HRA Business Plan - Sutton A HRA... · E Outline Programme of HRA New Build F (i) Base Model Revenue ... 30-year HRA Business Plan modelling, based on current and ... cost effective

Appendix A

HRA Business Plan 2016/17 to 2045/46

Page 721 Agenda Item 8

Contents

Page

1 Introduction 4

Strategic and Policy Context

Aims and Objectives

2 The Council’s Housing Stock 8

Stock Make Up

Stock Condition

Housing Supply and Demand

3 Resources 15

Resources under HRA Self-financing

Decent Homes Backlog Funding

Right to Buy Receipts

Other Funding Sources

Base Model

Sensitivity Modelling

4 Stock Investment 22

Current Investment

Future Investment and Funding Position

Outline Programming Scenario

Other Issues

Existing Regeneration Schemes

5 Local Authority New Build 30

6 Strategic Options for the Future 32

7 Monitoring and Review 33

Glossary

Appendices

A Sustainability Modelling

B Stock Investment Requirement - Years 1 to 30

C Energy Efficiency (SAP) Rating of the HRA Stock

D Actual and Projected Right to Buy Income and Expenditure

E Outline Programme of HRA New Build

F (i) Base Model Revenue Summary

F (ii) Base Model Capital Summary

G Base Model Assumptions

Page 722Agenda Item 8

3

H (i) Sensitivity Model (Rental Income) Revenue Summary

H (ii) Sensitivity Model (Rental Income) Capital Summary

I (i) Sensitivity Model (Sale of ‘High Value’ Stock) Revenue Summary

I (ii) Sensitivity Model (Sale of ‘High Value’ Stock) Capital Summary

J Outline Major Works Programme 2016/17 to 2025/26


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1. Introduction

1.1 This document sets out Sutton Council’s plans for managing and maintaining over the

coming years its housing stock of just under 6,000 rented and around 1,470 leasehold

properties held in the Housing Revenue Account (HRA). Its fundamental purpose is to

ensure the efficient use of the Authority’s housing assets.

1.2 In 2005 Sutton Housing Partnership (SHP) was set up to take on the management of

the local authority’s housing, which it did from 1 April 2006 under a 10 year contract.

Although all housing management functions including the day-to-day management of

the HRA were transferred to SHP, the Council, in its strategic role, retained

responsibility for the HRA Business Plan and decisions around the long-term future of

its housing assets. In March 2011 the management agreement between the parties

was subsequently extended for a further five years until 2021 and is currently under

review again.

1.3 As with previous HRA Business Plans, this document provides up-to-date information

on the makeup and condition of the housing stock and sets out the latest position

regarding stock investment needs into the future. It also contains details of our revised

30-year HRA Business Plan modelling, based on current and projected resources,

covering the period 2016/17 to 2045/46.

1.4 The HRA Business Plan has been produced in partnership with SHP, and up to date

information on day to day service delivery, performance and resident involvement can

be found in SHP’s latest delivery plans at:

http://www.suttonhousingpartnership.org.uk/AboutUs/OurPlansandPerformance/CurrentPlans/C

urrentPlans.aspx Work on developing a new five year plan to co-incide with the

remaining term of the management agreement is underway.

Strategic and Policy Context

National Context

1.5 In April 2012 the Government abolished the national HRA subsidy system allowing

each individual authority to become ‘self-financing’. Under self-financing authorities

keep all their rental income but were required to fund a proportion of the national HRA

debt, the amount related to the valuation of its housing stock at the time.

1.6 Despite the freedoms granted under self-financing, in its June 2015 Budget the

Government announced that social rents would be subject to a 1% p.a. reduction over

the next four years, commencing in 2016. The previous Government had guaranteed

that social rents would increase by CPI + 1% for the next 10 years. This change of

policy has serious implications for the HRA Business Plan and the housing

management service offered to residents. The impact on Sutton of the rent reduction is

discussed further in chapter 3.

1.7 The Council and its HRA will also be affected by two further recent policy changes.

Firstly, is the intention to extend the Right-to-Buy (RTB) to housing association tenants,

with the costs of doing so being funded by a requirement on local authorities to sell off

their ‘high value’ stock. The second is the proposal that from April 2017 social tenants


http://www.suttonhousingpartnership.org.uk/AboutUs/OurPlansandPerformance/CurrentPlans/CurrentPlans.aspx

http://www.suttonhousingpartnership.org.uk/AboutUs/OurPlansandPerformance/CurrentPlans/CurrentPlans.aspx

5

with incomes over a certain threshold will be required to pay a market or near market

rent. However, in the case of council tenants, the additional revenue raised will be

passed directly to the Exchequer, so there will be no extra income to the HRA.

1.8 At this stage, when a considerable amount of further detail on the first of these two

policies is yet to be worked up, it is difficult to assess its impact. For that reason the

financial modelling within this latest Business Plan makes no assumptions regarding

the matter. However, the potential impact of the former, based on some initial

indicative ‘sensitivity’ modelling, is discussed in chapter 3.

1.9 In April 2012 the Government introduced its ‘reinvigorated’ RTB policy aimed at

increasing home-ownership amongst social tenants while at the same time replacing,

on a one-for-one basis, the additional homes sold. Under the new policy the cap on

the maximum discount was increased to £75k across the country. In 2013 this amount

was increased to £100k in London, with subsequent annual uplifts being applied. Also

eligibility has been relaxed, with applicants required to only have been a social tenant

for three rather than five years. The policy has already begun to have a significant

impact, with the Council seeing a very substantial increase in RTB sales over the last

four years.

Regional context

1.10 Along with investment powers for new affordable housing, in April 2012 the Mayor of

London took on responsibility for allocating decent homes backlog funding to individual

boroughs. In 2014 the Council bid for, and was successful in securing, £7.2m of

additional decent homes backlog funding for 2015/16 to supplement the £62.4m it had

received over the four year period 2011/12 to 2014/15. Also that year, the Council

successfully bid for £4.050m of extra HRA borrowing capacity through the

Government’s Local Growth Fund, administered by the GLA.

