APPENDIX A
ACHIEVING BETTER VALUE INVESTMENT FOR THE
HOMELESS
KEY POINTS
1. With over 60,000 homeless households
placed by London borough in temporary housing, the capital has
over 60% of the almost 100,000 homeless households placed in temporary
accommodation in England. The backlog in temporary accommodation
is already so great that persons going into it face, on average
in London, a wait not far short of three years. [2]
2. Over half London's temporary accommodation
placements are from private owners mainly leased for three to
five years by local authorities (private sector leasing schemes—PSLS)
or housing associations on behalf of councils (housing association
leasing schemes—HALS).
3. The analysis in this report shows that
providing permanent housing is much better value for money than
providing temporary housing. The present value of public expenditure
needed over 30 years for 1,000 temporary accommodation dwellings
could fund almost 1,400 such homes if they were permanent homes.
4. The present value of saving from replacing
temporary with permanent housing for 30,000 families would be
£3 billion. If numbers in temporary accommodation were assumed
to grow at 3,000 pa and replaced with permanent housing the present
value of long term savings would rise to £7.3 billion.
5. There are net costs in the early years
under an equal payments option for funding permanent housing,
but the savings accrued in later years more than offset the early
costs (APPENDIX 2). Under a no net cost in any one year option
(APPENDIX 3) the present value of the savings would be about 75%
of the equal payments option. The analysis uses London figures
but other high demand areas are likely have comparable results.
6. The savings arise because for a number
of reasons including the fact that:
— With short term leases local authorities
are paying for flexibility that they do not need with tens of
thousands in temporary accommodation.
— Local authorities and RSLs typically
have access to cheaper loan finance.
— Local authorities have high transactional
costs with short term agreements.
— With property prices rising long
term, deferring purchase has no benefits.
7. The results are true irrespective of
whether the permanent homes are acquired on the open market or
built from new. It is usually cheaper to build from new but it
takes longer, and, in this case, time really is money. In this
case there may be advantages in acquiring if it is feasible some
of the properties being used on short term leases if they are
suitable. In any case there would be no net increase in demand
on the property market.
8. The costs of temporary accommodation
used do not include the often very substantial indirect and non-cash
costs arising such as costs to other public services and social
exclusion costs to the families concerned and the areas they are
temporarily placed in.
9. There are other advantages to providing
permanent accommodation. It gives certainty to the tenants. It
allows tenants to be charged normal social housing rents and not
the high rents of up to £300 per week that some tenants in
temporary accommodation can face in higher cost areas of London.
That would greatly help tenants wanting to get back to work.
1. INTRODUCTION
1.1 This analysis compares the costs of
temporary and permanent housing in London to quantify the "better
value investment" case for investing in permanent accommodation
and saving on costs currently generated by the unprecedented high
usage of temporary accommodation in London.
1.2 The report outlines the scale of the
temporary accommodation backlog faced by homeless persons in London
(section 2).
1.3 The analysis considers the costs associated
with short term leased temporary accommodation which houses over
30,000 households in London[3].
It goes on to compare the direct cash costs of providing temporary
and permanent accommodation (section 3).
1.4 Sections 4 and 5 look at the indirect
and wider social costs of temporary housing.
1.5 Some of the implications of investment
in permanent housing as a long-term solution to this problem are
reviewed in section 6.
2. BACKGROUND
Homeless demand and homeless backlog in London
2.1 London currently has over 60,000 homeless
households in temporary accommodation under the Housing Act 1996.
2.2 The backlog in temporary accommodation
is already so great that persons going into it face, on average
in London, a wait of more than two years[4].
2.3 In London in recent years temporary
accommodation numbers have climbed by 5,000 per annum on average[5].
This is almost a quarter of the annual number of permanent lettings
to the homeless. It will therefore require a major change in supply
and/or demand to arrest this rise still less reduce the numbers
in temporary accommodation.
2.4 Most households in temporary accommodation
in London live in housing leased short term—typically for
three to five years—from private owners by local authorities
(private sector leasing schemes—PSLS) or housing associations
on behalf of local authorities (housing association leasing schemes—HALS).
Rehousing supply and numbers in temporary accommodation
2.5 The supply of new lettings in affordable
housing has fallen sharply over the last four years. Graph 1 illustrates
the relationship between rehousing supply, homeless demand and
homeless backlog in London over the 12 years from 1991-92 to 2003-04.
Graph 1
2.6 Total new social housing lettings in
2003-04 in London, including nominations to housing associations
were roughly the same as homelessness acceptances by London boroughs[6].
