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Social housing funding rules create challenges but greater certainty

Social housing clients’ financial circumstances have changed radically in the last six months.

And the changes to the funding – outlined in the 2011-15 Affordable Homes Programme - are going to alter what clients in affordable housing want from their contractors.

Under the new rules drawn up by the government and the Homes and Communities Agency, housing associations and other providers can still apply for funding but will now have to raise more of their own cash by increasing rents and using existing assets.

Poplar HARCA’s development director Neal Hunt says: “We are moving from a capital based system to a revenue based system. Now cost is much more important to us but the obvious difficulty is that standards have to go up.”

“We are looking for value added opportunities. Not just straight contractors but a firm that can take on a development partner role so we can maximise our land value.”

Mr Neal says contractors are changing their services as a result of the shifting economic climate in the sector with some firms already developing funding packages to aid development.

The increases in social tenants’ rent – allowing housing associations to charge up to 80 per cent of market value - could also benefit maintenance contractors.

“As rates increase then turnover of properties will increase and our maintenance and voids allowances will have to increase.”

Contractors should also be more aware of green projects. Mr Hunt says any more waves of funding to come are likely to favour green issues and projects.

The Homes and Communities Agency’s head of intermediate markets Jamie Ratcliff agrees that the new rules are a radical departure but says the new funding criteria could actually provide contractors with more certainty.

Mr Ratcliff says previously every project had to be assessed to gain funding from the HCA but now that clients must outline their pipeline of work, the future could be clearer for contractors.

“We’re agreeing a four year plan of development and providers will know roughly how many homes they are going to build and where they are going to deliver them.”

Of the 150,000 housing units the government has pledged to deliver by 2015, 56,000 units’ worth of funding are still up for grabs. Clients successful in gaining funding will now only receive around £25,000 per unit as opposed to £100,000 per unit previously.

As part of these new funding criteria the HCA will also require clients to increase the efficiency of their procurement, which means more of a squeeze on contractors.

London domination

London continues to dominate the social housing sector as the region with both the largest overall share of the market (27%) and the top client (London and Quadrant).

Unfortunately though, London’s recent trend in project starts is all too indicative of the national decline in social housing work: just £368 million of work has been awarded in the capital so far this year, compared to £1.4 billion in 2010. This decline is repeated across the country with the North of England, Northern Ireland and Wales the hardest hit.

Government spending cuts have seen the Department for Communities and Local Government’s capital budget set at a total of £9.4bn over the four year period ending 2014-2015.  By comparison, capital spending in 2009-10 was budgeted at £9.2bn. 

As a result, business intelligence unit Gleniganpredicts significant falls in the value of project starts over the next two years: a 27% reduction in 2011 followed by a 21% fall the year after.

Rather than new builds, spending on social housing will focus more on refurbishment and maintenance, via the Decent Homes scheme.

This shift in emphasis away from new capital works can clearly be seen in the value of detailed plans approved across the country: in May the value of new schemes approved hit a nadir of less than £200 million, down from a peak in March 2010 of more than £800 million.

Social housing news round-up

HCA to sell 7,400 hectares of its land

The Homes and Communities Agency has revealed the 7,438 ha of land it intends to sell over the next two years.

The move is part of wider government plans to sell off £10 billion of previously developed public land to help solve the housing crisis.

Sales will be guided by a number of principles including making sure the process is as transparent and quick as possible and that any disposals support local plans and ambitions.

The quango will also aim to sell as much of the land as possible on terms such as the government’s build now, pay later scheme, to help developers with cash flow issues.

HCA exceeds housing start targets

The Homes and Communities Agency has smashed its target for housing starts on site by 65 per cent in the last year.

The government’s housing and regeneration body today published its latest set of official six-monthly statistics for housing, showing it achieved 57,605 starts on site against a target of 34,982.

Housing completions were also marginally up on targets with 64,242 homes completed compared to the 62,495 budgeted for. This is 8,088 more than last year.

The figures relate to housing completions through the agency’s various programmes in the financial year ending 31 March 2011.

Mansell launches renewable division

Mansell has announced it will launch a new renewables division focusing on design, funding, installation and maintenance of solar panels.

The new division, Mansell Renewables, hopes to present solar solutions to clients as an alternative to direct procurement and receipt of the feed in tariffs from landlords.

Mansell has ensured its design and installation teams are accredited under the Microgeneration Certification Scheme.

Wates among £225m solar framework winners

Wates, ApolloProperty Services and Keepmoat are among the contractors that have won places on a solar framework worth up to £225 million over four years.

The photovoltaics and solar framework agreement is the first of five to be released under a joint retrofit arrangement between Fusion 21 and Procurement for Housing.

