Memorandum by Orchard & Shipman
I appreciate that the closing date for submission
of evidence has passed but nevertheless feel I should draw your
attention to a major source of private financing which is currently
available to the social housing sector and is not being currently
used.
Orchard & Shipman are a private sector "for
profit"" property services organisation with a specialist
social housing department. In particular we act as agents for
the London Borough of Hillingdon and the City of Edinburgh Council
to procure and manage properties from the private sector and manage
tenants nominated by the respective councils. The client group
are singles and families where the Council has accepted a statutory
duty and the contracts are managed under a Private Sector Leasing
scheme (PSL).
Our work was commended by the ODPM in August
2003 "Reducing B&B use and tackling homelessness—what's
working. A Good Practice Handbook""
Orchard & Shipman are also members of the
CLG strategy group looking at means to reduce the use of temporary
accommodation (currently circa 100,000 units in England and Wales)
by 50% by 2010.
Several years ago, Orchard & Shipman recognised
that renting properties from private landlords was not the most
effective way of providing temporary or settled accommodation.
Some of the disadvantages are:
1. Choice of property type and location is
limited and influenced by current market availability.
2. Cost and availability of rented properties
is subject to availability and can not be guaranteed in the future.
3. Management of several hundreds of landlords
with varying experience and ethical values is expensive and sometimes
problematic.
4. Properties are leased for 3 to 5 years
creating an ongoing procurement cost.
5. Rental values will typically increase
year on year with no asset value being accrued.
6. PSL can provide good quality homes and
if properly managed is cost effective compared to other rental
schemes but does not contribute towards permanent social housing
provision.
Recognising these limitations, Orchard &
Shipman in association with Lloyds TSB launched a Temporary to
Permanent housing product (T2P). In overview T2P will:
1. Purchase a portfolio of properties to
the Council's order (including new build if required)
2. Lease the properties back to the council
for typically 10 yearn.
3. Manage the properties and tenancies.
4. Use the surpluses between Lease payments
and costs to set up and run the scheme to reduce debt levels.
5. Offer the council or their nominated RSL
partners an option at the end of the lease to:
(a) Renew the lease for a further period.
(b) Purchase the properties from Lloyds TSB
at the debt level.
(c) End the lease (walk away).
The benefits of this scheme are:
1. The Council can select the property types
and areas needed for their customers.
2. The Council or their nominated partner
benefit from all of the equity uplift but do not take any equity
risk
3. If the nomination is ceded to an RSL partner
it is off balance sheet for the authority.
4. In consideration of the benefit of receiving
the nomination the RSL partners are invariably prepared to add
value to the scheme through property or finance.
5. The property stock is secured on a long
term basis and the council's exposure to market movements is greatly
reduced.
6. There is only one landlord thereby reducing
management costs and improving property standards.
7. At the end of the lease period our modelling
indicates that in most cases (depends on initial purchase price
and rental values).the debt level is sufficiently reduced to enable
the debt to be funded at social housing rent levels and hence
the properties can be converted to permanently rented units with
the council having nomination rights in perpetuity.
This product is structured to enable us to work
anywhere in the UK with RSL, private sector and local authority
partners. To date we are actively working with RSLs such as A2
Housing group, Genesis and Sunderland Housing and we have had
or are having discussions with over 150 local and city authorities
in the UK and are expecting a number of these to formally commit
to T2P this year.
What makes this product possible is a resource
that the government and local authorities do not fully utilise
and that is the ability to guarantee a rental income stream over
a prolonged period.
There are a very large number of financial institutions
that am prepared to invest, for a relatively low coupon, on the
basis of a long term secure income stream and ft is essentially
tit market that Councils can acorns through T2P type products.
However, the two requirements are long term
and guaranteed income. For Councils to feel comfortable committing
to these types of schemes it is imperative that the Housing benefit
regime is appropriately structured and offers long term stability.
A properly structured HB regime can provide
incentives to the Council and the tenant and lever in Billions
of pounds of private finance.
Unfortunately it could be said that the structure
for PSL schemes was not appropriately structured and this has
built in unnecessary cost and has exacerbated the benefits poverty
trap (rents tend to be higher than market rent because they include
management costs, acting as a disincentive to tenants who have
to meet these payments if they find work). Although it should
be recognised that the current finance arrangements achieved the
objective of getting families out of B&B and in to self contained
properties.
Quite properly, the DWP is reviewing current
arrangements and is suggesting that management costs be split
out and funded separately from rent costs. In general this appears
to be an entirely sensible approach but it is critical that the
detail allows and encourages a T2P type approach and it should
be noted that the delay in ending the current uncertainty is massively
expensive as the cost of buying homes increases daily.
| 
