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Ongoing Maintenance: Opportunities

 

Over the last decade or so, the overwhelming percentage of

maintenance carried out has been responsive, primarily due to the poor condition of stock and the lack of capital funding to tackle it.  The patch and mend culture created the requirement for Direct Labour Organisations and the use of local maintenance contractors as an ongoing, but temporary fix solution. 

 

All of this will now change for social landlords as the Decent Homes Programme nears completion.  In future, planned major and minor repairs will exceed responsive repairs and the structure of the maintenance sector will change forever.

 

 

Major Changes Underway for Council House Financing

 

This shift to continuous investment in housing stock will require changes to way in which council housing is financed, which previously involved allocating funding primarily for 'catch-up' capital works. 

 

Under the current HRA system, all proceeds from rents and Right to Buy are pooled nationally and distributed among authorities using a complex system that sees 75% receiving less than they contribute, and 25% receiving more than they pay in. 

 

This system will cease to operate from 1st April 2012 when the new Self Financing System takes effect.

 

The New Self-Financing System 

  • The new self-financing system will see councils managing and maintaining housing stock with funds generated through rents, providing a predictable income stream based on their own resources. 

  • 30 year Asset Management Plans (including the identification and assessment of key components and thier lifetimes) are now being introduced along with 30 year Business plans, as Housing Departments will have treasury responsibilities for the first time. 

  • Under the system, stock owning Local Authorities will take on a share of the Government's overall £25 billion housing debt, although no council will be allocated a share that is unsustainable in the long term. 

  • The Government states that LAs will have more to spend on housing stock under this system, as there has been a surplus in rental income under the current financing system over the past few years.

Further Potential for Increased Investment

  • Under the Self Financing System, LAs are able to use surplus rental income to support borrowing for housing spend.  A borrowing limit is set for each LA, at the level of debt they are allocated when the system begins.

  • Certain LAs will have less actual debt than has been allowed for them, giving borrowing headroom and allowing them to increase borrowing without reaching the Government's limit.

  • This can be used for increased investment in stock, including ongoing maintenance works.

 

Housing Association Spend Continues to Provide Ongoing Maintenance Opportunities

 

Housing Association’s (HAs) capital works and ongoing maintenance are not funded by the Government but by bank/building society loans and their own sinking funds, built up by rents.  HAs keep their rental income in full for the ongoing costs of management, maintenance and to service loans and mortgages.  In 2011/12, the rents HAs were able to charge increased, generating substantial additional income for these landlords to spend on ongoing capital works and maintenance.

 

In addition New Affordable Rent tenancies launched in April 2011, allowing HAs to re-let vacant properties at up to 80% of local market rents rather than social rent levels.  This also provided additional income for HAs, increasing potential funding for maintenance works.

 

These changes present significant opportunities for companies targeting Housing Associations leading up to and following the completion of the Decent Homes Programme.