Local context

1.11 At the local level, the Council’s latest housing strategy takes into account the objectives

within the corporate plan; it also links into a number of its other strategies. Covering

the housing function in its widest sense, the housing strategy contains five broad

strategic aims or priorities, most of which have a bearing on, or implications for, the

Authority’s responsibilities as a landlord:

A. Increase the supply of affordable housing

B. Invest in and make best use of the borough’s existing housing stock

C. Promote excellent housing management standards across all types of housing

D. Provide housing options advice and address homelessness

E. Provide housing support and improve the health and wellbeing of residents

1.12 The HRA Business Plan, and its delivery through SHP as the Council’s housing

management provider, will help to realise these wider housing strategic objectives, as

summarised in table 1.1 below:


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Table 1.1: HRA Business Plan Contribution to the Council’s Strategic Housing Priorities

Strategic housing priority HRA business plan contribution

Increase the supply of affordable housing As part of the asset management process, through identifying

land that could be used for new affordable housing

development; also potentially through the use of HRA funding

and RTB receipts to develop new local authority-owned

homes

Invest in and make best use of the

borough’s existing housing stock

Through programmes of major repairs and improvements to

the council stock including works to improve energy efficiency.

Through the redevelopment of estates to provide more

appropriate housing, from the re-provision of shared facility

sheltered housing and, for example, through the conversion

and de-conversion of individual dwellings

Promote excellent housing management

standards across all types of housing

Through SHP’s policies and procedures for managing the

Council stock and its service improvement planning process.

Provide housing options advice and address

homelessness

Through the provision of Council accommodation for

homeless applicants and the work done to support vulnerable

tenants to maintain their tenancies

Provide housing support and improve the

health and wellbeing of residents

Through the support provided to vulnerable council tenants by

SHP as part of its sheltered and other housing services.

1.13 In addition, the delivery of the HRA Business Plan will help achieve the Council’s

vision, set out in its corporate plan, of creating a more open, fairer and greener

borough through producing decent homes and implementing regeneration

programmes. It will also assist the Council to achieve its corporate aims and objectives

as set out in a number of its other strategies.

1.14 In 2015 SHP published a new asset management strategy setting out the strategic

framework within which it will manage the Council’s HRA assets over the coming five

years. Feeding into and informing the HRA Business Plan it sets out how SHP will

deliver repairs and improvements to the stock in a structured and sustainable way

while maximising performance and value for money, with the ultimate aim of making

best use of the assets to meet current and future demand.

Aims and Objectives

1.15 Set within the national, regional and local policy context and the the Council’s overall

housing strategic aims, our principal aim or mission as a landlord is:

“To deliver excellent, cost effective housing management services that improve the

quality of life of the Council’s tenants and leaseholders and provide a decent home

for all”

1.16 The more specific objectives which underlie the thrust and purpose of this Business

Plan are:


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1. To bring all dwellings up to the decent homes standard and continue to improve

and maintain them as an asset for the future

2. To regenerate homes where required and develop new local authority owned

housing subject to funding and land availability

3. To invest in and improve estate grounds and the communal areas of flatted

blocks

4. To provide high quality responsive repairs and cyclical maintenance services

5. To provide excellent tenancy management and leaseholder services and create

attractive neighbourhoods where people feel safe and want to live

6. To ensure all customers have access to services and that the diverse needs of

tenants and leaseholders are fully met

7. To promote and maximise the opportunities for customer involvement with

service delivery

NB: The aims and objectives also apply to ‘s16 freeholders’ who have purchased houses within estates and who pay a service charge to the Council

1.17 Objectives 1, 2 and 3 are principally the focus of the HRA Business Plan while other

objectives are addressed through SHP’s delivery plans.


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2 The Council’s Housing Stock

Stock Make Up

2.1 As at 1 April 2016, the Council’s HRA stock is projected to comprise 5,936 rented

homes, 14 shared ownership properties (the equivalent of 7.5 rented units) and 1,470

flats and maisonettes sold on long leases. Also within various estates are some 120

houses sold freehold where the owner pays a service charge to the Council (commonly

referred to as ‘s16 freeholders’). The rented portfolio includes 504 sheltered units and

around 1,200 garages as well as a number of commercial units.

2.2 Of the total rented stock none of our homes are classified as unfit or designated as

difficult-to-let. We anticipate the number of rented units to fall to around 5,770 during

the next five years as a result of RTB sales and other disposals. This doesn’t at this

stage take into account the new local authority housing due to be produced over the

coming years nor does it take into account the potential impact of sales of ‘high value’

stock.

2.3 Council housing is located in most parts of the borough. There are, however, a

number of larger estates or concentrations of stock, the principal ones being:

Around 2,700 inter-war cottages and low rise flats at St Helier in the north of the

borough

the Benhill estate in central Sutton built in the late 1960s and comprising 429 flats

and maisonettes

‘Shanklin Village’ in Belmont, made up of 424 deck-access designed, 70s-built flats

maisonettes and houses

2.4 The following table gives a breakdown of the HRA rented stock by type, size and age

(estimate at 1 April 2016).


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Table 2.1: Breakdown of the HRA Rented Housing Stock by Type, Size and Age

Pre 1945 1945-64 1965-74 1975-84 Post 1985 All ages

Houses (traditionally built)

Terraced -1 bed 18 18

Terraced -2 bed 1045 6 12 6 13 1082

Terraced -3 bed 1067 63 45 33 21 1229

Terraced -4+ bed 14 11 1 1 27

Semi-detached -2 bed 50 1 1 52

Semi-detached -3 bed 164 45 3 3 5 220

Semi-detached -4+ bed 5 2 7

Detached -3 bed 3 3

Detached -4 bed

Detached -5 bed 1 1

Houses (non-traditionally built)

2 bed

3 bed 63 63

4 bed

All Houses 2349 191 61 44 57 2702

Bungalows

1 bed 5 25 10 17 7 64

2 bed 2 1 3 2 8

3 bed 9 1 5 15

4 bed 1 1

All Bungalows 17 27 10 25 9 88

Flats and Maisonettes

Low Rise Bedsit/ studio 12 22 61 95

Low rise -1 bed 435 55 109 180 149 928

Low rise -2 bed 63 80 14 22 12 191

Low rise -3 bed 14 8 22

Low rise -4 bed 1 1

Med Rise Bedsit/ studio 7 18 41 3 69

Med Rise -1 bed 8 131 331 110 33 613

Med Rise -2 bed 110 323 118 22 23 596

Med Rise -3 bed 19 142 188 22 371

Med Rise -4+ bed 5 4 5 14

High Rise Bedsit/ studio 5 18 23

High rise -1 bed 25 21 46

High rise -2 bed 153 17 7 177

All Flats and Maisonettes 674 966 905 384 217 3146

All dwellings 3040 1184 976 453 283 5936

2.5 Flats and maisonettes comprise 53% of the stock, with houses and bungalows making

up the remaining 47%. Of particular note is that over half of the stock was built before

1945, and only 12% was built since 1974. Within the total, 504 (8.5%) are sheltered

dwellings, grouped within 13 schemes.


