CITY COUNCIL REPORT FOR RESOLUTION

COMMITTEE EXECUTIVE

DATE 16 JANUARY 2008

SUBJECT HOUSING INVESTMENT OPTIONS STOCK TRANSFER PROGRAMME UPDATE

REPORT OF DIRECTOR OF HOUSING

PURPOSE OF REPORT

To inform Members of progress on Housing Investment Option stock transfers in the South, Inner South, East and Stockport Overspill areas.

To seek Members’ approval for the actions which will allow the proposed stock transfers to complete including the issuing of the formal consultation document to tenants, moving to ballot all eligible tenants, negotiating the terms of the transfers and associated land sales to be included in the final transfer agreements.

RECOMMENDATIONS

Members are asked to:

1. Note the successful completion of the Southway Housing Trust stock transfer, the successful completion of a ballot of tenants in Inner South Manchester and the successful completion of a ballot of tenants of the Stockport Overspill estates.

2. Agree the development of proposals for stock transfers of owned homes in the following areas:

a. East Manchester (, , , North, Gorton South and ) to Eastlands Homes on the basis of proposals set out in this report.

b. Inner South Manchester (, , and Whalley Range) to City South Manchester Housing Trust on the basis of proposals set out in this report.

c. Stockport Metropolitan Borough (Bredbury, Bredbury Green, Bramhall, Cheadle, Hawk Green, Heald Green, Rose Hill North and Rose Hill South) to Mossbank Homes on the basis of proposals set out in this report.

3. Note the early development of wider regeneration proposals in West Gorton (Ardwick ward) affecting the investment options for council homes in this area.

Page 1 of 11 4. Note the work undertaken so far regarding the proposed stock transfer of these homes and authorise the Director of Housing, in consultation with the Executive Member for Neighbourhood Services, to take all the necessary steps, actions, and incur such expenditure as shall be necessary, to complete these transfers including but not limited to:

• Settling the terms of the proposal to tenants to be set out in the Stage 1 consultation documents save where the terms are not in accordance with the principles set out in this report. If such terms materially differ a further report will be submitted to the Executive.

• Undertaking the Stage 1 consultation with tenants.

• Considering responses to the Stage 1 consultation documents, and preparing and circulating the final terms of the proposal to transfer set out in the Stage 2 notice and thereafter commencing a ballot of tenants without further reference to the Executive, unless the Director of Housing following consultation with the Executive Member for Neighbourhood Services considers that the results of the consultation ought to be considered by Members.

• Approving the final terms of the transfers of the estates (including the ancillary land and buildings) and securing any necessary gap funding requirements save where such terms are not in accordance with the principles set out in this report.

5. Subject to the above to authorise the City Solicitor that any existing or new local housing organisations that stock is transferred to under the Housing Investment Options Programme are charitable organisations (either by registration or statutory exemption) on the basis of the proposal set out in this report but with the form to be determined by the housing organisation acting upon its own legal advice.

6. Subject to the above, to authorise the transfer of the estates (including any related contracts for the sale of ancillary land) and, in order to effect the same, to authorise the City Solicitor (to the extent not already so authorised pursuant to the Scheme of Delegation to Chief Officers) to obtain consent of the Secretary of State to the transfers and to conclude all contractual documentation to give effect to these transfers, and related contracts, and to affix the Council seal thereto.

7. Subject to the above, note the indicative timetable for completion of the proposed Stockport, Inner South and East Manchester stock transfers as described in this report.

FINANCIAL CONSEQUENCES FOR THE REVENUE BUDGET

If the transfers go ahead the revenue costs associated with set up costs are to be funded from budgets identified within the Housing Revenue Account.

FINANCIAL CONSEQUENCES FOR THE CAPITAL BUDGET

Both the Inner South and East areas have a negative valuation, and require substantial financial support in order to proceed. Applications for gap funding

Page 2 of 11 have been submitted to the Government. An offer has been made in respect of Inner South and negotiation is ongoing in the East area and early indications are that resources will be available. There will, therefore, be no call on the Council’s housing capital programme as a direct result of these transfer proposals.

