Stalled scheme gets go-ahead a year after being rejected - but housing sector remains reluctant to use PFI

Camden's PFI housing scheme is back on track more than a year after it was vetoed by the Treasury.

The Partners For Improvement in Camden consortium, made up of United House and Bank of Scotland, has agreed a deal with Camden council for the regeneration of the 700-home Chalcots Estate.

The refurbishment of five tower blocks in the north London borough, which is expected to take three years, will begin on site shortly.

The Treasury rejected the consortium's original £119m proposal in February last year, on the grounds that it cost too much.

Capital expenditure on the proposal, which was agreed on Monday, has now been cut to £65m by using cheaper cladding, leaving out some of the affordable housing units and basement garages.

The deal confirms the government's continuing willingness to use the PFI to improve social housing.

In July last year it launched four PFI housing schemes to deliver a total of 1500 units and three refurbishment PFIs covering a total of 3000 units.

The decision came despite the abandonment of a PFI refurbishment scheme by North-East Derbyshire council and setbacks to their refurbishment projects encountered by Camden and Ashford council in Kent.

First in class: This Islington social housing refurbishment project was the first of the PFI schemes to go on site

First in class: This Islington social housing refurbishment project was the first of the PFI schemes to go on site

The government still has much to do to persuade the housing sector of the merits of PFI. Only five councils have signed PFI estate refurbishment projects since the initiative was adopted by the Labour government in 2000. Stock transfer and arm's length management organisations remain the more common routes to upgrading housing stock to the Decent Homes standard.

At a seminar on PFI housing at the RICS last week, David Montague, London & Quadrant Housing Trust finance director, said the trust had abandoned PFI several years ago in favour of stock transfer.

Housing PFI is slow, painful and expensive

David Montague of L&Q

He said London & Quadrant had left the PFI market because it was priced "too aggressively" and its contracts were "horrendously complicated".

He said: "PFI is slow, painful and expensive. It brings reluctant partners together into difficult, adversarial relationships.

"If you had been asked to buy all your shoes 30 years ago, you would all have come here in platforms.

It doesn't work for shoes and it doesn't work for housing.

"You can't predict inflation, you can't predict property costs and you can't predict demand."

Montague said London & Quadrant was also uncomfortable with penalties imposed under the PFI system for failure to reduce crime rates on a year-by-year basis. He said: "We thought we had a role to play, but should we be penalised for not improving every year?"

However, the biggest PFI issues were not peculiar to the housing sector, said Cecily Davis, a construction partner at legal firm Shadbolt & Co, which hosted the seminar.

She said: "Everyone is demoralised by the length of time it takes to procure projects and to get them to close and by the level of bidding costs.

"That is compounded by authorities not necessarily framing their schemes in ways that are attractive to bidders. The system wasn't set up with a view to housing PFI becoming the delivery method for Decent Homes."