Public & Private

Among the many new commitments in the Communities Plan, the Office of the Deputy Prime Minister indicated that one of the key barriers to transfer to be explored was gap funding of negative-value housing stock.

The need to review this has become more pressing in recent years since the discontinuation of the Estate Renewal Challenge Fund and the lack of any easily identifiable alternative funding source.

Before embarking on an analysis, however, I should expand on what I mean by negative-value housing stock. It's important to distinguish between negative value and negative equity. The latter term means the debt on the stock exceeds the capital receipt that could be generated – now known as "overhanging debt". The government has agreed to extend the arrangements for this to cover repayment penalties on entire transfers. The arrangements for partial transfers remain unclear, as debt on these is still met by subsidy.

But negative-value housing goes beyond this. The term refers to stock that has such high repair needs that it has a negative value if continued as social housing. In many cases, the cost of the repairs could be so high that it becomes questionable whether the site would be better redeveloped.

This inevitably links to the debate about estate regeneration since, sometimes, the need for renewal goes beyond the cost of repairs and is more to do with poor structure and/or design of the area.

Some gap funding has been made available to address this in certain areas, for example through the New Deal for Communities as part of an overall regeneration package, but this is not always accessible and is often not enough.

What is more common is that councils seek to dispose of land for private development as a way of cross-subsidising the social housing element. Clearly, this is possible where there is sufficient land, and the recent changes to the capital receipts rules can help to enable this. In many areas, though, the density may already be quite high and replacing the social housing units with private stock will only increase this, notwithstanding the demands – particularly in London – to meet ever higher density targets.

The real challenge is therefore to come up with a mechanism that provides adequate funding without sacrificing the major objectives of estate renewal.

The proposal to extend PFI funding so that authorities retain any redeveloped units is one possibility, although it is unclear how much redevelopment might be accessed through this route.

There is also the option of bidding for funds from the new regional housing boards, as it appears they will have more flexibility to make awards to local authority redevelopment than the Housing Corporation has had.

However, the arrangements for this have still to be clarified – whether or not each board will set its own rules, for instance – and the funds will probably need to be top-sliced from its existing allocation.

Many have argued that there remains a strong need for a centrally resourced fund linked to the transfer programme, especially given that the debt redemption arrangements are centrally controlled.

Whether this materialises remains to be seen. If it does, we will need a clear set of rules on what is eligible. In the meantime we will need to work within the limited arrangements currently available.