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.