Housing stock options appraisal process
Background
In February 2003 the Deputy Prime Minister issued
“Sustainable Communities: Building for the Future.” Local
housing authorities are required to ensure that their housing stock
is brought up to the “Decency Standard” by 2010 and that this
standard is sustainable beyond that date. A stock options appraisal
must be undertaken, to be signed off by the Government by July
2005, which demonstrates how the City of London can deliver the
investment required to meet these requirements.
The appraisal examined the options available for achieving the
required investment in accordance with the requirements set out in
the Government’s guidelines. Key requirements in the guidance
included:
- resident involvement from the outset and consultation with them
throughout;
- robust, accurate and up to date stock condition and needs
data;
- a financial appraisal giving clear information about the impact
of each option for the housing stock (the options are outlined
below);
- objective, robust evaluation of each of the options, looking at
value for money, sustainable decent homes, improving services,
tenant priorities, deliverability, local, regional and national
priorities; and
- independent assistance provided to tenants at an early stage to
help them understand and contribute to the process.
A local authority must consider whether any of the following
options meets the objective of delivering sustainable decent homes.
Some of the options may provide access to additional financial
resources from the Government:
Stock transfer – This involves the transfer of
ownership of all or part of the housing stock to a registered
social landlord. This could be an existing housing association,
although a new one can be formed to receive the transferred stock.
If the stock to be transferred has a positive valuation a capital
receipt will be received by the council. If it has a negative value
a “dowry” has to be given to the purchaser. This is paid by the
council although normally the Government would need to provide the
Council with the resources. This option needs the support of secure
tenants, in that a majority of those voting must agree to the
proposed transfer.
The Private Finance Initiative (PFI) – This
option involves the City of London remaining as the landlord and
use of private sector resources to deliver the refurbishment of
existing social housing (or new build). The contract with the
private sector operator is typically 30 years.
Arms Length Housing Management Organisations
(ALMOs) – An ALMO is an organisation specifically set up
by a local authority to manage and improve all or part of its
housing stock. The ownership of the housing stock stays with the
local authority which remains the landlord. Tenants continue to be
secure tenants of the authority and there is no change in their
rights, such as the right to buy, etc. The arms length body is a
company with the local authority as the sole shareholder but it has
a significant degree of independence from its parent local
authority. Its board of directors would comprise three groups:
resident representatives, local authority nominees and independent
experts, none of which can have an overall majority. To obtain the
additional resources an ALMO must achieve at least a two star
rating from the Housing Inspectorate (the City of London received
two stars for its estate based services last year) and the stock
option appraisal process must demonstrate that the Decent Homes
Standard cannot be achieved from within the Council’s own
resources.
Retention of existing ownership and management
arrangements – the City of London could continue to manage its own
stock. No additional financial resources will be provided by the
Government.
The appraisal process
In September 2003 a working group was established to drive
forward the process. The group comprised officers from the
Department of Community and Children's Services and that of the
Chamberlain. External consultants were engaged at a later stage to
assist with the appraisal and they joined the group also. One of
the consultants was employed as an Independent Tenants’ Adviser
(ITA).
A Steering Group was formed in February 2004 to oversee the
whole process and this was chaired by the Director the Department
of Community and Children's Services. The Steering Group comprised
five resident representatives, two Members and five officers and
was supported by consultants. The group had its own terms of
reference.
A stock condition survey was commissioned late in 2003 using an
external firm of surveyors. This provided accurate and up to date
stock condition data which was essential for the option appraisal.
The survey quantified how much needed to be spent on the housing
stock to bring it up to the Decency Standard and maintain it at
that standard for the next 30 years. The final figure for the 30
years has been calculated as being £165.6 million.
The Steering Group received evidence and professional advice on
technical, financial and other relevant considerations. In summary
this evidence showed that:
- The City of London has maintained its stock well and has
sufficient financial resources to deliver the Decent Homes
target.
- The City of London can afford a high level of investment that
meets known residents’ expectations and the recommendations of
external advisers. This would be subject to maximising revenue
income and applying any surpluses to capital expenditure either
directly or through the debt servicing costs of prudential
borrowing and deferring some works to later in the programme.
- Neither PFI nor ALMO offer additional funding for the City of
London.
- A negative valuation of the stock calls into question the
viability of stock transfer. The City of London’s housing stock has
a significant negative value of around -£28.8m or -£14,847 per
property. This figure has been arrived at by deducting the 30-year
running costs and investment expenditure from the net present value
of the sum of all the rent and service charge income that will be
generated over 30 years (under Government rent regulation). If the
City of London wished to transfer its stock, it would have to give
a large ‘dowry’ and would have no capital receipt against which to
set off the costs of transfer and the closing of the Housing
Revenue Account (the account into which rents and any Government
money is paid and from which the City of London maintains its
stock).
The Steering Group discussed and agreed thirteen criteria with
which it would appraise the relative merits of the options. These
covered investment, service quality and value for money, resident
involvement, residents’ rights, the impact on staff and the City of
London as a whole and the attendant risks and uncertainties.
Residents have been consulted and informed by City of London
staff through regular articles in Community News, briefings and
special events like the Residents’ Open Day in June last year and
the road show which visited all estates in the autumn of last year.
In addition the ITA held a road show, formed Insight Groups for
residents who wanted to get more involved and issued articles and
flyers to raise awareness. A freephone number was given to all
residents in case anyone wanted to speak personally to the ITA.
The majority of residents support the City of London remaining
as the landlord and manager but would like improvements in value
for money, the quality of liaison and the transparency of
decision-making. Some residents think that an ALMO may achieve
these objectives.
Each of the criteria has been applied to the options to ensure a
full, objective and robust appraisal and scored accordingly with
regard to their relative merits and disadvantages by the Steering
Group which confirmed City of London ownership and either City of
London or ALMO management as the preferred options.
Conclusions and recommendations
With the benefit of resident feedback the Steering Group
confirmed its conclusion that:
- the City of London should retain ownership of the stock;
- improved service accountability and resident involvement in
decision-making could be achieved with either City of London
management or an ALMO and the relative merits of each should be
explored further; and
- available resources and borrowing powers should be used to
ensure a first class service and stock investment as recommended in
the stock condition survey report.
Subject to the approval of the Court of Common Council (on 16
June 2005), the Options Appraisal Final Report will be submitted to
the Government Office for London to be signed off.
The recommendations of the Final Report are that:
i) the Private Finance Initiative (PFI) is discounted as
an appropriate option for the City of London.
ii) transfer of some or all of the housing stock is discounted
as an appropriate option for the City of London.
iii) an arms length management organisation (ALMO) is discounted
as an appropriate option for obtaining additional funding for the
City of London.
iv) the City of London retains ownership of the housing stock
and continues to manage it pending an outcome to recommendation
v).
v) delivery of the residents’ “Vision for the Landlord” at
Appendix 2 becomes the basis for a follow-on assessment,
consultation, feasibility study and decision as to whether an ALMO
or City of London management is the best management and governance
option, with the amendment that the subsequent “review” should be
every 5 years rather than “every 2/3 years” as suggested in the
“Vision for the Landlord”.
vi) all future capital receipts made available through the sale
of HRA assets be used to reduce or remove the need to defer capital
works from the timetable set out in the stock condition survey.
Please click on the following link to access the actual Final
Report which will be submitted to the government:
Download the Final Report
here (794kb)