Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence



  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.


  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).


  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 for—common 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.


  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).


  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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Prepared 17 August 1998