Memorandum from the London Borough of Southwark (BDH 27)

 

 

London Borough of Southwark is pleased to have the opportunity to submit evidence to the Committee. Our response on the specific questions asked by the Inquiry is set out below.

1. What lessons can be learned from the Decent Homes programme?

General comments

We have some general comments on the lessons that can be learned, as follows:

· Setting a minimum UK standard for social housing was a noble objective, however in practice there was insufficient funding to meet the investment needs of all social housing stock; and a centralised, target driven approach did not recognise the specific needs of different areas.

· The standard was too low - in that it did not address all stock investment requirements; deliver good asset management; meet resident aspirations or the wider needs of estates, particularly in inner-cities. The level of sustainable works was very low, specifically around SAP and insulation

· A 'one size fits all' centralised and target driven approach to Decent Homes did not take into account the effects of meeting targets on landlord obligation services. Decent Homes incentivised councils to concentrate on the structure and inside of individual homes. This distorts landlords' investment and can focus priority away from important areas. For example, the focus on a minimum Decent Homes standard directed council resources into structural and internal refurbishment rather than improvements to communal areas, repairs to lifts, CCTV, playgrounds and green spaces that tenants also consider priorities.

· Promoting resident choice in either opting to transfer stock or maintaining local authorities as landlords did not create a level playing field. Councils that respect residents' wishes to remain local authority tenants were effectively penalised by not being awarded the same flexibility or funding as ALMOs or RSLs.

· The Decent Homes standard was open to interpretation due to 'allowed failures' on non-key components and modern facilities which could lead to inconsistent application across boroughs, with many authorities setting a higher standard as a result. The target driven culture could create a perverse incentive for authorities to meet the bare minimum and be rewarded for doing so. We feel this could lead to a storing up of greater maintenance issues for the future.

· As well as variations on the application of the standard, element costs/standards can vary between organisations - e.g. the standard and choice of a kitchen. This gives an element of local decision making, but does mean that the standard is inconsistent across the social housing sector.

· Government model made assumptions on inflation and potential savings which were not realistic. For example, the government option appraisal model allowed inflation at the retail price index level of 2.5%, whereas building cost inflation in London in 2006 was nearer 7%.

· There was no process for reviewing initial investment and resource options should the position from the original options appraisal alter (e.g. if residents voted against stock transfer); and available funding options were time limited.

· The standard prioritised homes being made decent by 2010/11, with less emphasis on homes becoming non-decent after the deadline, and how organisations were to maintain the standard beyond 2010/11. One of the difficulties encountered with the standard is the need to take account of homes constantly falling out of decency, as components reach a certain age and need replacing.

· Government intervention directing funding from Decent Homes to new social housing will make matters worse, particularly in Southwark, reducing the ability to adequately invest in existing stock.

Southwark position

· Southwark manages some 55,000 properties and 60% of our housing stock was built before 1964. It is London's largest local authority landlord. 27% of our stock is now leasehold.

· One of Southwark's key priorities is to invest in its stock - currently, approximately 25% of the housing investment programme is funded from capital receipts. However, Southwark Council receives less than £50 million a year from the government to invest in major repairs and renewal to its stock - £37 million by way of grant and £12.5 million of supported borrowing. In context, with this government funding we are only able to carry out major works on about 14% of our buildings requiring investment each year to meet the government's Decent Homes standard, or 7% to meet a higher standard and address the wider needs of our inner-city estates. (We spend a further £62 million on repairs and maintenance).

· Southwark's historic housing debt stands at £771 million at 31st March 2009. The Council pays £52 million annually in interest at an average of 7.03%. It would be pragmatic to allow us to pay off our existing debt which would include £225m of additional "breakage" costs (a gain to the Treasury) and borrow additionally at more advantageous market rates to invest in our stock, creating better homes for our tenants and hundreds of jobs for our beleaguered construction industry.

