Housing Trading Organisation - establishment

STATES OF JERSEY

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HOUSING TRADING ORGANISATION: ESTABLISHMENT

Lodged au Greffe on 26th September 2005 by the Housing Committee

STATES GREFFE

PROPOSITION

THE STATES are asked to decide whether they are of opinion

(a ) to acknowledge the need to bring the States social housing stock up to an acceptable condition and

maintain that standard through an adequately funded maintenance programme, based on further investigation of a range of measures contained in the report of the Housing Committee dated 12th September 2005;

(b ) to approve, in principle, the creation of a Housing Trading Organisation, within the meaning of

Part 4 of the Public Finances (Jersey) Law 2005, to operate the landlord activities in respect of the States social housing stock; and

(c ) to charge the Finance and Economics Committee, in conjunction with the Housing and Policy and Resources Committees, to bring forward detailed proposals within the States Business Plan 2007 - 2011 to effect the necessary changes from 1st January 2007.

HOUSING COMMITTEE

REPORT

Introduction

The provision of long-term, sustainable and affordable housing to meet the needs of all Island residents is the main aim of the Housing Committee. Meeting the needs of those least able to secure suitable accommodation is a large part of the Committee's work and this is reflected in its responsibilities as landlord for 4,629 States rental dwellings.

However, unlike other social rental landlords, the Housing Committee currently has a responsibility to administer and fund rent subsidy schemes for both the private and public sector. These schemes ensure affordability for tenants but place significant demands on the annual Housing Committee budget to the point where reasonable budget provision to carry out repairs and maintenance to the States rental stock has been, and continues to be, compromised.

Housing Stock Condition

Over a number of years the Department has reorganised its maintenance function. Schedules of rates have been introduced for both void property refurbishment and response repairs with a substantially reduced number of contractors. Combined with revamped processes, the Department is recording performance measures which place it with the top performing social landlords in the U.K. The Department has a sound knowledge of its stock. It has produced a comprehensive refurbishment programme covering an 8 year period and has planned and cyclical maintenance programmes for the next 20 years. The Department is therefore well organised to face future demands but suffers from a chronic shortage of funding to make the required improvements the rental stock requires.

Surveys of the stock under management have revealed that a sum close to £7  million per annum is required to maintain the buildings in good and safe condition: the current budget allocation is around £4  million per annum.

Each year that passes with under-funding in place has a number of negative effects. It places higher demands on costly response repairs in future years. It upsets planned maintenance programmes by requiring more significant works to be carried out on a more expensive, ad hoc basis. It increases the risk of accident and injury to residents with potential for claims against the States. Ultimately it leads to residential accommodation being closed down as unfit or unsafe for human habitation. A summary of the work required on an annual basis is attached as Appendix A.

As  well  as  the  annual  maintenance  requirement  there  is  also  a  significant  backlog  in  the modernisation/improvement programme with, in this instance, the lack of capital funding being the critical issue. The programme of modernisation and improvement of the stock has fallen behind and it is estimated that an injection of funding of some £90  million is required to bring the Committee's stock up to an acceptable standard.

Housing Committee Revenue Budget

Excluding the income and expenditure associated with Housing Control and Building Loans, and recharges to Treasury funds the Committee's revenue budget for 2006 is broadly as follows –

Income £'000

Rents (32,623) Other income (412)

    T o t a l    (33,035) Expenditure

Rents Subsidies 25,050 Staff 2,947 Net Operations, administration and service charges 2,559

Building Maintenance 4,130     T o t al    34,686

Net Expenditure (cash limit)   1,651

The fundamental problem with this revenue budget is that the burden of funding private and public rent subsidies results in an insufficient provision to meet the cost of maintaining the housing stock in good order.

The Housing Committee's revenue budget has for many years hovered around balance, managing to nearly cover the  rent  subsidy  schemes  as  well  as  maintenance,  staffing  and  operational  costs  from  rental  income. Unfortunately,  in  complying  with  the  States  wide  need  to  reduce  expenditure  over  the  last  few  years,  the Committee  has  not  had  sufficient  funds  to  carry  out  its  landlord's  responsibilities  in  regard  to  building maintenance to an acceptable and sustainable standard. One can get away with reducing building maintenance for a few years but it does not take very long for problems to accumulate to an unacceptable degree.

Quite simply the Housing revenue expenditure budget needs to be increased by £3m per annum to provide for a fully funded maintenance programme.

Capital Expenditure Requirements

In the last 10  years a number of estates – Oak Tree Gardens, Cherry Orchard Court and others – have been redeveloped or refurbished to a high standard, and works are in progress at both Le Squez and Le Marais. Many estates are awaiting attention, with some such as Ann Court and The Cedars having provisional funding in the States forward capital programme. Unfortunately there is a great number which need attention and for which there is no prospect of direct capital funding within the foreseeable future.

