Housing Development Fund: cost/benefit analysis.

STATES OF JERSEY

HOUSING DEVELOPMENT FUND: COST/BENEFIT ANALYSIS

Presented to the States on 15th March 2011 by the Minister for Treasury and Resources

STATES GREFFE

2011   Price code: C  R.31

REPORT

The following Report is presented in response to P.61/2010.

1. Background

The Housing Development Fund was created in 2000 to support the development of social housing in the Island.

2. The Housing Development Fund The Housing Development Fund's purpose is –

To help meet the requirements for the development of social rented and first- time  buyer  homes  as  identified  in  the  Planning  for  Homes'  report (R.C.10/99),  which  was  updated  in  December  2006  (R.C.94/2006)  and subsequent strategic reports, primarily in the urban area, to a good standard and specification at a reasonable cost'.

The Housing Development Fund does not fund the whole cost of a housing scheme, but provides the Housing Committee with bridging finance to develop properties for onward sale. The scheme bears the cost of land acquisition and development which is then recovered on the disposal of completed sites.

The  Housing  Development  Fund  provides  a  mechanism  for  funding  housing developments  undertaken  by  the  States,  as  well  as  providing  subsidies  (where necessary) for developments undertaken by other providers of social rented housing (such as Housing Associations) and, if necessary, for certain private sector first time buyer  schemes'.  In  the  case  of  first-time  buyer  properties  it  provides  an interest subsidy to enable the cost of the scheme to be repaid from its rental stream or sales receipts. The States approved P.74/99 and P.84/99 on 7th July 1999 and thereby the creation of the Housing Development Fund to be administered by the former Finance and Economic Committee.

The Housing Development Fund provides interest subsidy for those Housing Trust properties acquired under the former Housing Development Scheme Account and supports the development of social rented housing on rezoned sites by capping the interest liability of Housing Trusts to a maximum of 6%.

3. Housing Development Fund Accounts

Detailed  Financial  Accounts,  including  an  Income  and  Expenditure  Account  and Balance  Sheet  for  the  Housing  Development  Fund  are  prepared  annually  and presented as part of the States of Jersey's Annual Accounts since 2002. Attached at Appendix 1 are the relevant accounts dating from 2002 to 2009.

Attached at Appendix 2 is a comprehensive Funds Flow Statement for the Housing Development Fund from 2000 to 2010, detailing the Fund's receipts, payments and transfers over life of the fund.

4. Cost/Benefit analysis

A comprehensive Financial Statement for the Fund from 2000 to 2010, detailing all the Fund's income, expenditure and transfers is included at Appendix 2. The following paragraphs  consider the funding,  benefits and  costs  of  the  Housing  Development Fund.

The  Fund  has  enabled  the  provision  of  significant  social  housing  development including 986 social housing units (one to 4 bedrooms) and approximately 130 first- time buyer properties, by supporting Housing Trusts through development subsidies and the provisions of letters of comfort so they could obtain independent borrowing.

The on-going management and maintenance of these properties is the responsibility of the Housing Trusts and is funded through rental receipts.

This has enabled the development of social housing by Housing Trusts without the need for the cost of such developments to be fully and directly funded in advance from the States capital programme.

Attached at Appendix 3 is a schedule of the social housing developments that have been enabled through the Housing Development Fund.

The following paragraphs consider the Fund's main areas of income and expenditure.

1. Funds received

From 2000 to 2010, the Housing Development Fund has received funds from the States of £51.5 million, plus additional transfers of £1.3 million from the Housing Department. The Fund also generated approximately £9.5 million of income from the assets it had held, including rent, sales receipts and interest.

In  2008,  the  Minister  for  Treasury  and  Resources  agreed  to  rationalise  the asset holding of the Housing Development Fund by incorporating into the balance sheet of the Housing Department those properties performing the function of social rented housing units and to Property Holdings, those sites with potential for redevelopment. As  a  consequence,  the  Fund  transferred  £16.4 million  of  property  assets  to  the Housing Department and Jersey Property Holdings in 2008 at nil value.

2. Funds expended

Funds  spent  from  the  Housing  Development  Fund  fall  into  3 main  categories: development subsidies, interest rate subsidies and costs related to property assets. In addition, there are interest charges incurred by the fund at various points in time.

Development subsidies

The  Fund  paid  capital  development  subsidies  from  2000  to  2010  equating  to £20.2 million to support the development of projects where rental levels were too low to sustain scheduled loan repayments, for example the project at Le Coie. Projects that received such subsidies are reported below.

Interest subsidies

Interest subsidies paid  from  2000  to  2010  pursuant  to  Letters  of  Comfort  issued amounted to £12.2 million.

Thirty-two Letters of Comfort issued to Banking Institutions dating from 1996 to 2007 are currently in force. The Letters of Comfort were issued in order for Housing Trusts to  access  affordable  borrowing  from  financial  institutions  to  build  and  develop properties. This enabled the development of social housing without the need for direct funding from the States capital programme.

