Whitehall to consult with councils over change to funding rules to allow more new-build PFI social housing.
The government is to bow to pressure from councils and contractors and consider the removal of restriction on the funding of new-build PFI social housing.

The Office of the Deputy Prime Minister will issue a consultation document next week that will ask councils whether they should be allowed to fund new-build social housing out of their housing revenue accounts.

The account tends to be used to fund large PFI repair and maintenance schemes. However, in a hangover from the Thatcher government's legislation, it cannot be used to for new-build housing.

This rule tends to discourage consortiums from bidding for contracts because the risks associated with pure repair and maintenance are harder to estimate, and so harder to price for.

For example, it is not always clear whether some potentially expensive maintenance work, such as the decontamination of land, is the responsibility of the contractor or the council.

The move would provide a much more clear-cut division of risk PFI housing source

With new-build schemes, all risk is passed on to the contractors. This means that funders can be more certain of the likely cost of the project over the 25- to 30-year life of the contract.

A second factor is that it is often more costly to repair low-quality housing than to simply demolish and replace it.

A PFI housing observer said: "Introducing new build will make PFI housing more attractive to bidders. There will be no confusion over whether councils or contractors take on the risk of latent defects. It is a much more clear-cut division of risk transfer."

An ODPM source told Building that the consultation document would be sent to councils across the UK, with a consultation period of four weeks. A statement on the result of the consultation will be made in April.

A PFI consultant said: "From an implementing perspective, this document opens the door for far more PFI housing schemes to be launched. It will become a real tool of regeneration."

Last year, Carillion and Bovis pulled out of a £30m PFI housing scheme in Camden, north London, partially over the arguments about the risk involved.