The current estimate is that 2,300 properties in some 60 locations, ranging from larger estates to single dwellings, are in need of modernisation, improvement or redevelopment within the next 6 years. The estimated total cost of these projects, at current prices, is £89,170,000. A summary of this programme is attached as Appendix  B.

Housing currently relies on a number of different approaches, in addition to capital allocation from the States, to raise funds to finance modernisation, improvement or redevelopment of its rental stock –

• S a les of selected properties on the open market. Some sales have already been achieved and future sales over the next few years could realise about £9  million.

• S a les to tenants. This approach will finance the Le Squez and Le Marais redevelopment, the cost of which is not included in the £90  million requirement above. Extending this approach to a number of other estates

could yield about £35  million.

A l th ough further research is necessary it is possible that the introduction of a shared equity scheme could

increase options for sales to existing tenants. This will be explored but at this stage should not be regarded as a major contributory factor in raising funds for the capital programme. This is because only part of the value of the asset is realised when sold and, in the case of refurbishment, this may be less than the sum expended on the whole.

• T r ansfer of stock requiring improvement/redevelopment. Stock has been transferred to Housing Trusts at a sum that recognises the cost of improvement/redevelopment and the Trusts raise private funding to bring the property back into social rented housing.

• S t ock Transfer to Housing Trusts. In addition, the Committee has considered the Transfer of tenanted

stock in a good state of repair to housing trusts. Large scale stock transfer has never been undertaken and should

this policy be pursued it would, of course, require the agreement of both the tenants and the Trust. The transfer of about 400 dwellings could yield some £42 million.

It can be seen that a combination of these approaches could, over a period of time, raise a sum close to the necessary circa £90 million funding for the programme to be carried out.

It should be noted that –

There would be implications for the total number of social rented dwellings available at the end of the 6 year programme and so decisions on sales to the open market and to tenants would have to be balanced against delivery of new social rented housing and the needs reflected in the States Rental Waiting List.

Transfers to Housing Trusts should be neutral in terms of rent subsidy as this will result in a transfer from rent abatement to rent rebate (both of which will be incorporated into the future Income Support System).

However, sales to tenants, Trusts and the open market would result in reduced rental income to the Housing Committee, potentially increasing the £3 million shortfall arising from additional maintenance expenditure to close to £8 million.

Operating as a Trading Organisation

In approving P.93/2005 – States of Jersey Property Holdings: Establishment', the States agreed to exclude the management of States social rented housing from the remit of Jersey Property Holdings. An alternative structure is required to manage the States social housing stock, which takes into account the absorption of rent subsidy (rebate and abatement) into the proposed Income Support System.

The Housing Committee considers that its landlord functions should be managed through a financially ring- fenced' account and considers that the appropriate structure is that of a States Trading Organisation, as defined under Part 4 of the Public Finances (Jersey) Law 2005 (extract attached asAppendix C).

The creation of a Trading Organisation would not alter the ownership of the property or the responsibility of the Housing Department to the States. It would however provide an accounting vehicle which would reflect the nature of the work done, i.e.  that of a property owning landlord, so that costs of investments made in maintenance and upkeep are reflected in income received in future years.

It will free the management from short term decision making based on working within a continuing inadequate budget and allow the medium and long term planning more suited to both the provision of homes and the maintenance of property. The Trading Organisation will be able to concentrate on these core landlord functions, providing tenants with a more efficient and responsive service.

The creation of a Trading Organisation will not, in itself, produce any additional funding to address the stock condition issues, but will establish a more transparent relationship between the social housing rental account and the States general funds.

The Housing Committee recommends that a States Trading Operation be established to manage and account for the provision of States social rented housing. If approved, the Committee will work with the Finance and Economics and Policy and Resources Committees to bring forward detailed proposals.

Meeting the shortfall in returns to central funds

The intended transfer of responsibility for rent subsidy from Housing to Employment and Social Security (ESS) is planned to take place in June 2006, but, ESS can only take this on if initially allocated the same sum, £25 million, which Housing budget for private and public sector rent subsidy. If a Housing Trading Organisation is established, this budget transfer will take the form of a return to the States. However, for the Housing Trading Organisation to meet its obligations to provide decent homes for its tenants, the return to the States will be

£8  million less than the£25  million required to operate the Income Support System.

