Memorandum by Sheffield City Council and
Sheffield Homes Ltd
1. INTRODUCTION
The Committee has invited written evidence in
to the supply of private and social rented housing with reference,
among other issues, to:
— The future role for local authorities
as builders and managers of social housing.
— The effectiveness of different social
housing models, including traditional local authority housing,
ALMOs, housing co-operatives and housing associations.
— The priorities and effectiveness
of the Housing Corporation, English Partnerships and the Regional
Housing Boards in responding to housing needs.
This submission from Sheffield City Council
and Sheffield Homes focuses on how ALMOs can meet the increasing
need for new social housing provided government and the Housing
Corporation enable ALMOs to compete on a level playing field with
Housing Associations and the private sector.
2. EXECUTIVE
SUMMARY
The government announced in June 2006 that Councils
that have achieved four star CPA assessments and their ALMOs that
achieved three star inspection ratings from the Audit Commission
could own and manage new build homes through the ALMO. There are
some barriers to this initiative which are identified in paragraph
five. We are seeking to work constructively with the government
and the Housing Corporation to counter these barriers. Further
changes to the rules for the allocation of Social Housing Grant,
the status of ALMOs or the length of the management agreement,
and the treatment of ALMO capital expenditure outside the PSBR
are required before we can turn this aspiration into reality.
3. SHEFFIELD
HOMES
Sheffield Homes is the largest Arms Length Management
Organisation in the country, managing 48,000 homes on behalf of
Sheffield City Council. Sheffield Homes is a not for profit, limited
company set up on 1 April 2004 and is wholly-owned by Sheffield
City Council.
Sheffield City Council has achieved a four star
CPA rating and was the 2005 LGA Council of the Year. The council,
as the sole shareholder, took an innovative approach to the composition
of the Sheffield Homes' board rejecting the usual model of equal
representation between tenants, independents and council nominees.
It reduced its membership to two councillors and one council officer
to give much greater representation to tenants.
The Board of fifteen comprises seven tenants,
five independents and the three council nominees. Many operational
decisions are delegated to six Area Boards. Again, the tenants
have the most say on these Boards. Each Area Board is made up
of five tenants, four independents and two Council nominees.
Sheffield Homes was the first organisation in
the country to achieve the top "three star"" excellent
rating from the Audit Commission twice, placing our housing services
amongst the top 1% in the sector.
The decent homes programme is £125 million
per annum. The whole programme is worth £669 million up to
2010. It is the largest of its type in the country. Clearly we
have the capacity, capability and expertise to manage large scale
capital programmes. Sheffield Homes is seeking to extend its role
to meet the demand for new affordable homes in the city.
We have Egan compliant long term partnering
contracts with Connaught Property Services Ltd, Keepmoat plc,
Kier Sheffield LLP, Lovell Partnerships Ltd, and Mears Group plc,
to bring all homes up to the Government's "Decent Homes""
standard by 2010. We aspire to extend the contracts to provide
the capacity to build new homes in a partnering arrangement. The
partnerships have brought many social benefits to the city which
we would seek to extend, for example, the JOBMatch scheme where
over 250 formerly unemployed residents have obtained apprenticeships
and training in high value construction skills. The South Yorkshire
Efficiency Trailblazer is enabling the four districts and ALMOs
in the county to use our collective buying power to achieve more
outputs for the decent homes investment. We would like to extend
these efficiency savings to a new build programme.
Sheffield is one of the six authorities working
with the DCLG to establish a self financing Housing Revenue Account.
The work should be completed by March for CSR 2007. A self financing
Housing Revenue Account would give authorities the potential to
plan their business over thirty years rather than the current
one year cycle. If a workable model can be built it would allow
for authorities to borrow on the basis of a thirty year income
stream which would be wholly under the control of the authority.
4. THE CASE
FOR MORE
NEW BUILD
SOCIAL HOUSING
4.1 Demand
Demand for social housing in Sheffield is far
above supply. In the year to 30/09/06 there was 4,400 lettings
which was a 4% reduction in lettings on the previous year. 3,833
homes were let through the Choice Based Lettings service. Sheffield
was one of the first authorities to embrace the choice based approach.
We have found it has led to much greater transparency and customer
control over where applicants choose to live.
There were 19,813 individual bidders for those
3,833 homes broken down as follows:
|
| | Active bidders per letting
|
| Lettings
| 2005-06 | 2006-07
|
|
| BS/1 bed | 1,945 (50%)
| 4:1 | 4.5:1
|
| 2 bed | 1,272 (35%)
| 4.6:1 | 5:1
|
| 3 bed | 616 (15%)
| 5:1 | 7:1
|
|
The table shows that for every category of home, demand has
increased. It is not unusual to have more than 100 bidders for
a vacant home.
The pie chart below shows lettings analysed by property types.
63% of all lettings are to flats and maisonettes rather than houses.
Bungalows account for less than 6% of lettings. Most families
aspire to rent a house. We have a large elderly and disabled population
whose needs cannot be met in upper floor accommodation.