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2.6 In terms of dwelling size, Sutton’s HRA stock contains 1,973 family sized units (3+

bedrooms) representing one third of the total. However, of this number, only 24 units

have four or more bedrooms, amounting to just 1% of the stock.

Stock Condition

2.7 Since 2004 when the last major condition survey was carried out by independent

surveying consultants, Savills the data on stock condition has been comprehensively

updated on behalf of the Council by SHP as part of its asset management strategy. In

addition, validation work has been undertaken over the years by independent

surveying consultants, Ridge & Partners. SHP now has in place an ongoing regime of

property surveying which is linked to its programme of works, the data from which is

held in a comprehensive proprietary asset management database (Codeman).

2.8 Originally a large proportion of individual dwelling condition assessments were based

on the ‘cloning’ of archetypes. Over time the cloned data has gradually been replaced

with survey data, the original 2004 data gradually updated, and since 2013 works

programmes have been based on actual surveys. SHP have commenced a data

cleanse and validation exercise of the asset management database and are

developing a new survey programme for future years.

2.9 To date the asset management strategy has focused on sustainability. The

consequence of this has been that works that fall outside the decent homes standard

have not always been completed at the appropriate point in the investment cycle. In

future the asset management strategy will redress this imbalance between the two

work streams and will ensure that an appropriate portion of the annual investment

programme is focused on communal areas of estates and deficiencies not covered by

the decent homes standard. This will include repairs to access roads, pavements and

fencing, and works to key elements such as lifts and boiler plant, and works to ensure

that our estates meet the needs of residents in the twenty first century. This will

involve addressing other physical attributes that contribute to the well being and quality

of life of residents, such as the cost of heating homes and the quality of the

environment outside the front door such as improvements to design out crime and

reduce anti social behaviour.

Sustainability

2.10 In late 2012 SHP commissioned an updated review of its sustainability modelling in

order to inform its asset management strategy. The updated review, as before,

classified each property as either ‘Red’, ‘Amber’ or ‘Green’. The definition of the three

categories is as follows:

Red – Those properties deemed to be ‘high risk’ in that they require significantly higher

than average levels of investment in order to bring them up to or maintain them in a

good lettable condition and/or that are in low demand (i.e. are difficult to let or have an

unjustifiably high void turnover rate).

Amber – Those properties that offer peripheral performance and that require further

investigation to be reclassified as either red or green.


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Green – Those properties that are in high demand and that require average or below

average levels of investment. This category may otherwise be described as ‘core

stock’ and is of low risk.

2.11 Generally those properties designated ‘Green’ will continue to receive investment given

their commercial viability. Those classified as ‘Amber’ or ‘Red’ are effectively

highlighted for further consideration, option appraisals and ultimate decision making in

terms of their long term future.

2.12 Taking into account works undertaken to the stock since 2012, properties now

designated as ‘Red’ or ‘Amber ‘are listed in Appendix A. As can be seen, only one

property remains designated as ‘Red’, this being the vacant property 110 London

Road, Hackbridge which is being considered for disposal and alternative use.

2.13 There are 147 properties that are currently designated as ‘Amber’. However, this is not

to suggest that all these units should receive no further investment but it triggers a

need to consider the causes of their relative unsustainability and what can be done to

improve viability. It should be noted that investment costs for properties designated

‘Amber’ are still included in the calculation of the overall stock investment requirement

at this stage (see below). Also, the list excludes homes that form part of ongoing

regeneration or redevelopment schemes.

Future investment requirement

2.14 Set out in the Table 2.2 is the latest estimate of the need for capital investment in the

housing stock, by type of works over the 30-year time span where Year 1 is 2016/17.

The full detail of this, by building element and including a breakdown for Years 1 - 5, is

set out in Appendix B. It should be noted that this is based on the assumption that all

existing homes, with the exception of those currently undergoing redevelopment, are

maintained into the future. Should further elements of the stock be redeveloped the

overall investment need will change accordingly.

2.15 It should be noted that Appendix B excludes provision for any estate re-modelling,

conversions of properties or the creation of new homes or communal facilities within

estates. These opportunities have been flagged up in SHP’s asset management

strategy and, subject to resources being available, will be considered by the Council at

the appropriate juncture.


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Table 2.2: Summary of Stock Investment Needs 2016/17 to 2045/46 (Years 1 - 30)

Element

Years

2016/17 – 2020/21

(1 to 5)

(£)

2021/22 – 2025/26 (6 to 10)

(£)

2026/27 – 2030/31

(11 to 15)

(£)

2031/32– 2035/36

(16 to 20)

(£)

2036/37 – 2040/41

(21 to 25)

(£)

2041/42– 2045/46

(26 to 30)

(£)

2016/17 – 2045/46

(1 to 30)

(£)

Catch Up Repairs

11,155,654 4,377,861 0 0 0 0 15,533,515

Future Major Repairs

24,938,535 20,425,121 18,244,068 20,881,954 26,245,886 26,174,212 136,909,776

Improvements

6,980,679 6,774,585 3,774,585 3,774,585 4,274,585 3,774,585 27,603,604

Estate Works

846,750 846,750 846,750 846,750 846,750 846,750 5,080,500

Contingent Major Repairs

2,442,000 2,442,000 2,442,000 2,884,000 3,105,000 3,105,000 16,420,000

Exceptional Extensive Works

2,725,000 3,211,558 0 0 0 0 5,936,558

Adaptations

2,000,000 2,000,000 2,000,000 1,950,000 1,950,000 1,950,000 11,850,000

Total

51,088,618 40,077,874 27,307,403 36,337,289 36,422,221 35,850,547 221,083,952

Adjusted Totals*

61,701,791 60,365,972 52,494,574 74,431,587 114,049,512 143,274,628 506,318,065

Of which decent homes related

72%

Of which non decent homes related

26%

*These adjusted totals include fees and preliminaries (at 8.75%), allow for inflation (at Building Cost Information Services projected rates), allow for projected stock number changes and deduct leaseholder contributions (assumed at - 3.0%). They also exclude associated costs of management.

