Press Notice No. 40 of Session 2002-03, dated 24 July 2003
FORTIETH REPORT: IMPROVING SOCIAL HOUSING THROUGH TRANSFER (HC 590)
Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, said today the extra bill as a result of pursuing social housing renovation through transfer amounted to billions of pounds, and questioned whether this really represents the best value for the public purse.
Mr Leigh was speaking as the Committee published its 40th Report of this Session, which examined the cost and financial effects of transferring housing from local authorities to registered social landlords, the valuation of transferred properties and how far transfers had been in the interests of tenants. Since 1988 around three quarters of a million homes have been transferred with the aim of improving the condition of social housing and the quality of housing services provided to tenants. Responsibility for the transfer programmes rests with the Office of the Deputy Prime Minister (ODPM), and the registered social landlord sector is regulated by the Housing Corporation.
The Committee found that successive governments have followed a policy of transferring housing from local authorities to the registered social landlord sector. By making use of private finance, housing has been renovated in the absence of such provision in public expenditure programmes. Transfer was supposed to be cost neutral for the registered social landlord, and a complicated model to calculate the transfer value was put in place. But the fixed assumptions within the ODPM's model, the uncertainties inherent in forecasting future cash flows over a period of 30 years, and post transfer events such as the refinancing of loans, mean that cost neutrality will not have been achieved in practice.
The ODPM's requirement that local authorities use a standard model to calculate the transfer value of homes may, therefore, have led to the undervaluation of the homes transferred so far, resulting in a greater contribution from the taxpayer than was necessary to deal with, for example, the backlog of repair. The model uses a fixed life of 30 years for homes regardless of their age and condition at transfer, excludes a residual value for the land and buildings, and uses a discount rate higher than registered social landlords' actual costs of capital. The fixed model should be substituted by a more flexible approach which takes greater account of the condition and location of the housing stock transferred, and the likely cost of finance for an acquiring landlord.
The ODPM has undertaken hypothetical calculations of the cost to the taxpayer of renovation through transfer compared to the cost of renovation through local authority retention. These calculations suggest that the additional cost of renovation through transfer is £1,300 a home spread over 30 years or £1.3 billion for the transfer of a million homes over 5 years. This additional cost partly represents the higher cost of capital in the private sector and the transaction costs of setting up a transfer. The additional cost is justified by the ODPM on the grounds of non-quantifiable benefits such as earlier renovation, greater tenant participation, and risk transfer from the public to the private sector.
Transfers have largely delivered the expected benefits of improving homes, but achievement of aims such as greater tenant choice, participation and increased tenant satisfaction are less clear. Tenants may, for example, be represented on Boards of registered social landlords but they have lost their right to vote for a different landlord. With a lower Treasury discount rate, and with the weaknesses in the model described above, the additional cost of transfer is likely to be larger than the £1,300 per home calculated by the ODPM. The ODPM needs to demonstrate more rigorously that the additional costs of transfer represent good value for money.
Until recently, the "off the public sector balance sheet" finance represented by transfer was generally local authorities' only option to carry out repairs and renovation needed on their housing stock. A range of options is, however, available now, such as better funded retention and renovation by local authorities, direct access to the Private Finance Initiative, and the establishment of Arm's Length Management Organisations. The Government's recent review of social housing recommended the removal of the barriers to these different options. The ODPM, together with local authorities, should therefore consider all available options, and determine which deliver the best overall value for money for the taxpayer in achieving the desired objectives for the tenants and housing in question.
Mr Leigh said today:
"The additional cost of renovating social housing through transfer, rather than retention by local authorities, is at least £1,300 per home. The extra bill for the taxpayer amounts to billions of pounds. Transfers have led to improved homes but in the light of the options now available, and doubt about whether the wider benefits for tenants have been achieved, I question whether these transfers really represent the best value for the public purse."
to view Report