New government, new policies… unintended consequences?

The government’s stated aim naturally relates to fuel poverty, the cost of living and delivering warmer homes, but there are potential implications (which may bite earlier than 2030) in relation to charged stock that does not meet the minimum criteria.

Many RPs will be in a position of owning some units which will not be capable of being brought up to this standard (at least not without uneconomic levels of investment), the consequence of which could be to remove much-needed social housing from the sector.

Further pressure to increase investment could have a financial impact, specifically weakening interest coverage metrics.

Depending on the scope of any exemptions, where there is such a severe shortage of social homes, it appears suboptimal to say that a social housing unit cannot be occupied at all just because it has an EPC rating of D.

It may well also be the case that these properties will be compromised for security-charging purposes, given the (probably rarely focused-on) covenants in loans and also security documents that confirm the ability of a provider to let a property (both at the point of borrowing/charging and throughout the lifetime of the funding agreement).

The reduction of fuel poverty for residents has been an area of significant focus for many providers in recent times. This is supported by investment in retrofit programmes, in some cases connected to green or sustainability-linked finance instruments.

Once the proposals are clearer, active security portfolio management may be required to ascertain the effect the change may have on any one provider and additionally to establish which funders hold charges over relevant properties.

Even if exemptions are available (and useful) in terms of maintaining the unit’s availability for letting pending refurbishment, there is also a potential impact on valuations (which may begin earlier than 2030).

It seems unlikely that a market valuation methodology could be supported if the unit cannot be re-let on the open market following any sale as a result of enforcement.

Correspondingly, if re-letting the property is prohibited, the property may have no value in the absence of a resale market for its disposal. These are just some of the (presumably) unintended consequences of the announcement. 

Separately, the Law Commission published a consultation on the law that surrounds co-operative and community benefit societies (CBSs) at the request of HM Treasury.

The roots of the Co-operative and Community Benefit Societies Act 2014 are archaic, and the commission’s lengthy consultation document includes some fairly significant suggestions.

There are a couple that may be of interest to housing providers incorporated as community benefit societies, specifically around whether societies should be redefined with new ‘ingredients’, one of which includes membership being voluntary and open to all.

Another (which has been raised previously) relates to the exempt charity status CBSs enjoy and whether exempt charities might in future be registered with the Charity Commission. (Being a registered charity does impose additional obligations, specifically but not exclusively in relation to the disposal of properties.)

Changes to law as a result of Law Commission consultations normally take some years, so any impact here will not be an immediate concern, but the consultation is one which the sector will want to monitor and comment on.

If the government is determined to “deliver the biggest boost to affordable housing for a generation”, those formulating policy need to ensure that statements are fully developed with consideration given to knock-on effects and their impact.

Eleanor James and Natalie Singh, partners, Trowers & Hamlins