ANNEX B
ESTIMATES
OF THE
NEED TO
SPEND ON
LOCAL AUTHORITY
HOUSING [QUESTIONS
262 AND 289]
1. This note explains the estimates and calculations
that informed the Housing Comprehensive Spending Review process
in respect of the need to spend on local authority housing It
also examines, on the basis of those estimates and use of Capital
Receipts initiative resources to date, what future benefits could
result from the additional £3.6 billion investment in housing
announced as an outcome of the Comprehensive Spending Review.
The estimates of the need to spend on local authority housing
are "best estimates". They will be subject to further
refinement as resource accounting principles are introduced to
local authority housing.
ESTIMATES OF
THE NEED
TO SPEND
2. Estimates of the need to spend on local authority
housing are broken down into two main categories, the first of
which is split between capital and revenue expenditure. These
are:
(i) newly arising needs, which consist
of:
(a) newly arising capital renovation
(replacing major dwelling components such as roofs, windows, heating
systems, etc. as they reach the end of their life expectancy);
and
(b) regular, cyclical revenue
maintenance and day to day repairs (paid for from Housing Revenue
Accounts);
(ii) backlog (capital replacements
that have not been carried out on time).
NEWLY ARISING
NEED
3. The Department estimates that local authorities
need to spend an average of £600 per dwelling each year to
carry out all necessary capital elemental replacements
in the existing stock. This estimate is derived from two sources.
First, the Department has developed a routine renovation model,
which calculates life-cycle costs for any one year and estimates
what building elements fall due for replacement. This model produces
an annual figure of £582 per dwelling. Secondly, an annual
figure of £621 per dwelling is the weighted average for future
programmed renewals from all stock transfers. These sources support
an annual estimate of £600 per dwelling.
4. The department also estimates that local
authorities need to spend an average of £550 per dwelling
each year to carry out all necessary maintenance and repairs in
the existing stock from Housing Revenue Accounts. This estimate
is based on a range of cyclical maintenance and response repairs
taken from expenditure recorded for a range of stock transfer
cases.
5. These figures may seem high to the average
owner occupier. The reasons for this are:
they cover work which an owner occupier
would not be responsible forcommon areas of blocks of flats,
lifts and other common facilities on estates (tenants stores,
garage blocks, drying areas, play areas etc.,)which increases
the scale of both annual replacement work and maintenance activity;
the annualised replacement costs
are an average across the whole stock. They are based on the need
to replace building elements as they reach the end of their life.
In practice much larger sums are spent on individual dwellings
as elements are replaced (the figures don't mean £600 is
spent on every dwelling each year). Over a ten year period it
would not be uncommon for an owner occupier to spend £6,000
replacing work out parts of the building depending on its age
and condition when they bought it;
the complex built form of much of
the local authority stock (deck access, tower blocks) give rise
to higher maintenance costs than would be found in the average
owner occupied house; and
because of their intensive use/misuse,
common areas/estates facilities can be subject to very frequent
work which adds to annual maintenance costs.
6. Taken together, the annual averages for capital
and revenue expenditure produce an estimate of £1,150 per
dwelling which needs to be spent each year to maintain dwellings
in their existing state and to prevent any deterioration in the
overall condition of the stock. Multiplying the average need to
spend figure of £1,150 by the total number of dwellings managed
by local authorities (3.4 million) produces a total annual need
to spend figure of just under £4 billion.
7. Local authorities' plans for capital expenditure
on local authority stock renovation in 1998-99 and their past
patterns of revenue expenditure on repairs and maintenance from
Housing Revenue Accounts were analysed during the Comprehensive
Spending Review. This analysis revealed that, excluding the resources
allocated through the Capital Receipts Initiative, local authorities
planned to spend £1.1 billion in capital on local authority
housing renovation, and £2.2 billion on revenue repairs and
maintenance. If these spending plans and patterns had been repeated
in future years there would have been a shortfall in expenditure
against the estimated need to spend of about £700 million
each year; equivalent to £2.1 billion over the next three
years.
8. The consequences of this underinvestment
would have been a deterioration in the overall condition of local
authority housing and an increase in the backlog of renovation
work.
BACKLOG RENOVATION
9. The costs discussed so far have been newly
arising needs. That is, replacements that arise as a dwelling
ages. If all replacements were undertaken on every dwelling when
they fell due, there would be no backlog. In practice, however,
not all replacements are carried out on time. This means that
there is always likely to be some backlog.
10. Significant reduction in the resources allocated
to housing in recent years have resulted in the growth of a very
significant backlog of renovation. The Department estimates that
around 2.5 million local authority houses have backlog renovations
and that it would cost £10 billion to deal with them.
11. This backlog estimate is derived from English
House Condition Survey data and represents the cost of replacing
to a modern standard all building elements throughout the local
authority stock which have exceeded their expected life. The Survey
data reveals that 2.5 million local authority homes have at least
one building element (e.g., walls, roofs, windows, doors, kitchens,
bathrooms,plumbing, heating, electrics) where replacement is overdue.
The backlog estimate does not include upgrading of stock (e.g.,
installing central heating where it was not already present).
FUTURE PROGRESS
12. An additional £3.6 billion is being
allocated to local authorities for housing over the next three
years (1999-2000 to 2001-2002). The Government's priority for
investment is improving the condition of existing local authority
housing. However, local authorities are being given greater discretion
over their housing investment decisions and it will be possible
for them to use some of these additional resources to fund additional
new social housing or to invest in renovation of private sector
housing, where this is consistent with the needs and priorities
identified in their housing strategies.
13. If local authorities choose to invest all
of the additional £3.6 billion in their own stock, this would
enable the following benefits:
(i) Local authorities could carry out all
newly arising replacements in their stock, making good the shortfall
of £2.1 billion if 1998-99 levels of expenditure (excluding
Capital Receipts Initiative resources) had been applied over the
next three years (see paragraph 7 above). This would prevent any
deterioration in the stock.
(ii) In addition, local authorities would
be able to invest £1.5 billion in tackling backlog renovations,
reducing the backlog by 15 per cent or 375,000 dwellings.
(iii) Within these categories (newly arising
replacements and backlog renovations) a very significant number
of dwellings would benefit from additional investment. In 1997-98
and 1998-99, investment in local authority housing renovation
through the Capital Receipts Initiative is expected to result
in improvements to 340,000 dwellings at a cost of £542 million.
If the additional £3.6 billion is invested on similar work,
improvements could be carried out on over 2 million dwellings.
14. Because local authorities are unlikely to
spend all of the additional £3.6 billion on their own housing
stock, and because the cost per dwelling of the works they do
choose to carry out may vary considerably, the outputs are likely
to be lower than those quoted above. The Department estimates
that, in practice, the additional resources will benefit about
1.5 million local authority dwellings, including a reduction in
the renovation backlog of about 10 per cent of 250,000 dwellings.
This is in addition to newly arising replacement work carried
out with existing expenditure levels (the baseline, broadly equivalent
to 1998-99 spending levels) or improvements secured through the
New Deal for Communities.
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