The Manchester City Council estates in Stockport Metropolitan Borough Council have a positive valuation. This receipt will cover the City’s associated set up costs for the Stockport stock transfer. The use of the residual amount is subject to current negotiations with Communities and Local Government.

The City Council will also have overhanging debt arising from the transfer. However, the Government makes a payment a one-off payment of this overhanging debt. There will be no negative impact on the Council’s capital budget as a result of this overhanging debt transaction.

CONTACT OFFICERS TELEPHONE EMAIL ADDRESS

Gail Heath 234 4837 [email protected]

Mike Simpson 234 1244 [email protected]

David Stoney 234 3166 [email protected]

Tim Skipworth 234 3044 [email protected]

Mike Baxter 234 4802 [email protected]

BACKGROUND DOCUMENTS

Report to Executive Committee, 12 September 2007: Housing Investment Options – Progress Report

Report to Executive Committee, 20 December 2006: Housing Investment Options Stock Transfer Programme 2007/08

Report to Executive Committee, 26 July 2006: Housing Investment Options

Report to Executive Committee, 19 March 2003: Housing Investment Options

Report to Executive Committee, 17 December 2003: Housing Investment Options

Report to Executive Committee, 18 February 2004: Housing Investment Options

Report to Executive Committee, 8 September 2004: Housing Investment Options Strategy

Page 3 of 11 WARDS AFFECTED a. Inner South Manchester – Fallowfield, Hulme, Moss Side and Whalley Range; b. East Manchester – Ardwick, , Gorton South, Levenshulme, Longsight and Rusholme; c. West Gorton – Ardwick; d. Stockport overspill – these estates lie outside the City boundary.

IMPLICATIONS FOR COUNCIL POLICIES ANTI EQUAL ENVIRONMENT POVERTY OPPORTUNITIES No No Yes

EMPLOYMENT HUMAN RIGHTS OPPORTUNITIES Yes Yes

Page 4 of 11 1 BACKGROUND

1.1 At the Executive meeting of 8 September 2005 the Executive approved the indicative timetable for the implementation of the Housing Investment Options Strategy to deliver the Decent Homes Standard by 2010 for the Council’s remaining stock. A further report to the Executive in July 2006 approved the revised programme timetable.

1.2 Work has been ongoing to implement this strategy. The earlier Option Appraisal identified four possible transfers within the City boundary. The West area was the first of these and the transfer to Parkway Green Housing Trust was completed in October 2006 securing an additional £90 million of resources over the first five years of its business plan. The South Manchester area stock transfer was completed in November 2007 as discussed later in this report.

1.3 For the remaining areas within the City the option appraisal process focused on bringing forward the option of a transfer to not for profit, local housing organisations that would take on the ownership and management of the homes in the Inner South and East Manchester and transfer of Stockport Overspills to an established landlord selected by tenants. The organisations would be independent of the Council and would undertake a full modernisation and environmental programme and would provide major improvements to the neighbourhood management of the area.

1.4 The condition of the Council homes and the environment on the East, Inner South and Stockport estate areas is poor and continuing to decline. The investment required to bring these homes up to an acceptable standard is in excess of £220 million in the first five years after the proposed transfer. This funding cannot be provided from existing resources available to the Council.

1.5 Transfer, if supported by a majority of tenants in the planned ballots would enable sufficient financial leverage to draw in the level of investment required to bring the Council’s homes in the area up to modern day standards, providing high quality housing and neighbourhood services for local residents for a full thirty year period.

1.6 The transfer proposals are a key component of the housing strategy for the Inner South and East areas and must be seen in the context of the regeneration frameworks for Central, South and East Manchester. The regeneration strategies for the areas seek to realise the immense potential that the areas possess. They set out key strategic objectives including the creation of strong, sustainable communities.

