Britain's buildings are beset by such a range of problems that there's no single answer for every council trying to hit the decent homes target. Luckily, the range of new and familiar strategies available means there's something for everyone to think about before the government decides its stock funding policy in January.
The starting pistol was fired two years ago but most contenders still can't quite see the finishing line. The two-thirds of English councils that remain landlords are still trying to work out how they will meet the government's 2010 deadline for decent homes, as set out in its 2000 green paper, Quality and Choice: A Decent Home for All.

The government has outlined four routes to the target: using existing resources, the major repairs allowance and the single capital pot; forming an arm's-length management organisation; private finance initiatives; or transferring the stock to a housing association. Deputy prime minister John Prescott aims to announce the findings of his review of funding for stock options in January's Communities Plan.

In the meantime, as well as the government's four favoured options, a variety of more innovative routes are available as councils, under pressure from budgets, tenants and staff, have got creative.

If the two rounds of applications are anything to go by, ALMOs could prove the most popular route for top performers.

The government, however, remains keen on transfer; as consultant Dr Graham Moody, managing director of Graham Moody Associates, says: "The big money has to come from transfers because it's private money. It will have to take a lot of the strain because the Treasury is not going to allow unlimited council borrowing."

Partial transfers are set to become more popular, especially if the government offers cash dowries to aid financing. Partial and estate transfers have been used by at least 20 councils; a few have used two partial transfers at once to achieve a full stock transfer.

The government also favours private finance initiative projects but they are highly complex to structure and slow to assemble.

More radical options include community land trusts, quasi-corporations and stock leasing. No single option will fit every council's circumstances, but these new ideas do offer the hope of more choice in future.

Ultimately, unless councils win the same borrowing freedoms as RSLs, choosing a stock option is not only an exercise in logic but also a second-guessing game with the government.

The biggest danger, as Moody says, lies in hesitating over which option to take. "Councils will be reluctant to bite the bullet. They might hang on too long and be unable to meet the decent homes deadline."

Stock retention
This carries little cost or disruption for staff and pleases councillors and tenants who want to keep control of housing but is only an option for those whose finances are in a healthy state.

Ipswich council's business plan research, for instance, suggests the two-star council can meet decency standards using existing resources. Its landlord function has been separated into a new entity, Ipswich Borough Homes, and will consult tenants on stock options. It says it will save £350,000 by not transferring its 9400 homes. Corporate housing director Michael Palmer says: "Transfer is expensive to prepare. A 'no' vote is likely because we have a good service and customer satisfaction is high. An ALMO is not critical as we have the resources we need."

Councils have long demanded the freedom to borrow and retain stock – Camden and Leicester have called on the government to allow them extra borrowing within prudential limits without setting up an ALMO (HT 21 November, page 9).

Stock transfer
Despite Birmingham's "no" vote, the government still hopes councils will transfer 200,000 homes a year.

Coventry transferred its 20,200 homes to the Whitefriars group two years ago in the first transfer with overhanging debt. The government met the £216m bill but the £49m price had to cover £30m in debt redemption penalties. Setting up the transfer cost £7.7m. The council estimated it would have only £38m to invest over seven years, whereas transfer could yield £270m.

Whitefriars Homes South chief executive Roger Griffiths says the transfer allows investment in all stock, not just pockets. Another factor is the speed of investment – Whitefriars is spending £1m a week on refurbishment. "We had to hit the ground running to deliver on our promises because that was our credibility with tenants. With the council it takes too long so you never catch up – the rate of deterioration can be faster than the improvement," Griffiths says.

With the council, refurbishment takes too long; you never catch up. Deterioration can be faster than improvement

Roger Griffiths, Whitefriars Homes South

But the transfer process can be costly. St Helens council's 14,600-home transfer in July cost £6.5m – a massive 22% of the price paid. Councils have to pay for consultants, lawyers, campaigning, condition surveys, valuations and conveyancing as well as the cost of setting up an organisation. Also, the new body must pay stamp duty and loan arrangement fees of up to £200 a home. These costs are deducted from the transfer price but in a "no" vote, any costs incurred are lost. And estates that have negative stock value cannot transfer without a dowry from council or government.

Another problem looming for transfer is a National Audit Office report that is expected to be critical of the methods that government prescribes on valuation by councils ahead of transfer (HT 21 November, page 7).

Split transfer
In this method, councils transfer stock to more than one landlord simultaneously.

Allerdale council transferred its 800-home Salterbeck estate, one of Cumbria's most deprived, to Impact Housing Association two years ago. Thanks to £3.3m from the Estates Renewal Challenge Fund, the estate was improved. Another 3700 homes went to Harvest Housing Group subsidiary Derwent & Solway Housing in a £30.6m deal.

Allerdale's principal housing officer, Andy Thompson, says the council involved the 60 staff from the start: "There was no uncertainty; they had a personal stake in the transfer," he says. Derwent & Solway was a new organisation and Harvest took a flexible approach so staff could influence its structure.