As  at  31st  December  2009,  total  lending  of  £151.3 million  had  been  secured  by Housing  Trusts  supported  by  States  Letters  of  Comfort.  The  Letters  of  Comfort effectively  cap  the  amount  of  interest  Housing  Trusts  have  to  pay  to  banks  by providing financial support for interest charged over and above a set rate. This means that if interest rates rise above the set rate (effectively 4% or 6%), then the Housing Trust  will  pay  the  bank  up  to  the  cap  (i.e.  up  to  4%  or  6%),  and  the  Housing Development Fund would meet the excess (i.e. >4% or >6%).

The Housing Development Fund's current balance of £6.0 million is subject to this contingent liability from the Letters of Comfort. While interest rates remain low, there will be no Interest Subsidies paid. This can be seen in the Summary Funds Flow Statement. If interest rates remain low (i.e. below the caps) then no Interest Subsidies would be payable. Conversely, if interest rates rise above the capped figures then the Fund would have to start paying Interest Subsidies to the Housing Trusts.

The Letters of Comforts are subject to periodic review and the Treasury Department, in conjunction with the Housing Department, is currently carrying out a review of all the Letters of Comfort. If there are no changes to the Letters of Comfort, the Fund's current balance may be fully utilised, and even exceeded by future interest subsidies payable. Approximately 80% of the lending secured with the Letters of Comfort has over 15 years to run, meaning quantifying the value of this liability with certainty is impossible;  the  value  will  be  subject  to  many  unknown  variables,  particularly changing interest rates.

Current Fund Balance

The Fund balance as at 31st December 2010 amounts to approximately £6 million (subject to audit) and is being held to meet future financial commitments relating to letters of comfort only.

APPENDIX 1 Housing Development Fund Published Accounts 2002 – 2009

APPENDIX 2 Summary Funds Flow Statement from 2000 to 2010

APPENDIX 3

Social Housing Scheme supported by Housing Development Fund

Social Housing Scheme

Maison de St. Nicholas/ Moore stown Brooklands

St. Paul's Gate

La Folie

St. Saviour 's Court/Christian Science

Cherry Grove/Sacré Coeur

Belle Vue

Kent Lodge

Berkshire Hotel

Mont Millais Postal/La Roseraie

Cannon Street/John Wesley Apartments

Le Champ des Fleurs/La Motte Ford

3, 5, 7 & 7a Ann Street

Town Park Hotel/Parkside

5 St. Clement 's Road

Albert Pier

Field 1218, Mont à L'Abbé/Le Grand Clos

Le Coie

Field 690A, Maufant

Perquage Court

6/7 St. Saviour 's Crescent

Len Norman Close

Berry House

John Le Fondré Court (Philips House)

Aquila

1&2 La Mabonnerie/12 Clos de la Ville

FB Cottages – Phase 2

FB Cottages – Phase 1

FB Cottages – Phase 3/4

8, 12 & 12a Lemprière Street

adjustment

Bas du Mont

La Bénéfice (Hodge Phase 2)

Clos des Charmes (F181, 182 & 183, St. Peter ) St. Martin 's Parish Sheltered Units

Clearview Street School

APPENDIX 4 Specific Questions

The report accompanying P.61/2010 raised some specific questions and these are considered below.

Question – "The  establishment  of  the  Housing  Development  Fund  was  done  with States approval. However, they were due to develop satisfactory safeguards and a regulatory framework to govern it. Has this been done? – If not, why not?"

Terms of Reference detailing the operation of the Fund were produced and with the introduction of the Public Finances (Jersey) Law 2005, an Accounting Officer has been in place since 2006.

Question – "Another Question that arises is that the year-on-year spending decision would have been agreed as part of the annual process of approving budget and the annual accounts. Has this process included satisfactory monitoring procedures?"

Question –  "Also,  now  that  the  Committee  structures  have  been  replaced  by  the Ministerial arrangements, are there sufficient checks and balances in place over the management decisions and operation of significant funds such as the HDF and the associated capital and financial expenditure? – Also, what guarantees does the public purse have set against the monies given to Housing Trust and Associations?"

Each development proposal funded by the Housing Development Fund has either a Committee or Ministerial approval. Since the introduction of the Public Finances (Jersey) Law 2005, an Accounting Officer has been appointed with responsibility for the financial control and management of this and other funds. The Fund's accounts are audited as part of the States accounts each year and then presented to the Assembly.

Letters of comfort are in place supporting Housing Trust borrowing, as explained in the body of this Report.

Question – "In 2005, the HDF accounts were restated to include a sum in excess of £8 million – why was this?"

The £8 million restatement in 2005 was for the recognition of the provision for the development subsidy payment in respect of the Le Coie development, which was not certain in previous years.