There are of course other demands on that supply even if all the
supply was suitable for the homeless which it is not for reasons
of size etc. Hence there is little scope to reduce the numbers
in temporary accommodation from a redirection of supply. If we
are considering how many households are likely to be in temporary
accommodation in the future it would therefore be unrealistic
on present plans to expect the supply of permanent lettings to
rise sharply. This is particularly true for high demand areas
where there is little scope to direct a higher proportion of the
permanent housing supply to the homeless. On average London boroughs
already use 65% of net lettings to house the homeless[7].
2.7 London is expecting an average of 5,000
new social rented approvals from the Approved Development Programme
(ADP) plans for the next two years (2004-05 and 2005-06)[8].
This is not very different from previous trends. Without a sharp
fall acceptances it would be unrealistic to assume that the numbers
in temporary accommodation would not continue to rise. The backlog
would remain.
The housing market
2.8 London and other areas of high demand
have been experiencing severe affordability pressures in the housing
market. These severe affordability pressures will tend to keep
social housing relets, the main source of supply, at a low level.
They will also increase homelessness demand.
2.9 In her report on the review of housing
supply, into housing supply commissioned by Gordon Brown[9],
Kate Barker highlighted that the trend rate of real UK house price
growth has increased to 2.7% per annum over the last 20 years.
This 20 year period includes the rare period in the late 1980s
when many property prices fell.
2.10 As a consequence of dwelling prices
rising faster than overall prices, it is a lot cheaper for the
public purse to own property in London rather than rent it over
a long period of time—the public sector equivalent of owner
occupiers getting their foot on the property ladder.
2.11 The balance of advantage for owning
rather than renting is now even greater in London because a large
number of London households, priced out of owner occupation, are
increasing demand and hence rents in the private rented market.
This has the effect of pushing up the costs of short term leasing
schemes for homeless households.
2.12 Recently London rentals have "softened"
partly because of excess "buy to let" supply. This can
be expected to leave many "buy to let" owners anxious
to leave the market providing a good supply of average or below
average dwellings for sale. There are also low interest rates.
In short, there may be an unusually favourable financial opportunity
for switching from a short-term to long-term financial regime
for the housing currently occupied by homeless households.
3. ANALYSIS OF
DIRECT COSTS
3.1 The analysis compares the costs of using
temporary accommodation and providing permanent affordable housing
through housing associations over a 30-year period.
3.2 The analysis focuses on two types of
temporary accommodation with associated high costs:
— private sector leasing schemes (PSLS);
and
— housing association leasing schemes
(HALS).
These forms of temporary accommodation were
being used to house over 31,000 households in London as at July
2004[10].
Costs for both accommodation types are broken down into different
bedroom sizes and compared to the costs of equivalent-sized permanent
accommodation.
3.3 The summary of the financial analysis
for each bedroom size is shown in APPENDIX 1, Tables A and B.
These tables assume that Government grant is paid in equal instalments
over a 25 year period.
3.4 The indicated current value (present
values) of the extra costs per household over 30 years of temporary
accommodation for a three-bed household are ~ £100,800 for
leased housing.
3.5 In Table A the differences in the present
value figures for each bedroom category are weighted using the
incidence of the use of bedroom categories as at January 2004.
This analysis indicates that the present value of the total additional
revenue costs from the use 30,000 short term leased temporary
accommodation could be over £3 billion.
3.6 The numbers in temporary housing are
currently increasing by about 5,000 pa. If, however, there is
some reduction on present acceptance levels and some additional
social rented housing output above the present levels, the rate
of increase in the numbers in these types of temporary accommodation
could fall.
3.7 Table B looks at the scenario of an
annual increase in households PSLS/HALS temporary accommodation
of 3,000 pa. This table indicates that the present value of the
total additional costs of temporary accommodation could be ~£7.3
billion.
3.8 APPENDIX 2 shows the net savings and
costs when replacing a temporary accommodation arrangement with
a permanent one for three bedroom private sector leasing (PSL)
if the grant input on the permanent funding is of equal annual
amounts. There are net costs in the early years, although the
savings in later years far outweigh the early years' costs.
3.9 If the payments on permanent housing
are constrained so that there is little or no net cost in any
one year, the pattern would look more like APPENDIX 3. It shows
the savings over time to be gained on a three-bedroom leased property.
There would be rolled up interest for the first 10 years. We assume
that all the grant has to be paid by year 25 to provide a comfort
zone of five years at the end of the 30 year analysis period.
The present value of the savings would be around 75% of the present
value of the savings in APPENDIX 2.
