The National Audit Office has today published its report on the Government’s new Affordable Homes Programme, aimed at delivering below market price housing.

The report found the launch of the Programme by the Department for Communities and Local Government and the Homes and Communities Agency to be a success, with providers committing themselves to building some 80,000 homes for the £1.8 billion of government investment, compared to the initial target of 56,000.

However, key risks remain. Nearly a fifth of contracts with housing providers remain to be signed; more than half of the planned homes are not currently due to be delivered until the final year of the Programme; and some providers are concerned that they may not be able to charge rents at the levels they originally agreed with the Programme.

The development of the new funding model for affordable rent and home ownership was led by the Department and the Homes and Communities Agency. The new Programme will be delivered by housing associations, local authorities and other housing providers, who were able to bid for Programme funding during 2011.

The new model means the Department pays less grant per home than under previous schemes (£20,000 compared with £60,000 under the previous National Affordable Housing Programme), while housing providers borrow more and can charge higher rents. The new scheme represents a reduction of 60 per cent in average annual spending on affordable homes over the four years of the Programme from 2011-12 to 2014-15, when compared to the three years up to March 2011.

The Programme will increase providers’ financial exposure, with the sector facing challenges in securing bank financing for capital investment and over the cost of supporting both future and existing debt.

The FCO’s strategy for managing its estate is high-level and the underpinning detail is scant. It does not lay out the requirements for the estate, whether the estate meets the requirements and how it will address the gaps.  Without a clear framework to assess the estate’s performance, it is difficult to evaluate the Department’s progress.  The Department has recognised this and has recently appointed an estates specialist as Director of Estates and Security who is developing a new strategy.  These steps have the potential to help secure improved value for money in the future. 

The FCO does not have adequate financial and management information about the estate.  The lack of robust information on the cost and use of the estate hampers good decision making on efficient use of space and the identification of surplus assets for potential sale.  The management of projects to improve the estate could be better: a third of the projects that the NAO analysed exceeded their initial approved budget by over 10 per cent and two-thirds were delivered late.  The total cost overrun since 2002 is approximately £57 million, against a total spent on capital projects of £250 million. 

There are several factors, such as changing political issues, security restrictions and exchange rate pressures, which add to the complexity of managing the global estate.  The NAO found examples of good practice and innovation across the estate, and noted that the FCO had done well to respond to changing security threats, including a three-fold increase in the number of countries operating with a critical or severe terrorist threat rating. 

The FCO does not always use space in its posts efficiently.  Over half of the posts that responded to the NAO’s survey have unused office space or staff accommodation.  Posts could make better use of accommodation by sharing with other UK government organisations, but there are several barriers to this including the FCO’s lack of authority to drive co-ordinated cross-government action and a mismatch of estate needs.  However, the FCO could do more to promote actively the use of its overseas estate by others where feasible.

A National Audit Office report to Parliament has found that the Government’s Programme has made progress and that, as of April 2009, 86 per cent of homes in the social sector were classed as decent. The Programme has also brought wider benefits such as improved housing management, tenant involvement and employment opportunities. 

There is however much left still to do. The original target was that all social sector homes would be decent by 2010, but by November 2009 the Department was estimating that approximately 92 per cent of social housing would meet the standard by 2010, leaving 305,000 properties ‘non-decent’. 100 per cent decency would not be achieved until 2018-19.

The National Audit Office has concluded that there are weaknesses in the information collected by the Department, warning that information gaps create a risk to value for money. Weaknesses in the Department’s information are illustrated by uncertainties over the total cost of the Programme to itself or to the sector and the number of properties improved.

The Department is committed to funding the Programme and is currently reviewing the funding mechanism. But, unless a plan is put in place to appropriately fund housing repairs, there remains a risk that a backlog will again build up, reducing the value for money of what has been achieved so far.

The existence of the contract allowed for a smooth estates merger, following the merger of the two departments in 2005. HMRC has the flexibility to vacate up to 60 per cent of its estate over the 20 year contract, allowing it to save up to £1.2 billion. But it has not recognised the contract as a major strategic asset nor committed appropriate commercial skills to managing it. As a result, the total possible savings available now amount to £900 million. To date, the contract has cost £312 million more than originally forecast, as a result of fewer instances than forecast of vacating buildings, unrecoverable VAT payments, and changes in requirements.

To achieve savings on its estate, HMRC is now planning to vacate a significant number of its buildings by 2011. This vacations programme creates areas of specific financial pressure for Mapeley, exacerbated by the economic downturn and falling property values. HMRC does not yet have an agreed way forward with Mapeley. If Mapeley were to default on the contract, HMRC could incur significant one-off and ongoing costs.