2 STOCK TRANSFER PROGRESS

South Stock Transfer

2.1 Since the report to Executive on 12 September 2007, officers have completed commercial negotiations with Southway Housing Trust

Page 5 of 11 resulting in the transfer of just under 6,000 homes to Southway Housing Trust on 26 November 2007.

2.2 Southway has commenced delivery of a five-year £117 million investment programme in tenants’ homes and the local environment. Southway received a central Government funding package worth up to £43.8 million over six years to support their investment plan.

2.3 To deliver their programme, Southway has worked in partnership with Impact Manchester, a vehicle for providing access to value-for-money housing capital works contractors to which Manchester City Council is also a partner. Southway achieved, working in partnership with local contractors, a day-one start to the investment programme. One contractor was able, as part of its commitment to local employment opportunities, to hire three new apprentices from the area to start work on the first day of the investment programme.

2.4 Southway signed up to a Statement of Key Principles, setting out how they will work in partnership with the Council to help deliver the Council’s Community Strategy and assist the Council in fulfilling its statutory obligations.

2.5 Southway’s performance in delivering the promises made to tenants in the Council’s offer document will be closely monitored by both Council officers and Southway’s regulator, the Housing Corporation.

Inner South Stock Transfer

2.6 In July 2007 tenants of around 4,500 homes in the Inner South area were formally balloted on proposals to transfer their homes to City South Manchester Housing Trust, a newly formed local housing company. A total of 72% of tenants voted on the proposal, with 68% of votes in favour.

2.7 The City South Manchester board comprises four local tenants, four nominations from the City Council and four independent experts. The board is presently recruiting an executive team to lead City South Manchester, and working with officers to approve the detail of a five- year £99 million investment programme.

2.8 Detailed negotiation is ongoing between the City Council and City South Manchester to settle the terms of the transfer and draw up a formal contract. The transfer is scheduled for completion in June 2008.

East Stock Transfer

2.9 In October 2007, Eastlands Homes made a formal approach to Manchester City Council offering to act as the receiving registered social landlord (RSL) for around 5,200 homes in the East stock transfer area. Eastlands Homes is a preferred partner in the East of the City.

2.10 This proposal was offered by Eastlands as an alternative to the option originally contemplated by the City Council, which was to set up a new Local Housing Company.

Page 6 of 11 2.11 Eastlands Homes, which was established in 2003 by the City Council to take over ownership and management of around 3,000 Council homes in the & Clayton and Bradford wards, has close ties with the City Council and is well regarded by both the Housing Corporation and the Audit Commission. A recent Audit Commission inspection placed Eastlands in the top 10 housing associations in the country.

2.12 Following the Eastlands proposal, the City Council undertook consultation with the local steering group and worked to establish consultation groups to examine the proposals in greater detail. The steering group took particular interest in the financial and governance elements of the proposals and recommended Eastlands to the Council as their preferred landlord.

2.13 Council officers have evaluated the financial viability of the proposals and identified potential cost savings that could be re-invested in local homes and the environment. Additional resources, in the region of £5 million, have been identified for re-investment in local environmental improvements.

2.14 The steering group wanted to see a significant element of local oversight of the improvement programme. It is therefore proposed that an ‘East Investment Board’ is established to oversee local investment and services.

2.15 The business plan for the East Manchester stock transfer area will require both private sector funding and central Government support to deliver the proposed five-year £97 million home improvement programme and anticipated £13 million environmental improvements.

2.16 Should Members agree, the Council will carry out a ballot of tenants, to commence in February 2008, on the basis of the proposal to transfer homes to Eastlands Homes.

2.17 As with previous stock transfers, Central Government gap funding is not finalised until the detailed offer to tenants has been developed. In line with this practice, officers of the Council and Eastlands are currently working to agree the available funding with Communities and Local Government.

West Gorton

2.18 The West Gorton estates (in Ardwick ward) were originally scheduled for transfer as part of the East Large Scale Voluntary Transfer proposals. These estates also fall within the West Gorton regeneration area.