2.16 As can be seen, the overall investment requirement over 30 years now amounts to

£221.1m. When other elements such as fees and preliminaries, inflation, adjustments

for changing stock numbers and leaseholder contributions are factored in, the adjusted

total rises to £506.3m. However, it should be noted that this excludes associated costs

of management.

2.17 The estimated level of fees and preliminaries of 8.75% has been maintained for the

purposes of projecting over the 30 year life of the Business Plan. This is a reduction on

the previously used figure of 12%, reflecting the better value for money SHP is now

managing to obtain from the running of its major works contracts. Clearly this rate may

vary over the coming years, but it is felt that over the whole period is as reasonable an

estimate of the average rates as can be made at the present time.

2.18 Since the previous iteration of the Business Plan was produced SHP has undertaken a

substantial review of stock condition data which incorporates the outcomes of

validation surveys and wider information regarding the stock such as fire risk


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assessments and periodic electrical inspections. Through its Asset Management

Strategy the ALMO has also committed to address non decent homes related

deficiencies in the stock, in particular improvements to communal areas and the estate

environment and improvements in sustainability and energy efficiency. These are the

primary drivers of an increase, since the last Plan was produced, of £33m in the

construction related spend over 30 years - from £188.7m to £221.1m, this

notwithstanding the aforementioned reduction in the percentage assumed for fees and

preliminaries.

2.19 In terms of projected stock losses, for the modelling of future resources (discussed in

chapter 3) an estimate of the numbers of sales resulting from the Government’s

reinvigorated RTB policy together with other known future disposals has been used.

2.20 Of particular note is that it is now estimated that £61.7m of capital investment is

required in the first five years (i.e. to 2020/21), largely driven by the amount of catch up

and planned repairs and improvements required to meet the decent homes target. Of

this amount, 72% is required to fund decent homes-related works (i.e. those works that

fall within the decent homes standard definition).

2.21 It is estimated that at 1 April 2016, 886 units will be classifiable as non-decent,

representing 14.9% of the total projected rented stock of 5,936. A breakdown of the

886 units by reason for failure is set out in the table below.

Table 2.3: Breakdown of the Non-Decent Stock by Reasons for Failure

Reason for decency failure

Statutorily unfit

(a)

Disrepair

(b)

Lacking modern

services/ facilities

(c)

Lacking thermal comfort

(d)

No. properties failing on

one criteria 0 865 7 6


two criteria (b and c) 6


two criteria (c and d) 0


two criteria (b and d) 2

No. of properties failing

on three criteria 0

NB: Although shown in column (c) the two properties fail on both (b) Disrepair and (c) Lacking thermal comfort

2.22 As can be seen, disrepair is by far the most common reason for non-decency, followed

by lacking modern services or facilities. No homes are statutorily unfit while only very

few lack thermal comfort under the definition. Furthermore the latest calculation, as at

1 April 2016, estimates the average SAP (energy efficiency) rating of the stock to have


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been maintained at 70 out of 100. A breakdown of the stock by energy rating, using

the standard A to G classification as well as the SAP rating scores, is set out in

Appendix C.

Housing Supply and Demand

2.23 Sutton’s recent Strategic Housing Market Assessment identified a requirement for over

1,000 new affordable homes per annum over the next 18 years. The demand for

affordable housing is further evidenced by the large number of households in need of

social housing on the Housing Register and continuing significant levels of

homelessness. It should be noted that under the Council’s housing allocations policy,

implemented in October 2012 and updated in early 2015, households without a

housing need or those deemed able to access appropriate private rented

accommodation are excluded from the Housing Register and so the overall numbers

on the Register have reduced considerably from what they were previously.

2.24 The Council has lost large numbers of its homes through the Right to Buy and other

disposals over the years, with the rented stock reducing from a figure in excess of

9,000 in the 1980s to under 6,000 today. This reduction has resulted in a gradual

decrease in lettings becoming available each year, which has not always been

compensated for by nominations to new social housing in the form of housing

association units.

2.25 It is clear that the local authority housing stock is likely to remain in high demand, at

least for the medium term and probably into the longer term. On that basis the Council

needs to ensure its continued maintenance as an asset for the full 30 year period of the

business plan.


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3 Resources

3.1 Under HRA self-financing the Council is able to retain for use locally all of its rental

income as well as being able to borrow up to a certain limit. Resources for council

housing in Sutton also include our Right to Buy (RTB) receipts. Each of these, along

with the decent homes backlog funding that has been awarded and certain other

funding sources, is briefly discussed in turn. The rest of this chapter focuses on the

financial modelling, taking into account projected resources and investment

requirements.

Resources under HRA Self-financing

3.2 As part of the cessation of the national HRA subsidy system, which enabled stock-

owning authorities to retain all their rental income locally, councils like Sutton who were

in ‘negative subsidy’ under the old regime were required, in 2012, to make a payment

to Government to collectively cover the national HRA debt. To be able to make its

allocated self-financing debt settlement payment of £141.1m the Council took out a

single 30 year loan for that amount from the Public Works Loans Board. The

Government agreed a special one off reduced interest rate of 3.5% p.a. for the

purpose.

3.3 The taking out of the self-financing loan raises the costs to the HRA of estimated

interest and debt management expenses to between £6m and £6.3m p.a. over the

remaining period of the loan. However, this is significantly outweighed by the extra

rental income retained (in the last year of the old national subsidy system Sutton was

contributing over £10m p.a. to the Exchequer). Total income in 2016/17 is projected to

rise to £38.4m.