One of the objectives of a new build ALMO programme is to
increase the supply of social rented family houses and accessible
ground floor accommodation to better meet the needs of our applicants.
4.2 The Housing Market in Sheffield
House prices in Sheffield are increasing at a rate greater
than the country as a whole. There has been a 100% increase in
Sheffield property prices in the four years 2000-04. In 2005-06
average house prices in the city rose by 7.4% to £140,736
compared with an increase in England and Wales of 4.8%. The market
continues to expand with a projected population growth of at least
22,000 forecast over the next ten years. Most of these inward
migrants will need affordable homes so we can see the imbalance
will get much worse unless we tackle the shortfall in new supply
now.
Average earnings are approximately £22,000 pa. An affordable
home in the city is defined as one that could be supported by
a £70,000 mortgage or a rent of £87.50 per week.
Consequently homeownership for new households on average
earnings (or even significantly higher than average earnings)
is unaffordable.
Council rents are significantly below this level at £53
per week. RSL rents, including service charges, average at over
£64 per week.
Therefore more applicants seek council accommodation because
it is affordable and gives better value for money.
There are three key elements which impact on the balance
of supply and demand for social housing; on the supply side, we
are continuing to replace obsolete housing as part of an overall
strategy for sustainable neighbourhoods, the Right-to-Buy which,
although falling in the current year, reduces the social rented
stock by 550 per annum, and the rate at which new housing can
be delivered through the use of planning gain and the National
Affordable housing programme.
There is a shortage of 400 affordable homes per annum—both
low cost home ownership including shared ownership and social
rent. Sheffield Homes has the commitment and skills to provide
additional new homes to bridge this gap not to substitute ALMO
homes for RSL homes. Our services are quality assured by the two
Audit Commission inspections so government and regulators are
guaranteed a product which meets all their requirements.
4.3 Reducing council stock
Despite a high level of unmet demand the supply of council
housing is reducing. The chart shows the steep decline in council
housing over the 12 years to 2004-05.
Total number of Council dwellings: 1993-94 to 2004-05
Currently 48,000 council homes are managed by Sheffield Homes.
This will fall by a further 3,000 next year due to transfers to
Housing Associations and by about 550 due to Right-to-Buy sales.
By the end of the decade the council is likely to own less than
40,000 homes which will make the demand problem much worse.
5. WHY DON'T
COUNCIL'S
BUILD NEW
HOMES?
There are three main reasons why councils do not build new
council homes.
5.1 Through the national Housing Revenue Account system
a local authority will not see the financial benefit of new homes.
Most authorities would be penalised through the subsidy system
if they built new homes.
Within the work being undertaken as part of the Self Financing
Housing Revenue Account pilot, we would wish to test the extent
to which new borrowing could be supported through a rent structure
that is closer to the affordable rent level of £350 per month
in the city.
5.2 A new home cannot be sold for less than it cost for
the first ten years but after this period it can be bought by
a tenant for a fraction of the construction price and the authority
is able to reinvest only 25% in decent homes or other improvement
programmes.
In 2005-06 Sheffield sold 950 homes for a total market value
of £57,269,107—an average of £60,283 per home.
The discount paid to tenants was £21,425,123 an average of
£22,552 per home. The average discount rate was 37%.
The total revenue after discount was £35,843,984, an
average of £37,730 per property.
75% of this revenue is forwarded to the exchequer—approximately
£26.9 million and slightly less that £9 million is retained
by Sheffield to invest in decent homes. Assets with a market value
of over £57 million are sold leaving the city with less than
£9 million to reinvest.
5.3 The Council's ability to borrow and the controls
on capital expenditure encourage local authorities to invest in
decent homes and other improvement programmes rather than new
build. After these programmes focused on maintaining existing
stock have been supported there is no headroom to support new
or replacement homes.
6. WHY DON'T
ALMOS BUILD
NEW HOMES?
This paper is seeking support for ALMOs to build additional
new homes. In June 2006 DCLG published the Review of ALMOs which
included proposals for three star ALMOs like Sheffield Homes to
own new social housing. New social home, whether they are built
by Housing Associations, the private sector or ALMOs, usually
require subsidy through Social Housing Grant (SHG) administered
by the Housing Corporation. Without SHG it is difficult for new
homes to be built in the public sector. We are using our land
values within the context of our housing market transformation
programme to deliver affordable housing through the use of cross
subsidy from the sale of homes for owner occupation, however we
cannot match the rate at which new rented accommodation is required.
There are technical issues, which currently prevent ALMOs
from competing with RSLs and the private sector for SHG.
Asset base
ALMOs have no physical assets to support borrowing. We are
seeking to develop a model where ALMOs can borrow on the basis
of the income stream rather than the assets to fund new build
housing. However the HRA income stream is not controlled by the
authority. Council's are only able to plan on a one year basis
due to the vagaries of the HRA subsidy system where income can
fluctuate from year to year from positive to negative subsidy
controlled by central government rather than the city council.
We are hopeful that our pioneering work with DCLG on the self-financing
HRA will find a solution to this critical issue.
