On the other hand, the sums involved in bringing the housing stock up to scratch were astronomical. It just couldn't be done without private money. In November 1999, eight "pathfinder" public–private partnership schemes were unveiled. Under the schemes, properties on run-down estates would be transferred into private ownership for 25-30 years, during which time they would be renovated "to a decent standard". Nick Raynsford, the housing minister at the time, said: "These schemes demonstrate the contribution PFI can make to improving housing."
Two-and-a-half years later, work has yet to start on renovating the housing stock of the eight derelict estates chosen to pilot the scheme, and only one council has even named a preferred bidder. Residents who were told the private sector would regenerate their homes are still waiting to see the first signs of improvement.
Two concerns about central government subsidy have held back the schemes. The first is that the amount of public money available to the pathfinder councils was index-linked to the Bank of England's interest rate; when this fell, so did the subsidy – by as much as 15%. In February this year, after six months of protests by the councils concerned, the DTLR granted additional PFI funding to Manchester council's pathfinder, which was the most advanced of the eight.
The second concern centres on rivalry between the pathfinder councils and others who have signed up for the government's "arm's-length management organisation" scheme. The pathfinders discovered recently that councils using ALMOs to refurbish their stock would receive 30% more housing subsidy than they would. Paul Bradshaw, the director of community services at North-east Derbyshire council, which is running a £20m pathfinder to renovate 534 properties, says: "There is annoyance that ALMOs appear to be getting far more favourable treatment than PFI."
PFI housing has been, so far, an equally bruising experience for the contractors who have decided to bid for work. Contractors have been frustrated by the political and economic peculiarities of the social housing sector. For example, a hangover from the Conservative's regulations means that money in housing revenue accounts – in other words councils' income from rents and public subsidy, and expenditure on management and maintenance – cannot be spent on new build. To change the regulations to permit PFI new build would require primary legislation.
Laing Investments is shortlisted on two pathfinders, the £50m Sandwell scheme in the West Midlands and Newham council's £35m housing refurbishment project in east London. Laing Investments director Florence Barras says refurbishment of housing stock can be unnecessarily costly: "One of the issues that has made housing PFI not progress as quickly as other sectors is the lack of new build. Depending on the nature of the housing stock, demolishing and rebuilding will offer better value for money than refurbishment."
The government acknowledges the lack of new build is a problem, but it is a matter that appears low on its agenda. A DTLR spokesperson says:
"We are looking at this whole issue of new build, but clearly, with the amount of legislation on at the moment, not in an urgent fashion."
Some are questioning the future of the pathfinder initiative. One bidder has mused: ‘Is the PFI suited to housing?’
Is PFI housing workable?
Some have gone further and have started to question the future of the initiative. At least one regular bidder shortlisted for several pathfinders has mused: "Is PFI suited to housing?"
Ben Denton, a director at financial adviser Abros, says it is; the present difficulties are teething problems. He is advising on five of the pathfinders and believes that the financing problem will resolve itself once bidding for the schemes becomes more competitive and costs decrease.
There are examples of this elsewhere, he says: "Learning from PFI schools, the early schemes were more costly, but later became value-for-money as the competition process took effect. When pathfinders were introduced, there wasn't a developed market for the sector."
But Denton does not believe PFI is suited to all housing schemes. It is appropriate for schemes where the contractor can add value and in turn make money for its shareholders. This is why the schemes that have a particularly significant regeneration impact will be among the most successful – because renovation work will be extensive, heavily increasing the value of the properties and the surrounding land. Denton says: "Straightforward maintenance and management contracts might not provide the same scope to add value."
But blame for some of the problems of PFI housing has been directed at the councils. Keith Carey, regeneration director of architect HTA, is working on bids for three pathfinders, and says delays have been partly caused by inadequate information from councils. Councils provided bidders with stock condition surveys; bidders complained these surveys failed to factor in the cost of refurbishing the stock. Carey says: "Contractors want a 95% certainty of work that needs to be done on buildings so they know there are not going to be any cost overruns."
With new surveys either begun or completed, Carey believes the next round of PFI housing will get under way more quickly: "It is a new procurement route. Not all councils appreciated how different PFI is to traditional procurement. The whole idea of the pathfinder pilots is to find out what works and what doesn't."
An unexpected finding from the pilots has been how appropriate residential towers are for PFI. Bidders for the £40m Camden scheme in north London have been asked to look at refurbishing and managing three residential towers at the Chalcot Estate. Sources involved in the scheme have been struck by how easy towers are to manage. With security needed at a single access point – the entrance - there is far less scope for vandalism. Carey says: "Towers are relatively much easier to manage. They are appropriate for PFI."