· We make investment decisions that balance a range of needs and priorities against large but limited resources. These include balancing investment in our stock to meet the Decent Homes standard, our other landlord obligations, and our regeneration commitments (Aylesbury, Heygate estate etc). Decent Homes is therefore not the only call on our limited resources. The delivery of Decent Homes needs to be put in this context, and councils given flexibility to make those judgements relating to their own stock, which could mean delay in meeting the Decent Homes standard unless substantial additional resources are forthcoming.

· The funding made available through Decent Homes to non-stock transfer authorities like Southwark is simply insufficient to do the job for all our investment requirements. This lack of funding means the council is forced to make difficult decisions prioritising work; at the same time considering the impact on leaseholder charges.

· Southwark's residents wanted the management and ownership of the stock to remain with the Authority. Our options appraisal showed that Southwark could retain its stock and meet the 2010/11 target, but only by delivering the basic Decent Homes standard, and not addressing the wider investment needs of all our stock, nor meeting residents' aspirations for their homes and estates.

· Taking account of residents' views and the needs of our stock, a review of Decent Homes delivery in the borough led to the standard being increased to a higher 'Southwark' decent homes standard. The review also identified an investment gap of £180 million, which is in the process of being revised upwards following a new stock condition survey. The gap is due to our stock requiring an asset management approach to delivery - addressing wider investment needs than the Decent Homes standard and often packaging work earlier than required under the strict definition. It was acknowledged that adoption of a higher standard would cost more and take longer to deliver.

· The funding assumptions as part of the original options appraisal could and would change. For example, Southwark's assumptions of funding to meet the standard to 2016, allowed for £12.5 million of supported borrowing through the Targeted Funding stream. However we have been advised this is unlikely to be available post 2010/11; capital receipt assumptions were also based on a more buoyant market.

2. Where targeted housing fails to reach the Decent Homes criteria by 2010, how should this backlog be addressed?

General comments

· This is currently difficult to assess outside the review of housing finance, but there is a definite need for a higher allowance calculation per unit under the Major Repairs Allowance.

Southwark position

· Southwark has adopted a local standard, and although we are seeking to maximise funding from our assets, this approach is unlikely to fill the gap for both the Decent Homes and the Southwark decent homes standard.

3. Should minimum acceptable social housing standards be amended to take account of environmental standards, fuel poverty and the estate?

Southwark position

· Yes. Southwark's view is that any new standard should be flexible to take account of local conditions, and wider environmental, health and safety, and asset management requirements of the stock. However this will need to be supported by the necessary funding, otherwise it would be a diversion from delivery of Decent Homes. Southwark's local standard takes account of wider estate needs. The adoption of the Southwark standard was based on some experience of delivering the Decent Homes standard and reflecting that the results were unsatisfactory from an asset management perspective, as well as not meeting residents' expectations. The standard should be amended to take account of environmental standards, and this should drive improvements in thermal performance of the home so that residents will be less likely to experience fuel poverty. The standard should be linked to those of a higher Housing Health and Safety Rating System (HHSRS).

· Southwark responded to the GLA's 'Development of a Decent Environment Standard' in relation to a 'new' standard going beyond the quality of the home itself and addressing sustainability and the immediate environment and communal areas. Health and safety beyond the current HHRS criteria was, as part of this questionnaire, seen to be essential.

4. Do the management organisations-councils, including via ALMOs, and housing associations-need to change? Will they have sufficient funds?

General comment

· It is not possible to answer this question until the results of the review of housing finance are known. We know that currently there are insufficient funds for effective and long-term asset management of social housing stock.

· Management organisations do need to reflect on how they deliver investment, and introduce changes as necessary. Consideration should be given to the role of councils and residents for retained authorities, and boards and residents of housing associations and ALMOs; which have key differences in governance arrangements and accountability.

Southwark position

· In councils such as Southwark where there was a clear message from residents that the retention of the stock was the only/preferred option, there is no access to additional resources. Southwark has therefore to find resources from its own assets. The use of prudential borrowing is not generally financially viable, due to the historic high level of interest. This is different from the RSL position where such organisations can take advantage of lower rates and in effect 'shop around' for the best levels of interest. Also for councils the revenue position has tightened in recent years due to increasing Treasury clawback from HRA's and so there is little scope to meet extra prudential borrowing debt charges.

