The difference Brown’s billions will make

On 18 July, the comprehensive spending Review heralded an extra £1.6bn for social housing. The following week, construction minister Nick Raynsford told parliament that this brought total government investment in the sector between 2001 and 2004 to £2.5bn. This huge cash injection means the Housing Corporation’s budget will rise 80% from £762m in the current financial year to £1.2bn by 2003/04. Altogether, 500 000 homes will be upgraded and 56 000 new homes built in the next four years as part of a 10-year plan to eradicate substandard housing.

Those groups that had been lobbying hard for more funds, such as the National Housing Federation and the Chartered Institute of Housing, suddenly found themselves deluged with money. Contractors, consultants and organisations active in the sector agree that it is the biggest boost for social housing in a decade. “It is an exciting time. It is the first major boom in the social housing sector in most people’s lifetimes,” said Malcolm Levi, chief executive of Newcastle-based Home Housing Association. “It is the most impressive initiative since Nigel Lawson’s housing market rescue package in 1992,” said David Birkbeck, chief executive of Architects in Housing.

But will the extra cash really make that much difference? In 1998, many in the construction industry were predicting a boom in repair and maintenance work after the government released £3.6bn from the sale of council housing. The boom failed to materialise, and much of this money seems to have been absorbed in paying debts on housing stock that has decreased in value.

This time, there is reason to believe that the political will is there to make sure the money is translated into bricks and mortar. The government has set ambitious and specific targets: the 56 000 affordable homes for rent to be built by 2004, the transferral of 200 000 properties a year to housing associations and the clearing of the £19bn backlog in local authority housing repairs in 10 years. What is more, several new initiatives have been given their own pots of money, separate from the Housing Corporation’s investment.

It is the first major boom in the social housing sector in most people’s lifetimes

Malcolm Levi, Home Housing Association

Another reason for optimism is that the government has acknowledged that a number of its top priorities – social exclusion, the urban renaissance, law and order, education – depend on the provision of decent public housing. It made this clear in its April green paper, Quality and Choice: A Decent Home for All. The aim of housing policy, it said, was to offer “everyone the opportunity of a decent home and so promote social cohesion, well-being and self-dependence”.

And as a spokesperson for the NHF points out, the range of initiatives announced by Gordon Brown shows that the government recognises that housing is a core indicator of deprivation, along with education, crime, drugs and health issues. “It means architects, developers, contractors and councils will have to work together towards housing solutions that deliver on this wider agenda,” said the spokesperson.

Keith Carey of Laing Partnership Homes says social housing specialists welcome this broader focus. “The emphasis on neighbourhood renewal is a sensible strategy to follow, as opposed to the constraining, estate-based approach.”

So, when will this funding translate into work for the construction industry? The answer depends on what you do. Birkbeck says that, because spending will increase incrementally up to 2004, and because output figures lag behind development programmes, the number of new homes actually built will rise only in 2004-05. “People involved early in the programme, like architects, will see their workload increase by April 2001,” he adds.

We expect to see more activity, more programmes and more new build from 2002

Spokesperson, Peabody Trust

Specialist social housing architects expect to be very busy. As a spokesperson for the Peabody Trust says: “We expect to see more activity, more programmes and more new build from 2002.” The specialists will probably not have the market to themselves for long, as it is likely that architects that have not done housing since the 1960s will move back into the sector. The same goes for contractors. Michael White, business development manager at Kier, says: “We are very positive about the market. We expect an explosion of work, especially in London and the metropolitan boroughs.”

However, this concentration of work in the South-east could become a problem. The government has told the Housing Corporation to spend £872m over the next three years building those 56 000 new homes. It has also said that it wants these homes targeted on high demand areas – in other words, London and the South-east. But high land prices and build costs in the South-east mean that the extra cash will buy far fewer units than elsewhere – some even doubt that the rate of new build will increase on current rates.

There is also the – often rather mind-boggling – world of social housing economics to consider.

The government’s housing green paper proposed aligning housing association rents with the retail prices index rather than (the much higher) salary inflation.

We expect an explosion of work, especially in London and the metropolitan boroughs

Michael White, Business Development Manager, Kier

As Peter Redman, group chief executive of Notting Hill Housing Association, points out, this will have the effect of decreasing the value of the public housing stock. “It will reduce the investment value of dwellings and our borrowing capacity,” he says. This, in turn, will make it harder for associations to borrow enough money to build affordable new housing on expensive urban sites. Birkbeck adds: “Just because the Housing Corporation has bigger grants to give out, housing associations cannot necessarily raise more match funding on the open market, as they only have the value of their current stock as collateral.”

The result is that housing associations are finding that they still have something to lobby for. Specifically, they want Nick Raynsford to announce an increase in the Housing Corporation’s grant rate next month. The grant rate determines how much matching funding housing associations have to raise from investors. At the moment, London housing associations are given 57% of the cost of a development and have to raise the rest, but the associations want this figure put up to the high 60s, as it was in the early 1990s. “We won’t be able to spend this money without a sensible level of subsidy,” says Redman.

One effect of the high price of new build in the capital is to push associations towards the conversion of existing properties. The members of G15, a group made up of the 15 largest housing associations in London, have agreed that they want two-thirds of their development programmes to be refurbishment and change of use.

A large amount of this refurbishment work will come from the £2-3bn in stock transfers planned over the next three years. Under these transfers, homes are put under the control of housing associations or “arms-length” management companies, which allow a local authority to retain ownership of houses while their management is taken over by a company in which it retains a controlling stake. The government has earmarked £460m to fund these management companies, with the aim of refurbishing 100 000 properties by 2003/04.

We won’t be able to spend this money without a sensible level of subsidy

Peter Redman, Group Chief Executive, Notting Hill Housing Association

There have been transfers before, but three-quarters of them have been in shire districts, as opposed to urban areas. This is because many cities have built up massive debts by building and refurbishing housing stock that now has low or zero value.

The government must agree with councils that these debts can be written off before the transfers can go ahead. Birmingham is about to transfer 95 000 properties, Coventry 22 000, Sunderland 38 000, and Glasgow 90 000. The Home Housing Association’s Levi predicts that “contractors in the Midlands are going to be refurbishing Birmingham’s transferred stock for years”.

The problem with such a lot work coming onstream is finding people to do it. A DETR spokesperson says Raynsford hopes that prefabrication, preassembly and lean supply chains will come to the rescue – and the minister may have some reason for optimism.

The corporation has told all associations that they must demonstrate Egan-compliance by 2003/04 to qualify for subsidies, and it will invite bids this month for an £80m pot of cash for housing projects that use preassembly techniques.