Split transfer suits councils with pockets of difficult stock, and tenants are less likely to vote 'no', but the government has to provide special funding and legal costs are high compared with the number of homes affected.

Partial transfer
This involves the transfer of a single estate or area of housing, usually to existing housing associations, over a number of years.

Liverpool plans to to transfer its entire stock by 2007 – a total of 34,000 homes. The city's transfers to date include:

  • 500 homes to CDS and Riverside in 1998
  • 650 homes to CDS in 1999
  • 4000 homes to South Liverpool Housing in 1999
  • 13,200 homes to subsidiaries of Liverpool Housing Trust and Riverside in 2002.

Partial transfer is useful for dealing with pockets of poor housing but transferring so slowly is time-consuming and the methods do not apply to estates with negative stock values unless councils or the government provide dowries. Also, partial transfer can push up councils' costs. It reduces the management and maintenance subsidy but the cost of running remaining stock does not always decrease proportionally.

ALMOs
Councils set up a wholly owned company which can borrow within strict limits. The 2000 spending review announced £460m for investment in 90,000 council homes through ALMOs. The first round, in 2001, saw eight councils sharing £300m. In this year's second round, 13 councils share a further £355m.

Five years ago, Cheltenham council tenants rejected a full transfer. The housing revenue account is under pressure from rent restructuring, with average weekly rents of £57 a week last year comparing with guideline rents of £41. Over 10 years it would need management and maintenance allowance increases of 7.8% to plug the £26m gap in the funding needed to bring its 5200 homes up to scratch. The council has been promised £13.5m – 90% of its bid – in the first two years and the full amount after that.

ALMOs bring in capital investment but only the top performers get extra subsidy.

Housing private finance initiative
Eight pathfinder councils were announced in 1999 but the process has been dogged by delays. Private firms say they face a £1m bill just for the bidding process. Around £760m of public funds have been allocated but no contracts have yet been signed.

Camden has applied to the Office of the Deputy Prime Minister for a PFI project on its Maiden Lane estate with a single consortium bidding for its 480 homes. It will cost £34m to improve the homes and make some flats larger. A council official says: "If PFI proves to be affordable and value for money it would appear to be the only viable option commensurate with the investment needed. Other funding routes will have serious implications on other housing capital projects."

Ideas for future stock solutions:

Quasi-corporations
This remortgaging vehicle would allow councils to keep their stock and borrow to improve it. It was proposed in 1995 by the Chartered Institute of Housing, Local Government Association and a group of councils led by Wakefield, Derby and Leeds. Independent housing adviser Richard Bramley revived the idea in a Northern Housing Consortium briefing in September. Councils would set up corporations that borrow money for improvements and manage housing, governed by a board with delegated council powers. The corporations’ revenue and capital accounts would be ring-fenced; tenants would remain with the authority. So far, the government has rejected the idea. It believes the corporations’ borrowing would count as public expenditure. Stock leasing
Bolton council and consultant Hacas Chapman Hendy developed a scheme in 2000 under which the council would retain stock but a new body would take a lease of up to 50 years to manage and improve housing. This organisation would pay annual lease premiums to the council. Bolton council needs £131m to improve its stock and proposed a community regeneration company taking a lease, with borrowing at mixed rates to take advantage of interest rates for councils. Set-up costs of £3.9m would be paid by the company. By keeping the freehold, the council would retain an asset worth £900m. With large-scale transfer, the council would bear £5m of set-up costs and the government would have to meet £35m in debt – all off balance sheet. With a community regeneration company, the debt remains until year 26. The government has so far refused the deal, preferring a “clean break”; Bolton has bid for ALMO status. Community land trusts
This sophisticated version of transfer allows tenants to take greater control and recycle surpluses. In the Community Gateway model developed by the Confederation of Cooperative Housing, Hacas Chapman Hendy and the Chartered Institute of Housing, an initial agreement sets out the road to increased empowerment post-transfer. The new landlord would have a duty to encourage tenant management, co-ops and other forms of local control. Preston council is exploring this option. Community land trusts require an RSL to take the stock, but the land is owned by a charity that recycles surpluses into community projects. Transfer to transform
Special funding for difficult estates can deal with situations where a single area’s investment needs would otherwise scupper a whole stock sale. The idea is based on the government’s Estates Renewal Challenge Fund, which ran between 1997 and 2000, providing special funds for negative-value estate transfers. It cost £487m to sort out just 43,000 homes – £11,300 each. Many would like to see a similar scheme return, but the government has so far shied away because of the cost. The G15 group of London’s largest housing associations is lobbying for a Transfer to Transform fund, to achieve “gradual transfer”. It says that as well as offering a means to tackle estates needing extensive refurbishment, the idea is likely to appeal to tenants. Estate transfers have a far better record of “yes” votes than full transfers. Hyde Housing Association chief executive Charlie Adams explains: “Gradual transfer will enable trust to build between the recipient association and tenants.”

Source

Housing Today