3.4 In terms of the loan principal the Council had decided to make provision to pay this off

during the 30 year term by setting sums aside annually. The previous Business Plan

assumed amounts set aside from Year 8 up to Year 27 when the loan was to be repaid.

In this latest Plan set aside begins in Year 7 and ends in Year 26 (2041/42) when the

loan matures and will need to be paid back. Importantly, although the sums are set

aside they will earn interest for the HRA.

3.5 The Government’s self-financing determination valued Sutton’s housing stock at

£173.870m in 2012. This was based on modelling of income and expenditure over 30

years, with the valuation calculated on a ‘net present value’ basis using a 6.5%

discount rate. The opening debt settlement that each authority was required to take on

equaled its stock valuation less any decent homes backlog funding awarded for

2011/12 and less the assumed level of debt or Subsidy Capital Financing Requirement

(SCFR) held within its HRA at the end of 2011/12. Sutton’s SCFR at that point in time

was £32.744m; this figure included £10m of decent homes backlog funding awarded

for 2011/12.

3.6 The Council’s opening debt settlement was thus calculated as follows:


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Stock valuation £173.870m

less SCFR at 31 March 2012 £32.744m

Opening debt settlement £141.126m

Borrowing

3.7 Under self-financing a local authority’s total HRA borrowing into the future is limited to

its stock valuation - in Sutton’s case our borrowing is limited to a ceiling of

approximately £173.9m. In reality, however, the Council’s actual HRA debt (as

opposed to its SCFR) was £17.9m as at the end of 2011/12, which when added to the

debt allocation of £141.1m gives total borrowing of £159.0m. The difference between

this and £173.9m meant that under the self-financing settlement the Council had the

capacity or ‘headroom’ to borrow up to a further £14.9m. Although some existing debt

has matured since the time of the settlement, from a Treasury Management

assessment point of view, it was deemed more cost effective to refinance this debt

rather than pay it off, and so no additional headroom has been created since 2012.

Revenue

3.8 Total HRA income is projected to be £38.1m in 2015/16, the great majority of which is

rental income from dwellings. Last year’s Business Plan, under the previous

Government’s social rent policy, projected rents increasing by CPI plus 1% p.a. for 10

years from 2015/16. Thereafter the Plan assumed that rents would continue to rise at

the same rate. However, the current Government has imposed a rent reduction of 1%

p.a. for a period of four years commencing in 2016/17. This will have a significant

impact on the funding available within the HRA, not just during the next four years but

across the whole 30 year period since it is unlikely that council rents will be allowed to

go up sufficiently in four years’ time to compensate for the reduction.

3.9 Applying the dwelling rent reduction of 1% but taking into account other income

sources it is projected that the total HRA income in 2016/17 will amount to £38.4m. It

drops by about £400,000 in the following year but then rises in Year 3 as a result of the

further properties coming into the HRA from the new build programme. After Year 4

the Base Model (see below) assumes that rents will go up by CPI plus 1% p.a.

thereafter.

3.10 SHP has been looking at ways that savings can be made over the coming years from

its management fee, as the fee accounts for the bulk of the non-fixed HRA costs. As

well as a range of possible efficiencies and savings that could be made to revenue (day

to day) services there are also savings that could be made in relation to major works,

with projected management fees already having been reduced. These will be explored

further and set out in SHP’s new delivery plan, to be submitted for approval in March.

Right to Buy Receipts

3.11 Under the Government’s ‘reinvigorated’ Right-to-Buy (RTB) policy, introduced in March

2012, where an authority entered into an agreement with Government to retain the

additional or ‘net’ receipts for investment locally (as Sutton did), the receipts must be

spent within three years of their arising, otherwise they have to be returned to the

Exchequer with a high level of interest payable. A further stipulation is that additional


17

RTB receipts can be used to fund no more than 30% of the cost of new housing

including land acquisition costs where applicable.

3.12 During 2012/13, 2013/14 and 2014/15 there were 35, 65 and 85 sales respectively,

yielding a net receipt of £9.1m. A further 62 sales are projected for 2015/16 giving rise

to an additional £3.4m, resulting in a total of £12.5m estimated to be available for

reinvestment as at 1 April 2016. However, £2m of this has been deployed to support

the remaining regeneration of the Orlit homes in Carshalton leaving £10.5m for other

HRA new build schemes.

3.13 Set out at Appendix D is a projection of RTB receipt income that could be available for

investment in new homes over the Business Plan period, based on the current pipeline

of applications and assumptions of the likely trend in sales over the longer term. The

projection also indicates when, on a quarter by quarter basis, the net receipt income

needs to be spent in order to avoid it needing to be paid back to Government.

3.14 As can be seen, nearly £38m of net receipts are estimated to accrue during the

Business Plan period, this not including the figure of £2.070m that arose in 2012/13 of

which £2.0m has been earmarked to fund the Orlit redevelopment. Importantly, the

quarterly and annualised required expenditure figures in Appendix D show what the

total investment in new homes needs to be in order that the reinvestable receipts are

spent within the three year time period, taking into account the rule that receipts can

fund no more than 30% of total development costs. Over the 30 year period this

amounts to £115.5m.

3.15 Allowing for the net receipts already deployed on the Orlit redevelopment, expenditure

on other new build schemes needs to commence in Q1 of 2016/17, beginning with

spend of £1.288m in that quarter and accumulating to £9.266m over the year. By the

end of 2017/18 £23.445m of new build expenditure needs to have taken place in order

to ensure full take up of the available receipts. This figure rises to £34.8m by the end

of 2018/19, the year when it is anticipated that the current HRA new build programme

will have been completed (see chapter 5).

Decent Homes Backlog Funding

3.16 The Council was originally awarded £62.42m of decent homes backlog funding in early

2011, with its allocation spread over the four years 2011/12 to 2014/15. In 2014 the

Council bid for further backlog funding and was successful in securing an additional

£7.2m for 2015/16, specifically to fund works to its Chaucer House tower block.

