Report to the Wards All Wyke Area Committee 17 th March 2010 Transferring the council owned housing stock in the Wyke area to a social housing provider Report of the Strategic Director Housing Investment and Renewal 1. Purpose 1.1 To inform the Wyke Area Committee on the benefits or otherwise of transferring the council owned housing stock in the Wyke area, to a social housing provider. 2. Background 2.1 The Wyke Area Committee requested at it’s meeting of 20 th January 2010 that a report outlining the possible benefits or otherwise of transferring the council owned housing stock, in the Wyke area, to a social housing provider. 2.2 The Committee also requested that the report ‘Disposal of Council Housing Stock’ being presented to the Value for Money Overview and Scrutiny Commission 17 th March 2010 be presented to Wyke Area Committee (report attached at appendix 2). 3. Recommendations 3.1 That the Wyke Area Committee notes the report and decides how it would like to progress. 4. Advantages & disadvantages 4.1 Advantages of potential stock transfer in Wyke Stock transfer was established in order to increase investment in social housing. Housing associations don’t pay money back to the government as subsidy to fund social housing nationally and are also able to borrow money from external funders. They therefore potentially have more money to spend on housing, community improvements and services. 1 The advantages of transferring to an established housing association can be: • Increase in community improvements • Increase in housing investment to a standard higher than ‘decency’ • Increase in tenant involvement especially where the process is part of a Tenant Led Stock Option project • Increase in local decision making and prioritisation. 4.2 Disadvantages There is currently a high risk of project failure if a Tenant Led Stock Option project was initiated in Wyke: • There is no expectation of any gap funding being available • There is no expectation of debt write-off funding (see glossary) being available • It is presently likely that any appraisal that resulted in a transfer would produce a negative valuation • Government policy on Stock Transfer is under review and the programme is effectively closed to new applications 5. Main issues 5.1 Should there be a desire to pursue stock transfer then the main issues Wyke Area would need to consider in relation to any transfer are as follows and in order of priority: Stock profile Options appraisal Independent stock condition survey Valuation of the stock Selection of a transfer organisation Negotiation and agreement with the recipient organisation Whether staff are affected and thus TUPE applies Each of these issues is explored in section 6. 5.2 In terms of the funding: Outcome of HRA self-financing/debt redistribution Whether gap funding is available to support the transfer Overhanging debt Impact on the HRA Impact on the general fund Each of these issues is explored in section7. 2 6. Issues explored 6.1 Stock profile 6.1.1 Of the total Wyke area council housing stock of 918, 15% (138) is classed as non traditional construction and of this, 60% (83) is listed as being defective under the Housing Defects Act 1984. FLAT 3- %with structural FLATSTORY 2 MAISONETTE BUNGALOW 5 STOREY 5 BEDSIT HOUSE TOTAL issues Structural problems BISF of for description See glossary 39 39 CASPON 4 4 structural types structural SPOONER 12 12 Total 55 6% Defective NEWLAND 83 83 Total 83 9% No known structural problems MBS 13 10 6 1 30 TRADITIONAL 274 84 98 42 3 501 YDG METRIC 8 12 24 2 46 YDG MK II 13 17 1 31 DALPLAN 85 47 40 172 Total 780 Total 53 1 153 185 42 3 4 918 6.1.2 Given the limited life these properties would have, within the 30 year stock transfer investment plan, the non traditional stock should ideally either be planned for demolition or significant refurbishment. 6.1.3 In most cases, in order to provide the Wyke non traditional stock with a 30 year life, the properties would require external cladding and structural improvements, with current costs roughly estimated in excess of £1m. 6.1.4 These costs would need to be factored into the valuation of stock 3 prior to any transfer. 6.1.5 These costs would thus most likely result in high stock condition survey expenditure projections and are therefore likely to produce a negative valuation for a transfer appraisal. The higher the percentage of non-traditional stock requiring refurbishment within a transfer proposal, the greater is the risk of the transfer becoming financially unviable. 6.2 Option Appraisal 6.2.1 With a Tenant Led Stock Option process, a tenant group would hire advisors, using a Tenant Empowerment Grant, and come up with a preferred option for their estate rather than rely on an option appraisal produced by the local authority. 