The NAO’s 2004 report found that the Department secured a competitive price from Mapeley but warned that good risk management would be essential on the 20 year deal signed in 2001. However HMRC has generally reacted to risks and issues as they arise rather than strategically managing the contract. It lacks full visibility of all the gains and losses that Mapeley has obtained from the contract, which would be critical to inform any negotiations.

There is now a significant risk that HMRC will not achieve value for money over the rest of the contract unless it strengthens its management of the contract. There needs to be active management at Board level and HMRC needs to develop an estates strategy. HMRC should monitor overall value for money and form an effective partnership with Mapeley.
 

The eight prisons visited by the NAO were sufficiently well maintained to preserve physical security, prisoner capacity, and prisoner and staff safety.  The increasing prisoner population, frequent overcrowding and a high turnover of prisoners create substantial pressures on the estate. In its maintenance of the estate, the Agency has introduced procedures aimed at improving the handover of major maintenance projects from external contractors and to assess the future maintenance costs of refurbished or replacement assets.

The Agency has scope to improve the way it plans major prison maintenance. Currently, the Agency defers approved maintenance works if funds are no longer available. Pressures on prisoner population can also delay maintenance work because of the lack of alternative cell spaces.

NOMS needs to analyse the type, number and location of maintenance works it carries out to help control spending on maintenance and plan future works. The Agency should develop long-term plans for maintaining equipment and other assets over their economic life. It could also use more common and standardised parts, materials, fixtures and fittings, to bring cost savings to maintenance works.

78 per cent of Local Authorities and 86 per cent of companies involved in the Building Schools for the Future (BSF) programme believe that it is leading to more strategic procurement of school infrastructure than previous school building programmes. Local Authorities are using BSF to rearrange the location, type and number of schools in their area and create facilities and school environments which support their educational objectives. BSF schools are built to higher specifications and space standards than previous schools; though until post occupancy reviews take place a year after each opens it will be too early to say whether they will meet user expectations.

However, DCSF and Partnerships for Schools (the body established by DCSF to manage the BSF programme centrally) were too optimistic in their assumptions of how quickly the first schools could be delivered. By December 2008, only 42 of the planned 200 schools had been built, with 54 due to open next year and 121 the year after. To include all schools in the programme, 250 schools will need to be built a year and the number of schools in procurement and construction at any one time will need to double from 2011 onwards. The extent to which problems in the finance markets will affect BSF is still unclear.

DCSF and Partnerships for Schools estimate that the total cost of renewing the school estate will be between £52 billion to £55 billion which is £7 billion to £10 billion more than was estimated at the outset of the programme. DCSF has increased the scope of the programme and building cost inflation has been higher than originally estimated, but the cost of individual schools has been contained at a level similar to previously built PFI schools.

Local Education Partnerships are joint ventures between Local Authorities, BSF and the private sector to help procure and maintain BSF schools. Early evidence shows that Local Education Partnerships can lead to time and cost savings, but the first Local Education Partnerships found it difficult to establish effective working arrangements and cost more to establish than they necessary. 
  

The combination of the extra grant and the setting by the Department of targets has encouraged local authorities to give a higher priority to taking speedier decisions. The Department’s figures on processing planning applications for large housing developments show a significant improvement, with 67 per cent of decisions being reached in 13 weeks in 2007-08, up from 37 per cent in 2002-03. But the extent of improvement across the development process is less clear because the Department’s performance measure excludes the time spent before an application’s submission and after its subsequent approval, both of which can be substantial.

The Department does not collect data on how long it took to reach these decisions. The National Audit Office found that, for the 11 authorities we visited, decisions to reject were taken more quickly than those to approve, with approval taking on average 25 weeks for 100 cases which we examined from 2006-07.

To try to help speed up and improve the process, the Department has successfully encouraged planning authorities to hold pre-application discussions with developers. There can, however, be a lack of clarity over the purpose of these discussions and, as a result, authorities take an inconsistent approach in handling these meetings, reducing their effectiveness. For example, Authority staff may lack the experience or seniority required, and there can be a lack of continuity of staffing between these discussions and the application itself. 

In a report out today, the government’s spending watchdog found that departments could reduce gross annual expenditure on offices by around £330 million by bringing the cost performance of individual buildings in line with private sector benchmark buildings.

Government’s civil property estate costs the taxpayer around £6 billion a year. Almost £1 billion of this is spent by central government departments on office property alone. Today’s report looked at whether departments are effectively managing and achieving value for money from their own office space.