The Committee has always sought to work corporately with the best interests of both the States and its tenants at heart. At a time of increasing pressure on States resources, it would be naïve of the Housing Committee to simply request the Finance and Economics Committee to provide additional funding of this magnitude. The Committee will work closely with the Finance and Economics Committee to determine a sustainable funding solution in the medium to long term, but the problems facing the Committee are significant and must start to be addressed now. As outlined above, failure to act could lead to the closure of residential accommodation within a relatively short time frame.

Many days have been spent in deliberating over reductions and increases in committee capital and revenue budgets before reaching the proposals to be approved by the States. The Housing Committee has accepted for several years that no more money is available and has, with States approval, utilised asset disposal and sales to tenants and Housing Trusts to help raise the necessary funding for building maintenance as well as refurbishment and redevelopment. However, this alone is not enough and, without the significant adjustment to the Committee's finances outlined above, the situation will steadily worsen.

About £8  million per annum is needed from 2007 onward. In order not to interfere with fund allocation decisions for 2006 and provisional decisions for future years the Committee proposes that potential funding sources, including the following, should be considered and further investigated –

• C a pital Allocations: As the Trading Organisation will meet the cost of capital works from its Trading Fund, the following proposed funding allocations in the future capital programme could be directed to

meeting the shortfall –

Amount Year Item £000s

2006 Minor Capital Allocation 250 2007 Minor Capital Allocation 250

Ann Court Phase 1 5,129

2008 Minor Capital Allocation 250 2009 Minor Capital Allocation 250 2010 Minor Capital Allocation 250

The Cedars 9,088

TOTAL 2006 – 2010 £15,467

This would reduce the allocation to capital by an average of £3  million per annum, which could be diverted to the ESS revenue budget to meet part of the £8  million shortfall. This will require some reprioritisation of the forward capital programme 2007 – 2011 in next year's States Business Plan.

D welling House Loans Fund (DHLF): This fund was established in 1950 in order to lend money to

individuals (as identified in the relevant Law) to acquire a house. In the initial years the Fund received cash injections totalling £3.753  million from States general revenues (equivalent to more than£50  million at current value).

T h e terms of Article 2 of the Building Loans (Jersey) Law 1950 states "there shall be established a fund,

to be called the Dwelling-Houses Loan Fund' (in this Law referred to as the Fund'), into which the States may pay, and from which the States may withdraw, such sums as they shall from time to time determine."

A t 3 1st December 2004, the DHLF had a balance of some £34  million greater than that required to cover

outstanding loans. With few new loans being taken out and existing loans repaid or transferred to commercial

lenders, this balance will grow.

• S a le of non-standard, high value' Stock: The Committee has previously brought to the States proposals

to dispose of properties that are not considered best suited for social housing, on the basis that funds generated are used to improve and repair retained stock. It is the intention of the Committee for the Trading Organisation to continue this process where a sound business case can be made so to do. If not all receipts are required for the modernisation/redevelopment programme, the balance could be put toward meeting the revenue shortfall.

T h e Committee recognises that an open-ended policy of selling property to fund the remaining stock is not

sustainable in the long run. Capital receipts generated, combined with funding from other sources, will enable the Committee to bring its remaining stock up to a standard that can be maintained through an adequately funded ongoing maintenance programme.

By 2012 the catch-up' programme of modernisation, improvement and redevelopment should be completed, although there will be an ongoing, smaller programme which will need to be costed but should be substantially less than £15 million per annum.

The reduction in stock and improved condition of property, arising from the capital programme, will also reduce the annual maintenance requirement. These factors may not wholly eliminate the £8 million per annum annual shortfall which is relevant to the proposals from 2007 – 2012 but should reduce the sum significantly. From thereon the required contribution from the Housing Trading Organisation would need to be weighed against competing demands for funds from other States sectors.

Financial and manpower implications

This proposition has significant financial implications as outlined above, although the States is only asked to give an in principle' decision at this stage, with detailed proposals to be prepared in conjunction with the Finance and Economics Committee (Treasury and Resources Ministry) for inclusion in the 2007 – 2011 States Business Plan.

No manpower implications arise from this proposition and it is expected that the creation of a Housing Trading Organisation will have a neutral impact.

