the person living in them might decide to move to one-bedroom accommodation in a flatted dwelling without a garden. That option has been removed. When the right to buy has caused a significant distortion in availability, how will we provide that type of larger accommodation for those who remain in the rented sector and are looking for affordable accommodation?
We should emphasise that three quarters of those houses would not have been available anyway, because the people are still in them. In terms of being available for access, the houses have not been taken away from anything.
I would like to pursue some points on the right to buy. The figure of 2 per cent has come up and you say that you cannot divide your Glasgow figures. Does that not make it impossible to make a sensible contribution to the debate? I am thinking about the difference between tenemental properties in Easterhouse and tenemental properties in the west end of Glasgow. Are you aware of the views of organisations such as Partick Housing Association, which thinks that it will soon be pretty much wiped out by the right to buy because of the high demand for tenemental properties in the west end of Glasgow? Have you any research evidence to show how the pattern will vary in different parts of Glasgow?
No, we do not have evidence comparing different parts of Glasgow. Scottish Homes has evidence that around 40 per cent of Partick Housing Association's stock houses tenants who have the right to buy. In the mid-1990s, there were sales from that stock that were balanced by new acquisitions.
We have talked about the viability of housing associations and bodies of that kind. If you remove from the asset base of a housing association the discount that goes with the right to buy, will that not impact on the level of rent and on the programme of investment? Something has to give somewhere, does it not?
When we consider finance, we have to bear in mind the fact that, as currently drafted, the legislation will require housing associations to opt in to the right to buy. That is for a period of 10 years and there will be an extension in due course. It is an opt-in arrangement, and we believe that that should give associations sufficient time to organise their affairs.
But with respect, that is not what I asked. My question is, if you accept that there is no financial viability in that scenario, is there an impact on either the investment programme or the rents if you remove part of the asset base? You are selling these houses at one third of their value. You are taking out of the asset base a considerable part of the value. That must impact somewhere.
Longer-term investments, such as the ability to borrow, would have to be examined in the context of each housing association. However, the numbers that we are talking about are unlikely to impact greatly on the capital investment arrangements. It is fair to say that if there is a loss of an income stream from rent, that could impact on the cost base—if you lose 10 houses from a stock of 800, you may not be able to make equivalent reductions in the cost base. That is an issue, but it is the sort of issue that housing associations need to address. They must make sure that they have a lean and mean machine that delivers value to tenants. In those cases, the impact would be on the cost side of the equation.
Are you taking full account of the repressed demand? The figures that are available come largely from situations in which there has been a right to buy over a period, and where people have exercised that right at the rate of, for example, 2 per cent per year. At a certain point, the bill will bring in a tranche of people who have not had the right to buy. Will there be higher demand in the first stages that will tail off afterwards?
There is no evidence that there is repressed demand. When right to buy was first introduced, there was no repressed demand: it built up gently. The evidence on tenants' aspirations from the 1996 house condition survey did not indicate that there was repressed demand. What has tended to happen over time is that as people's income circumstances change and put them in a position in which they wish to take up their right to buy, they do so. Of course, there is movement through the stock all the time, but we have not seen evidence of a repressed demand. In the context of financial viability, we would be looking with housing associations prior to the lapsing of an exemption to see whether in their specific circumstances there is such demand, and whether it will be an issue.
There is an issue about the availability of socially rented housing. We have heard evidence about, and we have individual knowledge of, areas such as Edinburgh, which you mentioned, East Kilbride and the west end of Glasgow, where the percentage of available social rented housing is down to about 20 per cent. I agree that those figures may conceal local issues but, as the strategic housing body for Scotland, could you inform the committee of the advantages of further right-to-buy sales and the decrease in the social rented stock in such situations? Are there any advantages for a housing strategy?
I find it difficult to think of strategic objectives in terms of tenure splits. I am not clear in my own mind what the relative advantages or disadvantages are of a level of 30 per cent or 20 per cent at a given point in time or through time. There are certain localities in which the income base of the households, or the preferences of the people within the area, will make it more or less appropriate to have higher or lower levels of social renting, but that is a case-by-case circumstance. To be honest, I have little confidence in saying that one level of social renting relative to another has any meaning.
