Final answer?Posted: July 4, 2012
The verdict from the National Audit Office (NAO) on the affordable rent programme is generally positive but it still leaves several key questions unanswered.
The financial watchdog says that the DCLG has ‘so far achieved its policy objective to maximise the number of homes delivered within the available grant funding’. Grant per home was a third of previous levels, the programme was over-subscribed and 80,000 homes are being delivered against an initial target of 56,000.
The NAO concludes that:
‘The Department and the [Homes and Communities] Agency selected a design for the Programme that is projected to maximise benefits and the number of homes delivered within the constraints of the £1.8 billion capital funding available. The launch of the Programme has been successful. Providers have committed to building some 80,000 homes for the £1.8 billion of government investment, approximately 24,000 more homes than first expected. In this respect, the Programme has made a good start.’
So far, so good but the NAO also reveals several risks:
- 18 per cent of contracts had not been signed as at April 2012 (mostly local authorities that needed to confirm their borrowing capacity following HRA reform)
- more than half of the homes are planned for the final year of the programme ‘so slippage would put at risk achievement…of the planned 80,000 homes’
- some providers in London are worried they will not be able to charge the rents they originally agreed
- the DCLG needs to carry out ‘a thorough analysis of the financial position of providers to assess the repeatability’ of the programme after 2015.
In the process, the report reveals details about the programme that I at least have not seen before but it also begs some more questions.
First, it shows just how far the programme is weighted towards the end of the spending review period – and therefore why starts have fallen so much recently. Completions are set to rise from 2,200 last year to 9,800 in 2012/13 to 23,000 in 2013/14 and then 45,000 in 2014/15 (56 per cent of the entire programme). Little wonder that the NAO warns of the risk of slippage. However, has the result also been to delay the construction work beyond the time when it is most needed to give the economy a boost?
Second, the report is clear that continuing with the previous funding model would have ‘offered the highest ratio of benefits to costs and hence the best value for money’ over the 30-year period analysed. This was mainly because housing benefit savings would offset much of the initial capital cost. A hypothetical social rent programme costing the same as affordable rent over 30 years would have delivered 8,200 more homes and £700 million more benefits but, crucially, it would have required grant funding of £4.3 billion rather than the £1.8 billion available. Affordable rent was a pragmatic choice by the DCLG that ‘reflected its aim to do the most it could with the limited amount of capital available to it’ and this option ‘represented the best value for money available within the limited amount of capital available’. The £1.8 billion would only have delivered 27,000 homes under the existing programme.
Third, what about those housing benefit costs? The NAO takes the DCLG’s estimates at face value. The initial impact assessment put the extra housing benefit cost at £550 million but then increased this by another £850 million when it became clear the programme could deliver 80,000 homes rather than 56,000. It is not explained why the first 56,000 homes will apparently cost just under £10,000 each over 30 years whereas the next 24,000 will cost £35,000.
The NAO says providers are planning to charge an average rent of 75 per cent of the market rate (in line with DCLG modelling assumptions) with the 80 per cent rate adopted by only 40 per cent of providers and London providers planning for rents at 65 per cent. Based on analysing HCA information, the NAO says that the average weekly rent will range from around £100 a week in the North East and Yorkshire & the Humber to £182 a week in London. But there is a rider to that: ‘However, it does not have information on rent levels charged across homes of different sizes. As a result, we could not compare actual rent charged under the model and rent levels under previous programmes.’
If that sounds rather less than clear, it’s not just you. The public accounts committee will be examining the report and questioning witnesses on Monday. Committee chair Margaret Hodge told The Guardian this morning: ‘The department has refused to be transparent about just how many tenants will be affected and by how much. My committee will want officials to regularly and transparently update their assessment of the costs and benefits of the programme so that we can hold them to account for the social and financial consequences of their decisions, particularly in light of changes to the welfare system.’
Fourth, is the programme really repeatable? Grant Shapps was clear at the CIH conference in Manchester that he thinks it is. The DCLG is clearly confident that if the original programme was over-subscribed by 100,000 homes then a repeat is more than possible. The NAO notes that housing associations’ operating margins increased from 14.2 per cent in 2009 to 21.4 per cent in 2011. Its own consultation found some associations saying a repeat was not possible and others saying there was sufficient capacity.
However, the report also reveals that this will be about more than just grant (£20,000 per home) and borrowing supported from the new rents (£75,000). Another £46,000 comes from ‘other funding’ (an increase of £12,000 per home on the previous programme). The total scheme cost of £141,000 per home is also £14,000 lower than under the previous programme. So the programme relies more on other funding and a reduction in the total cost per home than it does on grant. Is that repeatable?
Fifth, what about the things the report does not mention? There is no more detail on the warning from providers in London that they may not be able to charge the rents they originally agreed. There is no consideration of the implications of converting up to 80,000 existing social rented homes to affordable rent as well as building new ones. And there is no mention of Right to Buy 2, despite the fact that it will effectively be another round of affordable rent.
Like affordable rent itself, the NAO report is a good start but it is very far from a complete answer to all the questions about the programme. It should be an interesting public accounts committee session in Monday.
Originally published as a blog for Inside Housing