4. INDIRECT COSTS
TO PUBLIC
SERVICES
4.1 The analysis still in fact understates
the additional costs of the temporary accommodation options. As
well as the direct financial costs of the housing, the use of
temporary accommodation has an enormous impact on the people being
housed in that sector and a cost to the other public services
in that area.
4.2 The additional costs temporary accommodation
usage imposes on other public services include:
— Extra costs on the NHS especially
from families in high density shared accommodation.
— Extra costs on schools having to
deal with higher levels of pupil mobility.
— Extra support costs eg on social
services arising from the disruption of support from family and
friends on moving when placed in temporary accommodation.
5. SOCIAL EXCLUSION
COSTS
5.1 Homeless families very often have unsettled
lives at the point of applying to the local authority and would
therefore be a highly socially excluded group—those without
any place to call home. Temporary accommodation adversely affects
its occupants. This is clear-cut if conditions are bad, such as
in B&B hotels, but uncertainty of length of stay is also a
problem irrespective of the physical quality of the housing.
5.2 Living in temporary accommodation reduces
the likelihood of the household finding employment. One factor
is the high costs of temporary accommodation which often make
the working option an uneconomic one. Other factors include the
uncertainty and instability implied by temporary accommodation.
5.3 The uncertainty of length of stay is
damaging not only for households individually, but can be for
the neighbourhoods where they stay. High levels of transience
and less inclination to get involved (given the uncertainty over
the length of stay) do not assist social cohesion in their local
community and high levels of temporary accommodation use in particular
areas of the capital threaten the stability of the whole area
and place a huge strain on the public services in those areas.
6. IMPLICATIONS
OF ADDITIONAL
PERMANENT AFFORDABLE
HOUSING
6.1 The analysis shows that permanent affordable
housing represents better value for money in public expenditure
than continued revenue support for temporary accommodation. The
homeless applicant could in some cases even stay in the same property
if it was suitable and the owner was willing to sell instead of
leasing short term.
6.2 The analysis shows that, assessed over
30 years, the cost of permanent housing is considerably less than
the cost of providing temporary housing. The savings are such
that the public expenditure needed over 30 years for 1,000 units
of temporary accommodation would fund 1,360 permanent homes.
6.3 The additional homes can be funded from
savings made by replacing temporary housing with permanently funded
accommodation. The extra social rented housing would enable the
growing problem of overcrowding and other housing need problems
to be tackled and could reduce the number of households presenting
as homeless. It could also enable a broader range of households
to be rehoused on estates. This would help meet the objectives
of a balanced community.
6.4 The analysis uses London figures but
it is likely that in other high demand areas, the direction of
the results of the analysis would be the same.
6.5 There are other advantages to providing
permanent accommodation as well as financial. It gives more long-term
certainty to the tenants. It also allows tenants to be charged
normal social housing rents and not the very high rents of up
to £300 per week that some tenants in temporary accommodation
can face in higher cost areas of London. That would greatly help
tenants wanting to get back to work.
7. CONCLUSIONS
7.1 Unless there are dramatic changes, the
numbers in, and cost of, temporary accommodation will continue
to grow steeply.
7.2 It is a lot cheaper for the public purse
in London to own property than rent it. This is the public sector
equivalent of owner occupiers getting their foot on the property
ladder.
7.3 This might not be the case if there
was no guaranteed need for the housing. However, in London there
clearly is the need for tens of thousands more social dwellings.
7.4 There would be wider savings and other
benefits to public services on top of the public expenditure cash
savings from reducing temporary accommodation usage.
7.5 There is an unusually favourable financial
opportunity for switching from a short-term to a long-term financial
regime for the housing currently occupied by homeless households.
7.6 Given the social case for providing
permanent homes as part of tackling social deprivation, social
exclusion and child poverty, there is a very strong case for acting
quickly.
Association of London Government
September 2004
2 From ALG analysis of Housing Strategy Statistical
Returns from London boroughs for 2003. Back
3
Figure from the GLA July 2004. Back
4
From ALG analysis of Housing Strategy Statistical Returns from
London boroughs for 2003. Back
5
From GLA Homelessness Bulletins. These figures include households
who are "homeless at home". Back
6
From ALG analysis of Housing Strategy Statistical Returns from
London boroughs for 2004. Back
7
From ALG analysis of Housing Strategy Statistical Returns for
2003 from London boroughs. Average excludes local authorities
with no HRA stock and Corporation of London. Back
8
Housing Corporation figures following the ADP announcements of
March 2004. Back
9
Delivering stability: securing our future housing needs' published
March 2004. Back
10
Figure from the GLA July 2004. Back
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