· At present the investment needs of Southwark's council housing stock are £300 million over 5 years to meet the minimum requirements of the Government's Decent Homes standard and closer to £700 million to meet Southwark's local decent homes standard (decent homes plus additional works to improve security and estate works and renew higher levels of non-key components). Current sources of funding are insufficient to meet the investment needs of our stock.

· The Council has instigated a programme of selling under-used land and vacant council stock (up to 100 units per annum), and reinvesting the receipts in our investment programme.

· We are also moving to a borough-wide rather than area allocation process for delivering works and are procuring long term major works contracts to develop on-going improvements in quality and delivery. These measures are to continue the process of improving efficiency in use of resources; however overall resources available for the task are still insufficient.

5. What are the implications for decent housing standards of the Government's proposal, currently out for consultation, to move to a devolved system of council housing finance?

General comments

 

· In principle, reform of the pooling and redistribution system of HRA finance should enable more long-term planning for investment in the housing stock. However the detailed proposals are not yet available and therefore it is not possible to comment fully at this stage. The proposals impose central debt charges to mop up any revenue surplus generated and this does not allow for the need for funds to be freed up to provide headroom to support extra capital spending.

 

Southwark position

 

· This is not yet known. For Southwark much will depend on how historic debt is dealt with as part of any proposed changes.

· We have particular concerns that the debt levels imposed could squeeze the revenue resources available for capital funding, particularly as our rents have some way to go to reach target, so do not provide the resources in early years that might be assumed by Government, who use net present values over 30 years. We also have a high level of leaseholders and any loss on their service charges is not allowed for in the Government's assumptions.

 

 

6. How should the Decent Homes target for private sector homes occupied by vulnerable people be taken forward?

 

General comments

· The Government target is that by 2020, 75% of vulnerable private sector households nationally should live in decent housing. In Southwark a recent survey of the private sector indicated only 44% of vulnerable private sector households currently live in decent homes. By tenure 51% of vulnerable renters are living in non-decent stock and 63% of vulnerable home owners.  This means there is a large gap (31%) between the 2020 target and the current position, and there are competing demands on resources. The difficulty in dealing with the private rented sector is that the Decent Homes standard is not an enforceable standard. While removal of hazards may result in a decent home, it is not always so. There need to be incentives for landlords if we are to achieve decency for this sector of the housing stock- otherwise it would have to be an enforceable standard. With regard to the larger owner-occupied sector the necessary work to achieve decency is not generally within the means of vulnerable households and financial assistance will be required to meet the target. The investment required in the private sector in Southwark amounts to £322m over the next 10 years. However, if this is not acted upon, the stock will deteriorate further and costs will escalate.

· Resources for all forms of private housing renewal in Southwark are anticipated to fall significantly from 2011 onwards. Without additional resources to tackle private sector Decent Homes it seems unlikely that this target will be achieved, at least in boroughs with a high level of private sector non-decency.

7. Are adequate arrangements in place for the future regulation of minimum acceptable housing standards?

General comments

· In respect of ensuring that properties are free of Category 1 hazards in the private sector, it is Southwark's view that adequate regulation arrangements are already in place but the resources to fully implement it are not.

· In respect of local authority housing, Category 1 hazards under HHSRS may not be robust enough to identify potential risks. However most Category 1 hazards would be dealt with within Decent Homes contracts. It is clear that the requirements are above this standard, health and safety issues particularly for communal areas is not dealt with within HHSRS. As targets are directed towards Decent Homes, it is felt that wider health and safety work has not been given the priority it should.

8. Are there local examples of innovative best practice with wider post-2010 applicability?

· We believe that the development of the Southwark decent homes standard is an example of good practice. This took account of the views of our residents, as well as good asset management practice in investing in our stock. We recognise that achieving this standard will take longer and cost more, but properties will stay decent for longer and will be more valuable assets to the borough and our communities, and will create more sustainable communities.

 

September 2009