APPENDIX A GENERIC 20 YEAR CYCLICAL AND PLANNED MAINTENANCE PROGRAMME – HOUSE

PERIOD ACTIVITY

YEAR 1 Service Boiler

YEAR 2 Service Boiler

Service Windows

YEAR 3 Service Boiler

YEAR 4 Service Boiler

Condition Survey Inspection

YEAR 5 Service Boiler

External Decoration

Service Windows YEAR 6 Service Boiler

Electrical Check

YEAR 7 Service Boiler YEAR 8 Service Boiler

Service Windows

YEAR 9 Service Boiler

Condition Survey Inspection

Change Smoke Detectors

YEAR 10 Service Boiler

External Decoration

Overhaul/Replace Kitchen

YEAR 11 Service Boiler

Service windows/Check Double Glazed Units Electrical Check

YEAR 12 Service Boiler

YEAR 13 Service Boiler

YEAR 14 Service Boiler

Condition Survey Inspection Service Windows

YEAR 15 Service Boiler

External Decoration

Overhaul/Replace Heating System YEAR 16 Service Boiler

Overhaul/Replace Bathroom Fittings

Electrical Check

YEAR 17 Service Boiler

Service Windows

YEAR 18 Service Boiler

Change Smoke Detectors YEAR 19 Service Boiler

Condition Survey Inspection YEAR 20 Service Boiler

External Decoration Change Windows Overhaul/Replace Kitchen

GENERIC 20 YEAR CYCLICAL AND PLANNED MAINTENANCE PROGRAMME – FLAT

PERIOD ACTIVITY

YEAR 1 Nil

YEAR 2 Service Windows

YEAR 3 Nil

YEAR 4 Condition Survey Inspection YEAR 5 Service Windows

External Decoration

YEAR 6 Electrical Check

YEAR 7 Nil

YEAR 8 Service Windows

YEAR 9 Condition Survey Inspection

Change Smoke Detector

YEAR 10 External Decoration

Overhaul/Replace Kitchen

YEAR 11 Service windows/Check Double Glazed Units

Electrical Check

YEAR 12 Nil

YEAR 13 Nil

YEAR 14 Service Windows

Condition Survey Inspection

YEAR 15 Overhaul/Replace Heating System

External Decoration

YEAR 16 Electrical Check

Overhaul/Replace Bathroom Fittings

YEAR 17 Service Windows

YEAR 18 Change Smoke Detectors YEAR 19 Condition Survey Inspection YEAR 20 Overhaul/Replace Kitchen

External Decoration Change Windows

PUBLIC FINANCES (JERSEY) LAW 2005 (EXTRACT)

PART 4

STATES TRADING OPERATIONS

25 S tates may designate States trading operations

1. T he States may by Regulations madeon a proposition lodgedby the Minister designateany disparate or distinct areaofoperation of the States to be a States trading operation.
2. T he Regulations must specify –

1. t heareaofoperationof the States that constitutes the States trading operation; and
2. t he trading operation tobe undertaken.

26 F inancial control and administration of States trading operations

1. T he provisions of this Law apply to a States trading operationsubject to this Article.
2. A States trading operation shallmaintain –

1. a profit and loss account;and
2. a balance sheet including a trading fund, (that shall not for the purposes of this Law be considered part of the consolidated fund) that maybe used for such purposes as the Minister may byOrder prescribe.

3. T he Minister maybyOrder prescribe financial controlsto be observedby States trading operations.
4. F inancial directions maybe issued in respectof the financial control and administration of States trading operations.
5. S tates trading operations shall observe such financial directions andanyother financial directions expressed to apply to States trading operations.

27 R eturns of States trading operations to be agreed

1. W henrequested to dosobytheMinister, the Minister withresponsibilityto the States for a States trading operation shall discuss with the Minister and determine the estimates mentioned in paragraph (2) in respect of the business activities of the trading operation during the succeeding financial year.
2. T hoseestimatesare –

1. t heestimatedincomeand expenditure of the trading operation;
2. t heestimatedminimum contribution (if any) (which may be expressedby reference to a rate of return) that the trading operation will be required tomake to the incomeof the States;
3. t he estimated amountof any surplusofincome over expenditure ofthe trading operation that may be retainedby it and placed in its trading fund or, where there is estimated tobe a deficit, debited to its trading fund;and
4. t heestimated deficit (if any) ofthe trading operation, and shall betaken to include details ofany capital expenditure.

3. T he estimates assodeterminedshall be included in the draftannualbusiness plan for the next financial year whenitislodged for approvalby the States.

4. I f during that financial year the Minister with responsibility to the States forthe States trading operation satisfies the Minister that the trading situation of the trading operation makes it impossible or difficult for the trading operation to contribute theminimum contribution agreed inaccordance with paragraph (2)(b), the Ministermaywaive or delaypaymentof all orany part of the contribution.
5. T  he Minister shall at the first practicable opportunity advise the States of any action takenunder paragraph  (4), and the reason for taking the action, together with details ofany revised estimatesof the States trading operation.
6. P aragraph (1) shall not be taken to imply that the matters that maybediscussedand agreed must be limited tothesucceedingfinancial year or to theestimatesmentioned in paragraph (2).