6.2.2 Should the option be stock transfer, tenants may want a higher improvement standard than the Hull decency standard and, as in North Bransholme, set specific requirements for major components and lifecycles based upon tenant consultation. 6.2.3 The Government’s recent proposals in relation to the Reform of Council Housing Finance, however, assume that proposals are valued on a like for like basis in terms of standards so any such higher standards would need to be funded from other resources. 6.3 Stock Condition Survey 6.3.1 An independent stock condition survey would be commissioned on the basis of an agreed improvement and maintenance standard. 6.4 Valuation of the stock 6.4.1 Government specifies that the valuation of the stock for purchase by a social housing provider should be based upon a tenanted market value (TMV). The calculation takes the values of the rental income streams over 30 years, deducts management and repairs expenditure and adjusts this to a net present value using a discount factor. The valuation reflects the fact that the new landlord acquires the property with sitting tenants, must bring it into a good state of repair and must continue to hold it as affordable social housing. 6.4.2 The base data for the valuation is derived from a number of key sources and dependent on the following key assumptions: • Housing stock & rents • Stock turnover (i.e. re-let rates) • Voids & bad debts • Other income such as garages • Management costs • Stock condition information 4 • Responsive, cyclical and voids repair costs • Catch up, future major repairs, related assets, improvements works to non traditional dwellings • Cost of making safe asbestos • Disabled aids and adaptations • Pensions 6.4.3 Due to the stock profile in Wyke there is likely to be a negative valuation which means there would be no receipt for the Council and a need for additional funding to be found (see funding below). 6.5 Selecting a transfer organisation 6.5.1 As gap funding may not be available (see below) a Wyke transfer proposal may be restricted to transferring homes to a large financially strong housing association rather, than to a smaller locally based organisation set up within the community. 6.6 Negotiation and agreement with the recipient organisation 6.6.1 Negotiations on the terms of the transfer would have to take place covering, amongst other things, how any gap funding was to be addressed, how future RTB receipts might be shared, warranties the RSL would require, how tenancy & other rights might transfer. 6.7 Whether staff are affected and thus TUPE applies 6.7.1 Any affected staff would TUPE to the new organisation if the majority of their time was spent on housing issues. The smaller the area the more difficult it would be to disentangle the respective proportions of time between housing and other area working and the more likely that there would be an imbalance. It is likely that issues around pensions for transferring staff would be problematic given the relatively small number of potentially affected staff unless the transfer was to an RSL which already operated a LGPS pension scheme. 7. Funding issues explored 7.1 Outcome of HRA self-financing/debt redistribution 7.1.1 The Government recently released a consultation document on reforming the housing finance and subsidy system and in March the Government intends to announce its proposals on how to progress this matter. It is thought likely that proposals are likely to be issued in early March with a likely consultation period of around 10 to 12 weeks which would take us into the local election period and possibly also a general election period. Ministers are still reported as keen to implement changes to the system, but there is a risk of any potential new Housing Minister responding to the consultation who holds different views. 5 7.1.2 The proposals in essence are to end the HRA subsidy system, in return for which there would be a redistribution of debt between housing authorities. The extent to which the Council would benefit (or not) would be wholly dependent upon the size and direction of the debt redistribution as it impacted upon it so in some sense an assessment of whether this is beneficial or not is, and will remain, theoretical. 7.1.3 Depending on the outcome of these proposals there may well be a material impact upon the HRA and thus there could be an opportunity to address some of the longstanding issues around stock condition, regeneration and general housing investment. One of the potential other outcomes would be to force any comparison of transfers to be based on the same replacement and refurbishment standards as retention, thereby removing any incentive to transfer in terms of standard of work – or at the very least forcing alternative funding streams to be identified and accessed.