Britain's public housing is getting a makeover to meet the government's decent homes standard – kitchens and bathrooms are being fitted at a rate of knots. Trouble is, once they're done the tenants go right ahead and flog them, playing havoc with housing association balance sheets and depleting the already dwindling affordable housing stock.
Everyone has the right to a roof that doesn't leak, affordable warmth and windows that don't let the draughts through. Add a refitted kitchen and bathroom and you have the fundamental targets set by the government's decent homes standard, which all affordable housing stock is expected to meet by 2010.

But when the government set this objective it reckoned without human nature. After living in poorly maintained council homes for years, tenants who are getting their homes brought up to standard are so delighted by the deal that as soon as the decorators move out, they are rushing to exercise their right to buy.

That is depleting affordable housing stock at a time when the whole right-to-buy process is being thrown into question because of the South-east's shortage of affordable homes. It is also impacting on the business plans and balance sheets of the housing associations that were formed to take on council housing stock and borrowed money against those assets to carry out repairs.

"Right to buy is a massive drain," says Barbara Thorndick, chief executive of West Kent Housing Association, the housing association formed from Sevenoaks district council's housing stock 13 years ago. "We had 6300 homes when we transferred. Now we have 5320. Even though we have a development programme we are still 1000 homes down. The number applying for right to buy had settled down a bit but now it has gone up because people fear that the government is going to end it."

Housing associations do benefit from capital receipts on sales, but that is cold comfort, says Thorndick. "It makes us look better to get a capital receipt in, but it actually costs more to replace a home."

For Whitefriars Housing Group, the housing association formed to take on Coventry council's 20,000 homes two years ago, the losses are potentially even greater. It is spending an average of £12,000 on interior and exterior refurbishment of each home, but at the same time it is processing sales at a rate of 10 properties a week. Concern that the government might put an end to right to buy generated 97 applications to buy homes in October.

Housing associations were aware that the upgrading of homes was likely to increase the appeal of right to buy, but at Whitefriars the number of applications has more than doubled since homes were transferred and the repairs process started. "We had built it into our business plan, but not at this rate," says John Halton, project manager with Whitefriars Housing Group. "It is something we may have to go back to our funders about."

Right to buy is a massive drain. We had 6300 homes when we transferred. NOw we have 5320

Barbara Thorndick, West Kent Housing Association

The current haemorrhaging of newly refurbished affordable housing stock is one of the issues that the Office of the Deputy Prime Minister could be looking at in its review of the delivery of the decent homes standard. The review will look at current practice, the lessons emerging so far and the shortcomings of the various routes to the standard's delivery. Local authorities have a choice in how they bring homes up to scratch; they can carry out repairs themselves if they have the funding, transfer housing to a housing association under the large-scale voluntary transfer process (LSVT), set up an arm's length management organisation (ALMO) or opt for PFI (see factfile, below).

To date, most of the refurbishment work has been carried out by housing associations under the LSVT process. Local authorities are now showing an increasing interest in ALMOs as the regulations governing them have been relaxed, but PFI projects have so far failed to get off the starting blocks. "Our biggest concerns are the time they are taking and the cost," says Marcus Keys, business improvement manager with Lovell Partnerships. Those concerns are shared by many in the industry, and as a result, the PFI has been the subject of much navel-gazing, with PPP adviser 4Ps looking at the stumbling blocks and talk of the government stepping in to facilitate the process by underwriting bidders' costs.

The decent homes review team is expected to report its findings to the deputy prime minister before Christmas. In seeking industry views, the team began by asking the most fundamental question: whether the government's target of 2010 is likely to be met. Many believe it won't be, for a variety of reasons. The LSVT route depends on tenant acceptance and some local authorities have gone a long way down the LSVT road, only to have their proposals thrown into disarray by tenants voting no at the ballot. They now have just eight years to come up with an alternative and do the work.

Contracting skills are also being stretched not only by the sheer quantity of work, but also because the later homes to be upgraded are those in the poorest condition and therefore requiring most attention. "In the north-east of England there is a worry that major contractors are committed to five to seven years' work, and at least one housing association has reduced the size of its works packages to attract smaller contractors," says Keys. "The problem is that refurbishment work is labour-intensive. You can't use that much prefabrication."

"The decent homes improvement process has made us more selective about the projects we get involved in," says Paul Nicholls, strategic relations manager with contractor United House. But there are pluses, Nicholls adds. "Where the work is procured through long-term partnering arrangements, they are very attractive to us as a contractor because we can plan, resource and train people to deliver the programmes. We are able to encourage new people into the industry and train people knowing that, providing we perform, the continuity of work is available in often very localised areas."

The continuity of work is allowing many Egan-style improvements to be put into effect. Working practices such as multi-skilling of operatives are becoming relatively commonplace and the benefits of partnering are being exploited along the supply chain. The new organisations being formed to carry out the repair works have very different cultures to local authorities. "What's noticeable is the openness," says Andy Hill, managing director of Hill Partnerships, one of the contractors working with the Westminster council ALMO, City West Homes.

Routes to a Decent Home

Private Finance Initiative
The attraction of the PFI for local authorities is that it allows housing stock to remain in local authority ownership, and the government has committed £1bn to PFI housing within the next four years, but in reality projects are proving slow to come through the pipeline. The government kicked off by announcing a series of PFI pathfinder schemes, but none is yet on site. One of the most advanced is Manchester council’s Ardwick PFI, under which 1000 homes will be refurbished by the Grove Village consortium. Arm’s Length Management Organisation
Under the ALMO route local authorities retain ownership of their housing stock and continue to have strategic responsibility for overall housing policy but hand over day-to-day management of the properties and responsibility for repairs. The ALMO is a local authority-owned company run by a board of tenants, councillors and independent members. ALMOs benefit from government funding – some £655m has been allocated so far – and are an attractive option but only the best performing local authority housing departments can apply for the money. When ALMOs were first established local authorities had to achieve a rating of three stars from the Housing Inspectorate for their housing services, but that requirement has now been relaxed to two stars, prompting a lot more interest. The government gave grants to eight local authorities in 2001 and conditionally gave grants to 13 more this year. In its Local Government Bill, the government is proposing prudential borrowing for top-performing social housing landlords. Such borrowing for stock investment would be possible without having to set up arm’s-length management. Large-Scale Voluntary Transfer
LSVTs take council housing stock entirely out of local authority hands, passing it either to an existing housing association or one newly formed for that purpose, which can then raise funds to carry out repairs. The success of the transfer process hinges on tenants, who vote on whether or not they want to have a new landlord. So far some 148 housing stock transfers have been completed for 593,000 homes, raising a total of some £9.5bn in private finance. The government is aiming for about 200,000 more homes to be transferred each year in the run up to 2010.