Security
ALMOs are management companies that have a management agreement
with their local authority to manage council housing. The Sheffield
agreement is for ten years but this is insufficient time to support
borrowing. ALMOs can't give funders a guarantee that the organisation
will have permanence. To give security for loans the management
agreement would need to be extended to 30+ years.
Low land values
Hounslow Homes has developed a model for new build which
relies on high value land given to the ALMO for nil consideration
and cross subsidising between homes for sale and for rent at a
ratio for 2 for sale funds one for rent. This model isn't directly
replicable in the north due to much lower land values. To give
an indication of the scale of the challenge, land values will
subsidise the delivery of one new affordable home for every six
sold on the open market.
Capital Receipts
Whilst discounting land value to deliver more affordable
housing is possible, currently capital receipts are required to
match fund Decent Homes programmes and to supplement our Neighbourhood
regeneration programme.
The Public Balance Sheet
We are seeking a level playing field with Housing Associations.
Expenditure by ALMOs counts as public borrowing and is subject
to government controls. Housing Associations are able to borrow
private funds so for similar notional income streams they are
able to invest in additional and replacement stock. We are seeking
a solution where ALMO new build investment doesn't count as public
borrowing.
7. THE OBJECTIVE
The aim is to build new homes owned by Sheffield Homes rather
than the council. This would take them outside the Housing Revenue
Account subsidy system andthe right to buy would not be applicable.
Applicants could decide when they bid for a property if they are
likely to pursue the right to buy and consequently bid for council
owned properties which would be far and away most of the portfolio
managed by the ALMO.
The social rented housing would be retained by the ALMO to
meet the needs of the residents.
Rents would be higher than those charged by the council to
support the borrowing at the affordable rent level.
In order to make this model work ALMOs need to be able to
compete for SHG on a level playing field with RSLs and the private
sector.
8. WHY SHOULD
GOVERNMENT SUPPORT
NEW BUILD
BY ALMOS?
ALMOs bring many benefits to the social housing service for
a local authority.
Quality of Service
The ALMO programme has transformed the quality of housing
management service across the country. ALMOs must achieve a two
or three star rating from the Audit Commission to access the funding
stream. Of the 47 ALMOs inspected 12 have three stars excellent
services and 29 two stars. No traditional local authority with
housing stock and only one housing association has achieved three
stars in the last three years. There is no doubt that the reward
of ALMO funding has galvanised ALMOs to drive up performance.
It would be beneficial to tenants if their new homes were owned
and managed by excellent ALMOs.
Value for money and Efficiency
To achieve such high inspection ratings ALMOs have demonstrated
an impressive record of delivering value for money services. ALMOs
contribute 68% of all local authority housing efficiency savings
although we manage only 21% the country's council housing stock.
The most recent analysis of local authority annual efficiency
statements 2006 show that, while ALMOs make up only 21% of local
housing authorities in England they are producing 68% of local
authority housing efficiency gains. As can be seen from the rents
charged—£53 per week for a Sheffield Council home compared
with £64 per week for a Housing Association home- ALMOs deliver
more high quality services as demonstrated by the three star ratings
for a much lower rent.
Procurement
ALMOs have used Egan compliant partnering contracts to deliver
their decent homes programmes. These long-term relationships have
brought social benefits through investment in apprentice training
schemes and social enterprises as well as efficiency gains. For
example through the JOB Match programme Sheffield is providing
250 apprenticeships in high value trades for previously unemployed
residents.
These partnerships have the potential to mature in to longer
term relationships to deliver new build homes embedding the social
benefits as a permanent feature of the construction industry.
Guarantee of delivering council objectives
ALMOs are part key players in local strategic partnerships.
ALMOs focus on one local authority unlike RSLs that spread their
input across many areas. We have deep roots in the neighbourhoods
we serve and deliver community benefits as well as high quality
housing services. For example all ALMO new build homes would be
let to applicants from the local authority rehousing register.
Although Housing Associations are required to let 50% of their
homes to local authority nominations, current performance in Sheffield
is about 29%. Homeless applicants are therefore denied access
to high quality housing association homes.
Quality
We are seeking a level playing field with housing associations
and the private sector. Only ALMOs with three star inspection
scores from the Audit Commission, providing their authority has
an excellent four star CPA rating, are permitted to take advantage
of the June announcement. Excellent ALMOs are able to guarantee
quality. We have been through a rigorous independent inspection
regime. We have proven high standards of housing management, resident
involvement and efficiency. We must demonstrate value for money
in everything we do.
9. CONCLUSION
Sheffield Council and Sheffield Homes are working together
to find a solution to the challenges identified in paragraph five
to deliver more homes and greater value for money than the current
models on offer.
Through our demonstrable expertise and track record in efficiency,
procurement and excellent housing management we would provide
greater benefits and deliver outcomes which better meet the needs
of government and our local authority eg Respect, homelessness
and accountability.
It would be helpful if the committee could support this objective
by requiring the Housing Corporation to flex the capital allocation
rules to enable ALMOs to build new homes on a level playing field.
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