2.19 In partnership with New East Manchester and local tenants and residents, an area masterplan has been developed by BASE (a partnership between developers Artisan and Barratt, and Northern Counties Housing Association, a regional registered social landlord). This masterplan is currently in draft and due to be consulted upon in the New Year.

Page 7 of 11 2.20 To maximise the benefits from this regeneration activity for local tenants without delaying the East Manchester proposals as a whole, the West Gorton estates have, following consultation with local Members and local tenant and resident associations, been removed from the East Manchester transfer.

2.21 Further detail on the West Gorton estates will be presented to the Executive in due course.

Stockport Estates

2.22 In October 2007, tenants of the 1,100 homes of the Stockport overspill estates voted on proposals to transfer their homes to Mossbank Homes. Turnout was an excellent 73.5% with 75.8% of votes in favour of the transfer proposals.

2.23 Mossbank Homes is a subsidiary of Mosscare Housing, a not-for-profit registered social landlord operating in Manchester. Mossbank will take over ownership and management of homes in the Stockport area, and delivery a five-year investment package worth £26.75 million.

2.24 Since completion of the ballot, Mossbank has been working closely with City Council officers to finalise the terms of transfer as well as complete the commercial, legal and financial activities required to complete the contract.

2.25 Completion of the transfer is scheduled for spring 2008.

3 WORKING WITH THE RECEIVING LANDLORDS

3.1 The Council will require the new and existing local housing organisations that take receipt of former council homes to ensure that an excellent high quality housing service is delivered to the tenants involved. The Council will work with the local housing organisations within the City to develop a list of key value added services that will be provided to the RSLs on a medium term basis. This will allow the local housing organisations a period of maturing together with an opportunity to develop independent proposals for the delivery of value added services for the future.

3.2 The Council will continue to develop its partnerships with each of the receiving RSLs, including inviting the RSLs to join the Strategic Housing Partnership.

4 FINANCIAL CONSEQUENCES OF THE TRANSFERS

4.1 A transfer can have a positive, nil or negative value depending on the outcome of a Tenanted Market Valuation (TMV). If the value is positive this generates a capital receipt to the Council. The Government normally requires local authorities to use any transfer capital receipt in full for debt redemption. In the case of Inner South and East stock transfers, detailed stock condition surveys and subsequent financial modelling indicates that the TMV of the homes is substantially negative. The amount of negative value at the time of transfer would be paid by

Page 8 of 11 the Government to the new landlord as ‘gap funding’ over a number of years and enshrined in a ‘Gap Funding Agreement’ between Communities and Local Government (CLG) and the local housing organisation. A sum in the region of £150 million gap funding has been requested for the ‘within City’ transfers, comprising £43.8 million agreed with Southway Housing Trust, £52.3 million offered to City South Manchester Housing Trust and a £57.5 million bid for East Manchester and subject to negotiation with Eastlands Homes, the City Council and the CLG.

4.2 Councils that transfer part of their housing stock and are unable to pay off the associated attributable housing debt from the transfer receipt are left with ‘overhanging debt’. This overhanging debt is now paid off by central Government through an overhanging debt one-off payment.

4.3 As there will be no positive receipt from the three in-City transfers, the Council will therefore qualify for a one off overhanging debt payment to cover outstanding attributable debt and the cost of any Public Works Loans Board debt premiums.

4.4 Entitlement to Major Repairs Allowance (MRA) will reduce as the stock is transferred. The MRA is an annual allowance that is provided through the housing subsidy system to meet ongoing capital expenditure costs for each property within the Council’s ownership. However capital expenditure associated with works to transferring homes and future programmed maintenance responsibilities would no longer remain with the Council following transfer.

4.5 It is intended that, with the approval of HM Revenue and Customs (HMRC), the Authority will enter into development agreements (‘VAT shelters’) with the receiving landlords, similar to that successfully operated in previous stock transfers.

4.6 The valuation for the Stockport estates is positive and is likely to produce a capital receipt. This receipt will be used in the first instance to cover the City Council’s set up costs associated with the transfer.