3.17 The amounts of funding awarded for each year are set out in the table below, which

also shows how the original allocation was subsequently revised (see footnote). As

can be seen, over the last five years investment in the Council’s housing stock has

benefitted from nearly £70m of Government funding. There will, however, be no further

backlog funding available after 2015/16.


18

Table 3.1: LB Sutton decent homes backlog funding awards

2011/12 2012/13 2013/14 2014/15 2015/16 Total

Original £8m £14m £14m £26.42m £7.2m £69.62m

Revised* £10m £14m £14m £24.42m £7.2m £69.62m

* £2m of the 2012/13 allocation was brought forward into 2011/12 at the invitation of the Homes and Communities Agency. The GLA, after it had become responsible for the funding pot in London), subsequently allowed the Authority to bring forward £2m of its 2014/15 allocation into 2012/13.

Other Funding Sources

3.18 For three years up until December 2012, funding under the Carbon Emissions

Reduction Target (CERT) scheme, via British Gas, had been received for works to

insulate a number of homes. Over the period 600 homes received works, of which 207

had wall insulation provided, 309 received loft insulation and 80 units received both.

Since then CERT funding has ceased and the Government’s Green Deal scheme and

Energy Company Obligation (ECO) became the focus for retrofitted home insulation

measures.

3.19 In 2013/14, linked to the national debate about energy prices to consumers, there was

an agreed slippage in the timescale for the payment of ECO during the first obligation

period (“ECO1”) by energy supply companies. Despite the provision of further data on

hard to treat properties which would benefit from insulation measures, SHP was not

able to secure ECO1 funding. In 2015 joint applications were made (with Sutton and

other councils) for funding under the Central Heating Fund and Warm and Healthy

Homes Funds, but these have also so far failed to secure any additional cash. SHP

will continue to work with its contractors and the energy companies to explore possible

ECO2 and other funding, particularly where this might enable the completion of

insulation programmes and the consideration of more challenging properties.

Base Model

3.20 The Council, working with SHP, has produced a new 30 year ‘Base’ financial model,

where Year 1 is 2016/17. The Base Model takes into account amounts set aside

annually, from Year 5, to enable the paying off of the £141.1m self-financing loan at the

end of the 30 year loan period.

3.21 The Base Model is predicated on the following:

the self-financing stock valuation of £173.870m;

the opening debt settlement of £141.126m;

that sums are set aside from Year 5 to Year 26 to repay the self-financing loan

(the year when repayment is due). Interest will accrue on these sums and is

added in to the working balance;

that the full amount of available HRA borrowing (currently £12.4m approx) is

applied to new build and that an interest rate of 3.82% is assumed in relation to

this borrowing (NB: the modelling assumes that £2.4m approx of the original

£14.9m borrowing headroom is set to fund the transfer of land from the General

Fund to the HRA);


19

that the headroom borrowing, due to be taken out, is paid back after 30 years

(outside the time line of the Business Plan);

that no other capital funds are applied to investment in the existing stock;

that an inflation rate of 1.8% p.a. over the remainder of the 30 year period will

be applied to revenue costs, given that HRA income and significant HRA costs

are now more closely linked to CPI, but that Building Cost Information Services

projections will apply to building costs (see chapter 2);

that rents will reduce by 1% p.a. over the first four years and then rise at the

previously set rate of CPI plus 1% each year thereafter;

that sufficient allowances are made for bad debt in light of the effects of

changes to the welfare benefit systems that could impact negatively on rent

collection – beginning with £340k (1.0% of rent collectable) in 2016/17, rising to

£451k (1.35% of rent collectable) by 2018/19 and with a 1.0% rate each year

from 2020/21 onwards;

that the amounts set to cover the cost of depreciation of assets from Year 1 are

calculated according to the Government’s HRA self-financing determination;

that the costs of management (SHP’s management fee and Council HRA costs)

are linked to the remaining resources available.

3.22 Also, in relation to new build, the following assumptions are made, these based on the

latest proposed programme, which is summarised in Appendix E:

that a programme of 95 HRA new build homes will be provided at three main

sites, together with further 16 units at five under-used garage sites;

that the new build programme will comprise a mix of capped and discounted

Affordable Rent and shared ownership units, with all completions taking place in

2018/19;

that the large majority of building costs for these units will occur over the period

2015/16 to 2018/19, with accordingly the required amounts of borrowing taken

out over these years;

that the assumed (averaged) rent levels for these new homes are as set out in

Appendix E;

that none of the units are subsequently sold under RTB.

3.23 The revenue modelling also factors in appropriate management and maintenance costs

for the new units while the capital modelling allows for renewal of building elements

according to standard cycles.

3.24 Summary output sheets from the Base Model, for both revenue and capital, are set out

in Appendices F (i) and F (ii) respectively. A schedule of all the assumptions within the

Base Model is set out at Appendix G.

3.25 From the revenue summary, the following can be seen:

I. Total annual income (all rents and service charges including those for heating

and hot water) rises from £38.4m to £75.8m over the 30 year period.


20

II. SHP’s management costs rise from £15.1m in 2016/17 to £34.4m in 2045/46;

the Council’s management costs increase from £2.2m to £3.5m over the period

while tenant heating and hot water costs increase from £2.4m to £5.9m.

III. Depreciation (a cost applied to reflect the amount needed to maintain the asset

base) increases from £7.6m in Year 1 to £14.9m in Year 30. The depreciation

figures transfer directly across to the Major Repairs Reserve (MRR) in the

capital summary (see below).

IV. Debt management costs and interest payments on the debt vary between

£6.0m and £6.3m up until Year 26 then fall substantially in the remaining years

of the Business Plan period after the self-financing debt is paid off.

V. Additional revenue funding for capital works (termed revenue contributions to

capital outlay or ‘RCCO’) is initially applied during Years 1 to 6, maximising the

resources for investment. This is then no longer available until Year 27.

VI. Once the self-financing debt has been paid off a small surplus is generated over

the remainder of the Business Plan period, resulting in a small balance or

‘Investment Reserve’, after interest is taken into account, of approximately

£21,000 at the end of Year 30.

