Press Release - Improving social housing through transfer
19 March 2003
Sir John Bourn, head of the National Audit Office, reported to
Parliament today on the transfer of social housing from local
authorities to registered social landlords (RSLs). His report
highlights improvements in the condition of transferred housing and
the quality of services to tenants. The report also identifies ways
in which the transfer programme could be improved.
The transfer programme, now the responsibility of the Office of
the Deputy Prime Minister (ODPM), has been a significant plank of
successive governments’ housing policy since its introduction in
1988. Transfer was intended to bring forward the improvement of
local authority housing at a time when public funding could not be
made available and as part of a wider government agenda of
accessing private finance. Transfer was also considered to bring
additional benefits of greater tenant choice and participation, and
of risk transfer, and the separation of local authorities’ landlord
and strategic housing functions.
The report looks at whether transfers have delivered the
intended benefits for tenants, and at the financial effects of
transfer.
On delivering improved services to tenants
- Since 1988, transfer RSLs have raised £11.6 billion of
private finance, of which £5.4 billion has been used to purchase
transferred housing stock. The remaining £6.2 billion is available
to meet costs such as renovations and long term improvement
programmes.
- RSLs have largely delivered the expected benefits to tenants.
Around 72 per cent of RSLs homes have been improved, almost all
repairs had been made on time, and promises met on housing
services. Most RSLs had kept rent increases within guideline
figures, and had met their promises on tenant participation.
- In many transfers new organisations have displaced the local
authority landlord but without necessarily expanding the choice of
landlord for tenants. From 2001 onwards, ODPM has required
authorities to involve tenants in the selection of a new
landlord.
- Most RSLs have established sound finances after transfer, and
are well positioned to continue delivering the promised benefits to
tenants. A small proportion have, however experienced financial
difficulties and a very few RSLs have had to merge with other more
viable RSLs to overcome significant financial problems.
On the financial effects of transfer
- Transfers are intended to be cost neutral (i.e. to generate
neither a surplus nor a loss) for the receiving RSL, and the
taxpayer contribution should enable reasonable promises to be
delivered at a viable price.
- Property lives and an RSL’s cost of finance can have a
significant impact on the transfer value. The model used to value
transferred homes, however, is based on a fixed time period of
thirty years whereas property lives vary; and it assumes a cost of
finance which is higher than that incurred by RSLs for much of the
period since transfer began. Thus cost neutrality is unlikely to be
achieved in practice.
- Cost neutrality can also be affected by events and changes
after transfer. Some changes reflect the risks that RSLs agree to
take on at the time of transfer, such as changes in housing demand
or the higher cost of improvements. But other impacts reflect more
foreseeable events such as the refinancing of loans by RSLs after
transfer, the sale of property under Right To Buy, or the sale or
redevelopment of land after transfer. The possibility of these more
foreseeable events occurring was not always recognised in the
transfer terms.
- In 2001 ODPM estimated – on the basis of a hypothetical
transfer of a million homes over the next 5 years - that transfers
would cost the taxpayer £4,200 a home, spread over 30 years; which
is £1,300 a home, spread over 30 years, more than the equivalent
renovation under local authority ownership if that were feasible.
This higher cost is due mainly to RSLs’ higher borrowing costs and
the transaction costs of transfer. ODPM considers that this
additional financial cost (£1.3 billion, spread over 30 years)
is justified by the real additional benefits to tenants, such as
earlier renovation, community regeneration and increased tenant
participation. ODPM also believes that the sums involved should be
seen in the context of over £15 billion allocated to housing
expenditure in the 5-year period 2001-02 to 2005-06.
The NAO identified ways in which the transfer process
could be improved. It recommended that ODPM should:
- Continue its efforts to extend the range of choice of landlord,
to achieve the best transfer terms for tenants at a reasonable
price, and require clearer promises about the benefits tenants can
expect from transfer.
- Provide guidance and examine local authorities’ option
appraisals to satisfy itself that authorities have assessed
properly all options for improving their housing and services to
tenants.
- Allow greater flexibility in determining the transfer price, to
reflect a range of property lives and costs of capital, taking
greater account of the nature of the stock to be transferred and
the likely cost of finance
- Check that transfers take account of all assets that RSLs
receive from local authorities, including receipts from Right To
Buy sales and disposals of land for development.
- Review of a sample of transfer RSLs’ finances, to assess the
extent to which transfer assumptions have proved realistic and
transfer valuations robust.
- As cost neutrality is unlikely to be achieved in practice, look
to influence the use by RSLs of any additional surpluses arising,
to encourage their application into further social housing
development, other stock transfers or objectives designed to
develop sustainable communities, such as key worker homes.
Sir John Bourn said today:
"The transfer programme has brought about much-needed
improvement in tenants’ homes and most tenants have also benefited
from improved housing services. Transfer should be cost neutral for
the RSL and the taxpayer’s contribution should enable reasonable
promises to be delivered at a viable price. As cost neutrality is
difficult to achieve in practice, the Office should look to
influence the use of any additional surpluses made by transfer RSLs
and steer them towards social housing or wider community
objectives."
The NAO’s report complements a parallel Audit Commission report
on how transferring local authorities have carried out their
continuing responsibilities for housing. Together, the two reports
provide a comprehensive assessment of the success of the transfer
programme.
Notes for Editors
- RSLs are independent, not for profit organisations set up to
meet the needs of their tenants and the local communities which
they serve. RSLs do not distribute dividends. An RSL’s principal
object must be to provide social rental housing, which must account
for at least 50 per cent of its activity. Up to 49 per cent of an
RSL’s activities may be in non-social housing areas such as student
accommodation, key worker homes, market renting or wider
regeneration projects.
- Registered Social Landlords (RSLs) are independent housing
organisations registered with the Housing Corporation under the
Housing Act 1996. Most RSLs are housing associations but RSLs
also include trusts, co‑operatives and companies.
- The Report focuses on two programmes for transferring social
housing in England from local authorities to Registered Social
Landlords (RSLs). The Large Scale Voluntary Transfer (LSVT)
programme started in 1988 and is still running, while transfers
under the Estates Renewal Challenge Fund (ERCF) programme ran from
September 1996 to March 2000. Responsibility for both programmes
now rests with the Office of the Deputy Prime Minister.
- Transfer usually entails an RSL using private finance to buy
and renovate all or some of a local authority’s homes. ERCF
transfers entailed the Office paying RSLs grants to compensate them
for taking over homes that had negative values. By February 2003,
143 local authorities had carried out 180 transfers of a total of
738,000 homes, representing 18 per cent of the
4.2 million homes owned by local authorities at the start of
the LSVT programme in 1988.
- At least for the first 10 years of the programme, RSLs were the
only bodies able to raise private finance to fund major repairs
programmes. More options have been available to local authorities
since 1998.
- The Audit Commission's report was "Housing After Transfer"
(2002). For the full text of the Commission’s report, see:
http://www.audit-commission.gov.uk/Products/AC-REPORT/2E04A056-F229-409F-BC87-9C27283356B0/housing-transfer-report-FINAL.pdf.
A summary of the Commission’s key conclusions is at Appendix 4 of
the NAO report.
- Press notices and reports are available from the date of
publication on the NAO website at http://www.nao.org.uk/ Hard copies can
be obtained from The Stationery Office on 0845 702 3474.
- The Comptroller and Auditor General, Sir John Bourn, is the
head of the National Audit Office which employs some 800 staff. He
and the NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 20/03
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