5 VAT TREATMENT

5.1 The transfer of housing stock by a Local Authority to a local housing organisation that is an RSL is deemed by HMRC to be classed as non business activity and outside the scope of VAT. Equally, expenses incurred by the Local Authority in refurbishment and improvements pursuant to the transfer are accepted as being outside the VAT regime, and hence any VAT paid is recoverable by the Authority. All steps will be taken to ensure the preservation of the Council’s de minimis position.

5.2 To take advantage of the potential VAT savings these transfers will be structured in the same manner as previously approved transfers.

5.3 The Council’s financial standing orders require that to enter a contract for works there is adequate provision in the capital budget and that the

Page 9 of 11 scheme must be included in the approved capital programme. By the local housing organisations retaining the cost of the works the net effect will be that they fully fund the capital expenditure. There will therefore be no actual call on the Council’s capital budget as a result of this VAT structure. The contract for works and commitment to incur expenditure will be contingent upon the transfer being approved and will be written into the transfer agreements with the RSLs.

5.4 For the local housing organisations to take advantage of VAT savings they must have charitable status and will be constituted to ensure this. With regard to East Manchester, Eastlands Homes has charitable status.

Local Housing Organisation Corporate Structure

5.5 A local housing organisation that is an RSL can either be established as a company limited by guarantee (that is, with no shareholders) or as an industrial and provident society. Either option allows the RSL to also seek charitable status either by registration with the Charity Commission or by means of an exemption opinion from HMRC. Either route is necessary and sufficient to take advantage of the VAT shelter described above. The Housing Corporation regards the choice of corporate form to be one that a newly forming RSL takes without reference to the transferring landlord (in this case, the City Council).

5.6 It is proposed that for the purpose of entering in to a development agreement, the Council will not require any particular corporate form, provided that the corporate form enables the VAT shelter scheme to operate efficiently and effectively.

6 CONCLUSION

6.1 Members are asked to note the approvals and delegations requested in this report together with the proposed timetable for progressing these transfers. Particular attention is drawn to:

• The ongoing progress with regard to the transfer of Inner South estates.

• The proposal to transfer stock in East Manchester to Eastlands Homes.

• The removal of the West Gorton estates from the East Manchester transfer in order to take advantage of the regeneration opportunities in this area.

• The Council’s position on the corporate structure of receiving RSLs.

6.2 Members will receive further updates on the Housing Investment Options programme during the course of the year, particularly:

• Further details in respect of properties in West Gorton

Page 10 of 11 • Details on further progress in respect of the Inner South, East Manchester and Stockport transfers.

7 IMPLICATIONS FOR KEY POLICIES

Environment

7.1 Delivery of the HIO programme will put in place a funded programme for substantial investment in homes (including improved heating and insulation) and the local environment (including amenity space improvements).

Employment

7.2 The major investment programme will provide opportunities for local labour agreements between the RSLs and their contractors. The Impact Manchester framework established by the City Council and offered to the major stock transfer RSLs provides for local economic advantage schemes including local recruitment.

Human Rights

7.3 The transfers, should they proceed, engage Convention rights, in particular, Articles 8 (the right to respect for private and family life, home and correspondence) and the First Protocol Article 1 (right to peaceful enjoyment of possessions). Tenants who are opposed to the transfer may, if the ballot goes in favour, be compelled to accept a move from a local authority to local housing company landlord. This would constitute an interference with their property rights and home life. However, both Articles are subject to exceptions. In the case of Article 8 interference can be justified in the interests of the economic well-being of the country and in the case of the First Protocol Article 1 the right to protection of possessions does not impair the right of a State to enforce general laws to control the use of property. It is considered that the proposed transfers fall both within the economic well-being exception to Article 8 (the transfer is designed to release funding for investment in the stock) and the general laws exception to the First Protocol Article 1 (the Housing Act 1985 and guidance issued thereunder regulates the circumstances in which the large scale transfer of tenanted local housing authority stock can take place).

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