3.26 From the capital summary, the following can be seen:

I. The stock investment requirement in the third column reflects the amounts as

set out in Table 2.2/Appendix B (albeit, with the exception of Years 1 to 5 in

Appendix B, these show the requirement aggregated into five year periods).

II. Borrowing is only applied to new build, not to the existing stock;

III. The ‘MRR’ and ‘Total RCCO’ columns reflect the figures set out in the revenue

summary (see above).

IV. The difference between the investment requirement and the funding available is

reflected in the ‘In Year Surplus/(Shortfall)’ column, and subsequently in the

‘Cumulative Surplus/(Shortfall)’ column. The latter shows a year on year

shortfall culminating in Year 30 in a shortfall of £109.8m.

3.27 In summary, the Base Model shows that once the costs of management, depreciation

and debt interest are accounted for there are very limited amounts of revenue funding

available for investment in the existing stock, and these (RCCO amounts) cease to be

available after Year 6, only becoming available again in Year 27 once the self-financing

debt is paid off. The consequence of this is that there are insufficient funds to meet the

required investment in the stock, almost from the outset, with a shortfall or deficit of

nearly £110m building up by Year 26. The new build programme is, however, fully

funded, albeit that it requires £1.8m of revenue resources to be applied over Years 1

and 2.

3.28 This situation is very different from that of previous years when the investment backlog

in the stock was fully dealt with relatively early on and a very substantial ‘investment

reserve’ had built up during the Business Plan period. The reason for the dramatic shift

is essentially two-fold. Firstly, work undertaken by SHP in developing its asset

management strategy has resulted in a significant increase in the estimated amount of


21

funding required for investment in the existing stock over the 30 year period (see

chapter 2). Secondly, the Government’s decision to reduce social rents by 1% per

annum over the next four years has had a major negative impact on rental income

greatly reducing revenue resources for capital investment.

3.29 Broadly speaking of the £110m investment shortfall a large majority can be attributed to

the increase in the identified stock investment requirement. Had the investment

remained the same as that set out in the previous iteration of the Business Plan the 30

year shortfall would have been around £12m.

Sensitivity Modelling

3.30 In light of the uncertainty around rent policy after 2019/20 a further scenario or

sensitivity test has been undertaken in which it is assumed that after Year 4 there will

be a rent freeze for five years following which rents will be allowed to rise at CPI only

thereafter. However, as mentioned earlier, also to be considered is the new

Government policy of extending the Right to Buy to housing association tenants funded

through the sale of high value council homes when they become vacant. The effect of

this on rental income also needs to be considered. Accordingly another sensitivity has

been carried out to model the potential impact of an assumed level of stock losses.

3.31 In relation to the first of these two sensitivity tests, revenue and capital summaries of

the modelling are respectively set out in Appendices H (i) and H (ii). As can be seen

from the capital summary the loss of revenue means there is no capacity to support

revenue contributions to capital (RCCO) in relation to the existing stock, with the result

that by Year 30 the investment shortfall rises from the Base Model’s £109.8m to

£183.7m.

3.32 The revenue summary shows that from Year 10 a negative ‘investment reserve’ builds

up, reaching almost £218m by Year 30. At Year 11 the negative investment reserve

exceeds the minimum balance required which means in effect that the HRA goes into

deficit and is thus from that point onwards unviable.

3.33 In the second sensitivity, in the absence of any more concrete proposals from

Government and for simplicity, it is assumed that one third of vacant dwellings arising

during Years 1 to 10 (excluding sheltered and temporary homes) are sold off to pay for

the extension of the Right-to-Buy to housing association tenants. Again, due to the

uncertainty, the effect of this policy has been limited to just 10 years. On this

assumption, based on the latest trend in void rates, it is anticipated that 105 properties

would be sold in 2016/17, this number gradually reducing each year thereafter as the

stock size reduces.

3.34 From the capital summary at Appendix I (ii) it can be seen that there is no capacity to

support stock investment with RCCO, and so the same shortfall of £183.7m builds up

by Year 30. The revenue summary for sensitivity 2 (Appendix I (i)), shows a similar

picture to that for the first sensitivity, with a negative investment reserve of £175.2m

accruing by Year 30 and the HRA going into deficit (and thus becoming unviable) in

Year 9.


22

4 Stock Investment 4.1 As illustrated in chapter 2, notwithstanding the progress made in recent years, the

Council’s housing stock remains in need of further capital investment to both fully meet

the decent homes standard, undertake works of a health and safety nature and

address the wider aspirations and expectations of residents in terms of environmental

improvements and other works to dwellings and the communal parts of flatted blocks

and estates not included in the decency definition. The extent of this investment need

has arisen largely as a result of the Council owning an ageing stock that has not been

replenished, coupled with historic under-investment up until quite recently.

Current Investment

4.2 The projected HRA capital programme outturn for 2015/16, together with the outturn for

the previous two years is set out in the following table.

Table 4.1: HRA Capital Programme Outturn 2013/14 to 2015/16

2013/14 outturn (£000s)

2014/15 outturn (£000s)

2015/16 projected

outturn (£000s)

Expenditure

Major repairs programme (incl. decent homes works)* 26,420 28,788 26,798

Sheltered housing improvements 0 246 31

Adaptations for disabled tenants (additional) 300 420 700

Regeneration 42 60 163

New Build 0 27 532

Building Lives Academy 0 61 38

Overcrowding initiative (conversions and de-conversions) 106 29 0

Total Expenditure 26,868 29,661 28,262

Resourcing

Use of Major Repairs Reserve 7,171 1,917 11,842

Decent homes backlog funding 14,175 25,711 7,202

Revenue contribution to capital outlay 5,480 1,723 8,523

Borrowing / use of capital receipts 42 88 632

Leaseholder contributions 0 222 0

Other 0 0 63

Total Resources 26,868 29,661 28,262

*Includes expenditure carried forward from the previous year


23

4.3 Adding the totals shows that £87m has been invested in the stock in this and the last

two years, the large majority of this on major repairs and improvements to dwellings.

The programme for 2016/17 amounts to £12.4m and will result in over 200 homes

having new windows installed, over 100 new kitchens and over 100 new bathrooms

provided, heating improvements for around 240 properties and nearly 650 properties

being re-wired or otherwise improved electrically. In addition, almost £440,000 is

earmarked to fund aids and adaptations.