It has been awarded in two lots to 36 suppliers. Lot 1 is for supply only, for which 15 suppliers have been named. Lot 2 is for supply and installation, and 24 suppliers/contractors have been named.


Roll call: Who you need to know

Keith Exford, chairman of the G15 group of London’s largest housing associations. Newly promoted from his previous role as vice-chairman for G15, Mr Exford is also the chief executive of the Affinity Sutton housing association.  Other roles include being a non-executive director of The Housing Finance Corporation, an organisation which supports the funding needs of housing associations, large and small, and a member of the Joseph Rowntree Foundation’s housing market taskforce.  The G15 group is a collection of the 15 biggest housing associations in London and acts as a voice for the sector in the capital.

Richard Hill, executive director for programmes and deputy chief executive of the Homes and Communities Agency. Mr Hill focuses on investment, policy, the national affordable housing programme, strategy, HomeBuy and other low cost home ownership products. His previous roles include director of investment at the Housing Corporation, head of strategy and policy at the NHSU and head of policy and public affairs at the New Opportunities Fund.

David Cowans, group chief executive of Places for People. A regular speaker on housing and regeneration, he works with a wide range of institutions to encourage policy change in relation to housing, development and sustainability issues. Places for People manages 62,000 homes and is a major developer of affordable housing. Mr Cowans is a chartered director of the Institute of Directors; a Fellow of the Royal Society of Arts; an Academician of The Academy of Urbanism and has an MBA from Birmingham University.

Mark Rogers, group chief executive of Circle.Appointed to his current role after the merger of Circle 33 and Anglia Housing in 2005, Mr Rogers heads up one of the largest providers of affordable housing in the UK. He is responsible for setting the direction of the organisation and overseeing its operations. Prior to his time at Circle Mr Rogers was director of customer services at Circle 33 and also chief executive of Nene Housing Society in Peterborough. In 2003 he became chief executive of Anglia Housing Group.


Green is key for Plastic Surgeon

Partnership Publishing, produced in collaboration with Plastic Surgeon

For specialist finishing contractor Plastic Surgeon, strong sustainability credentials are a key issue for operating successfully in the social housing sector, particularly since the whole life property costs are a key responsibility for RSLs.

The firm points out that by repairing damaged items and reducing waste, it can provide hard data for reporting on corporate social responsibility, IS0:14001, and halving waste to landfill commitments.

Plastic Surgeon managing director Rob Mouser says: “There’s also a key requirement under the code for sustainable homes, where all new dwellings will have to meet Level 6 by 2016 (or net zero carbon). It’s yet another cost implication at a time when budgets need to be controlled.”

The firm says that in 2010 it:

·         Saved 64,938 items from landfill

·         Saved 1,750 tonnes from landfill

·         Saved customers £84,000 in landfill taxes

·         Carried out 2,170 shower repairs – average cost per repair £20

·         Carried out 25,183 glass window repairs – average saving per repair £286

·         Repaired 2,774 baths, saving 69 tonnes from landfill

Social consideration and security for residents is another key area. North West client New Charter Housing Trust initially recruited Plastic Surgeon just to take over the work on its void properties, but soon extended the work to include all tenanted properties as well.

New Charter Housing Trust void maintenance manager Dawn Reynolds says: “In four months we’ve saved 750 kg of environmental waste and our average repair cost has dropped from £250 to under £30.”

Mr Mouser says the extension was partly down to the service provided but also being responsive to tenants’ safety and security requirements.

Sound advice it would seem.

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John Cross Chief Executive Bedfordshire Pilgrims Housing Association

In light of the tougher investment and economic climate, Bedfordshire Pilgrims Housing Association is looking to increase collaboration to drive efficiency.

“As an organisation we are going back to and reviewing everything we do,” says chief executive John Cross. “You need a strong relationship with your framework contractors - trust them to deliver to be able to do even the niggly bits right.”

BPHA has recently reviewed its repair and maintenance operation and introduced a number of new measures during procurement as well as targeting further areas for savings.

Residents of the association’s current portfolio were invited to assess bidding contractors at the pre-qualification and tender stages for its maintenance framework. They will also be involved in specifying what is done to the properties they occupy and assessing contractors’ performance on the job.

Other measures include altering contractors’ working hours so that residents are disturbed less, explains Mr Cross. But it is not just residents who will benefit from these changes.

“If it all works out we will have a 10-year contract in place. Everyone wins,” says Mr Cross adding that contractors operating below cost will not help any parties involved.

“The message to contractors is: ‘We want it to be a profitable contract for you because we cannot afford it to be a Rok or Connaught.’”

He says those firms that embrace the difficult climate will benefit the most: “We need to be innovative but not for innovation’s sake. There is an opportunity for those really good contractors who adapt. Part of the problem is there have been some good contractors that have not been able to adapt and gone to the wall.”

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