On housing strategies, do you accept that there may be situations—forget about pressured areas—in which it would be an advantage for local authorities to be able to say that right to buy has run its course in an area in terms of extending the categories of people who have the right to buy, and that there should be no more right to buy? Is there value in that?
I would like to think about that question before responding to it. If I may, I shall write to you on the matter.
I have a final question. In a very welcome development, responsibility for development funding and the housing plans will move to local authorities. Will the local authorities have the staff base to take on that responsibility, and will you have a role in training staff? Are there going to be transfers of staff? How can those changes be effected to the best advantage?
The ball is primarily in the local authorities' court, but we would offer any assistance that we reasonably could. I am not sure whether any transfer would be caught by the TUPE—Transfer of Undertakings (Protection of Employment)—regulations. It may be that local authorities would have to provide an attractive package to make people move.
Let us turn to the general question of your relationship with local authorities. In your introductory remarks, you stated that you had been involved in consultation with COSLA. How far have you got towards determining how you will devolve the strategic funding to local authorities?
Convener, I do not know whether you intend to circulate the letter that you received from Jackie Baillie, and the attachments.
I read them on e-mail this morning. I am not saying that they arrived this morning, but that I read them this morning. They were not sent to the clerks, but the committee will get them as soon as the clerks are able to circulate them.
I am at a disadvantage.
The papers that you will receive include a paper on development funding that has been agreed by COSLA. It is a short paper, outlining the necessary arrangements.
I shall read the paper and, if I have any further questions, I shall get back to you direct.
Absolutely.
Let us turn to the question of regional offices. You dealt with the related staffing issues in response to questions from Brian Adam. What is not clear is exactly what those regional offices will do, bearing in mind the proposed level of devolution to the local authorities.
That is a fair point, and COSLA has some concerns about that. Although we have managed to conduct detailed discussions with COSLA over the development funding and the regulation, we have not managed to talk in detail about the wider community regeneration role that may or may not be carried out by a regional office structure.
That is fair enough.
I am sure that the minister will answer that question, but Hugh Hall and I will have a go at doing so now. We believe that the safeguards that will be in place, in the form of the code of practice and the involvement of non-executive board members in giving an overview of issues and problems arising from regulation, will be adequate to address the concerns that Bill Aitken has raised.
We recognise that there are potential difficulties, in that there needs to be a proper division of responsibilities. Bob Millar mentioned the role of the board and the fact that non-executives will take an interest in how we go about our business. It is also about how transparent the registration criteria will be.
Does that mean that no punches will be pulled?
Absolutely.
Over the next few years, we are expecting a great deal of money to be spent on houses throughout Scotland, particularly those involved in stock transfer. Will the new executive agency have any control over the quality of that investment?
We believe that we will have such control. Through the local housing strategies, the question of what the money will be spent on will become much clearer. There is clearly a big issue around how the money is spent. I mentioned earlier that we need to consider more effective ways of procuring from the construction industry. There have been various reports, starting with that of Michael Latham, saying that the construction industry is inefficient, and that the costs are therefore higher than they might otherwise be.
Does the regulator need additional powers to ensure that works are carried out to the highest possible standard?
We are very satisfied with the powers of intervention proposed in the bill. A key strategic and operational area is the development funding arrangements within a particular housing body. For example, we would examine its business plans and its promises to tenants as part of the stock transfer contract, and would ensure that it is taking action in all those areas. Where it failed to do so, we would highlight the weaknesses and seek an action plan. We would then monitor the plan to ensure that it was implemented. If that does not happen, we have the power to appoint members to the management committee. If that course of action proves ineffective, we will have the power to appoint a special manager. Ultimately, in the case of a registered social landlord, we can transfer the stock to another RSL. We have a whole suite or continuum of powers of intervention and persuasion that can be used in different ways.
Are you quite happy with the proposed bill as it stands, or are there any aspects that could be improved?
We are happy with the bill. Our concerns over improvement and repair grants in part 6 have been removed by the proposals to create a housing improvement task force. Tony O'Sullivan is involved in scoping out the task force's remit. As a result, we are now comfortable with the bill and believe that it is of good quality.
Thank you very much. As they say, we have had a good go. At various times in the discussion, you indicated that you would come back to us with information. We look forward both to that and to continuing our dialogue about housing in Scotland.
Meeting continued in private until 12:35.
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