The report found wide variations in the amount departments pay per square metre for office space. Median costs in 2005-06 (the latest year for which data was available when the National Audit Office carried out its work) ranged from £123 per square metre paid by the (then) Department for Education and Skills to £636 paid by the Department for Culture, Media and Sport, although since 2005 06 the Department for Culture, Media and Sport has rationalised its estate by vacating buildings and providing more open plan office accommodation. The Department for Culture Media and Sport estimates that once this rationalisation exercise is complete, its accommodation costs per square metre will reduce from £636 to £469.

Departmental buildings in London had the highest accommodation cost per square metre at £507 and the North East the lowest at £133 per square metre.

Departments vary in the amount of building space allocated per person. This ranged from 13.3 square metres at the (then) Department of Constitutional Affairs to 21.9 square metres at the Treasury. The Office of Government Commerce (OGC) is currently consulting departments on the introduction of a space ‘standard’ of 12 square metres per person which will encourage departments to work towards improving their occupation density.

Variations were also reported in accommodation costs per person, in part accounted for by the nature and type of building occupied. The highest reported cost in 2005-06 was from the Treasury at £12,041 per person while the (then) Department for Education and Skills was operating at £2,592. The Treasury is aware of the potential for better space utilisation and improved cost per person and has since accommodated the staff from the Office of Government Commerce into the main Treasury building and disposed of, or re-assigned the leases for, two vacated buildings.

The report also found that departments are not yet on top of sustainability issues. Departments were not able to supply information on the amount of energy consumed in 2005-06 for 265 out of 877 buildings reviewed; the proportion of energy from renewable sources for 300 buildings; or the presence of a recycling scheme for 544 buildings.

The Office of Government Commerce (OGC) is looking to improve efficiency from government’s civil property estate and achieve £1.5 billion of annual efficiency savings by 2013. The report concludes that OGC and departments have made good progress in the early stages of implementing OGC’s High Performing Property initiative to make further gains on efficiencies. Both OGC and departments have met the early milestiones: departments have nominated property champions, property asset management boards are being put in place and benchmarking of all buildings has recently become mandatory.

The NAO recommends that departments improve their understanding of the factors that feature in improving building efficiency. Specifically, they need an accurate and up-to-date understanding of the number of people, the occupation level, the number of work stations, accommodation costs and the environmental performance of the building.

Other recommendations include that departments actively engage with the OGC’s High Performing Property benchmarking project, improve space utilisation and address existing office property costs by fully exploring options for locating to cheaper regions while still meeting departments’ business needs.

As part of the government’s radical approach to addressing the problems of neighbourhoods which have suffered long-standing deprivation, the pathfinders programme was introduced in nine areas in the Midlands and the North of England.

Under the programme, 40,000 homes have been refurbished and 1,100 new homes built. Some 10,200 properties have also been demolished. In a number of areas there has been opposition to demolition projects, and the original plans to demolish 90,000 properties have been reduced to 57,100 in response to pathfinders’ greater knowledge of local housing markets and its focus on more targeted geographical areas, as well as rising property costs and in recognition of the heritage attached to some of the properties originally due for demolition.

One key goal of the pathfinders programme is to close the gap in vacancy rates and in house prices with wider regional performance. Although on the whole the gap has narrowed, progress has been mixed across the nine areas. Housing markets have performed better in pathfinder local authorities than in those authorities with the most similar level of low demand problems to the pathfinders areas. In some areas there is a risk that plans to build homes in the wider regions could threaten pathfinder efforts to restructure housing markets in their own areas.

The management of the programme has also led to problems. The need to make early progress meant that, in the first tranche of £500 million, a number of schemes were set in hand before pathfinders put in place their regeneration master plans, community engagement strategies and heritage assessments.

Pathfinder interventions have, in some cases, exacerbated low demand problems in the short-term as houses have been vacated in advance of demolition or refurbishment. In some areas speculative purchases have added to the already transient nature of the communities and led to estimated additional costs of £50 million in implementing the programme.

The NAO found that more could be done to strengthen the assessment of performance and value for money achieved by engaging more actively with each pathfinder to identify and disseminate best practice. The Department needs to clarify arrangements for the delivery of the Housing Market Renewal programme for the future. It must be clearer about the programme’s contribution to non-housing regeneration, such as better schools and transport links, which also help to improve housing markets.

All the pathfinders claim majority support for their proposals. The NAO found that, in some cases, particularly where demolition is proposed, the way the programme is implemented is crucial in gaining community trust and support. The NAO report contains recommendations to ensure communities fully understand proposals and community support is monitored at all stages as plans develop. Proposals for intervention should be based on detailed assessments of the structural condition and heritage value of the housing targeted for demolition and the residents’ own views of the problems they face.