Future Investment and Funding Position

4.4 As discussed in the previous chapter, a new Base Model has been developed taking

into account the latest assessment of resources and stock investment needs. Two

separate variations or sensitivities around this have also been worked up to test the

effects of (i) a Government rent freeze for five years after Year 4 then rents going up at

CPI (rather than CPI + 1%) thereafter, and (ii) the impact of the loss of some stock as a

result of sales of vacant council homes.

4.5 A significant element of the investment requirement during the next five years is catch-

up repairs, the costs of which totals £11.2m (before fees and inflation etc are factored

in). In the detailed analysis of this at Appendix B the costs of these works are shown

spread across Years 1 to 5 (but with the costs of walls, paths and fencing works

spreading over Years 1 to 10). Strictly speaking, catch up repairs, by their definition,

are already overdue and therefore should show as needing to be carried out in Year 1.

4.6 Under the Base Model financing for capital investment in the existing stock comprises

two sources: the Major Repairs Reserve and additional revenue contributions (RCCO).

Taken together they are insufficient to cover the total investment need over the period,

with the shortfall accumulating over the 30 year period to nearly £110m.

Outline Programming Scenario

4.7 On the basis of the funding position under the Base Model, the Council and SHP have

been examining how best the anticipated resources might be deployed over the coming

10 years, with the aim, firstly, of ensuring that all essential health and safety related

and other legally required works are carried out and, secondly, that decent homes

related works are prioritised. This forms a key element of SHP’s latest asset

management strategy, with the initial result of this set out in Appendix J and

summarised in Tables 4.2 and 4.3 below, the latter showing the numbers of homes

benefitting from each key building element repair/replacement.


24

Table 4.2: Outline Investment Programme 2016/17 to 2025/26 (Years 1 - 10)

Yr 1

£m

Yr 2

£m

Yr 3

£m

Yr 4

£m

Yr 5

£m

Yr 6

£m

Yr 7

£m

Yr 8

£m

Yr 9

£m

Yr 10

£m

Total

£m

Catch up repairs/ future major works

9.8 8.2 6.9 5.9 7.0 5.3 5.4 5.5 5.4 5.7 65.3

Improvements 1.2 1.7 1.9 1.9 1.7 1.6 1.2 0.9 1.2 1.1 14.5

Estate works 0.08 0.08 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 1.7

Contingent major repairs

0.5 0.6 0.6 0.6 0.7 0.7 0.7 0.7 0.7 0.7 6.6

Exceptional extensive works

0.3 0.06 1.0 1.3 0.7 0.5 0.5 1.0 1.0 1.0 7.3

Aids and adaptations 0.4 0.5 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.6 5.4

All 12.4 11.1 11.2 10.5 10.9 8.9 8.7 8.9 9.1 9.3 100.9

NB: Figures in the above table include adjustments for inflation, fees and preliminaries but exclude the costs of works to leasehold dwellings and the associated costs of management. Totals may not add up exactly due to rounding.

Table 4.3: Outline Investment Programme – Key Building Elements

Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10

Total

Box bathrooms 85 0 0 0 0 0 0 0 0 0 85

Bathrooms/WCs 118 229 107 108 108 155 155 97 97 155 1,329

Kitchens 117 191 111 71 71 220 220 220 220 220 1,661

Heating 239 239 239 239 239 239 239 239 239 239 2,390

Electrics 649 575 575 575 575 98 98 98 98 98 3,539

Front doors etc 419 700 236 373 373 100 100 100 100 100 2,601

Windows etc 207 177 84 147 147 75 75 75 75 75 1,137

Roofs/canopies/balconies 324 192 174 184 184 77 77 77 77 77 1,443

4.8 Table 4.4 (below) gives a breakdown of the average costs for the key building

elements, while Table 4.5 indicates the life cycles of some of the elements used for

asset management purposes. It should be noted that although a building element may

reach the end of its life cycle, when it is replaced will depend upon its condition. Some

elements may need replacing before the end of the cycle while others may have a

longer effective life.


25

Table 4.4: Key Building Element Unit Costs

Average cost per unit / dwelling (£)

Bathrooms/WCs 2,800

Box bathrooms 28,600

Electrics 1,230

Front doors 1,200

Heating systems (incl boiler) 4,000

Kitchens 5,000

Windows (incl patio/French doors) 4,000

Table 4.5: Assumed Life cycles of Key Building Elements

Life cycle (years)

Bathrooms/WCs 40

Boiler 15

Electrics 30

Front doors 40

Heating systems 40

Kitchens 20

Roof coverings 50

Windows (incl patio/French doors) 40

4.9 The total cost of the proposed programme at £100.9m broadly matches the resources

assumed to be available within the Base Model over Years 1 - 10. It should be noted,

however, that the amount of funding in Year 1 includes an anticipated carry forward of

£2.5m from 2015/16.

4.10 In terms of meeting the decent homes standard, Table 4.6 below shows how over the

next 10 years the numbers of non-decent homes could reduce. This is on the basis of

the resources available and the proposed programme of work under the Base Model.

As can be seen, full decency is achieved by the end of Year 3 (2018/19).


26

Table 4.6: Projected Changes in the Levels of Stock Non-Decency

2015/16

Year 1

2016/ 17

Year 2

2017/ 18

Year 3 2018/

19

Year 4

2019/ 20

Year 5 2020/

21

Year 6

2021/ 22

Year 7

2022/ 13

Year 8

2023/ 24

Year 9

2024/ 25

Year 10

2025/ 26

No. non-decent at beginning of the year

886 555 373 0 0 0 0 0

0 0

No. becoming non-decent during the year

419 518 297 275 600 157 257 189

333 TBC*

No. made decent during the year

750 700 670 275 600 157 257 189

333 TBC*

No. non-decent at the end of the year

886 555 373 0 0 0 0 0 0

0 0

No. sold or demolished during the year

62 55 40 20 20 20 20 20

20 20

Total stock at year end

5936 5874 5819 5779 5759 5739 5719 5699 5679

5659 5639

Proportion of stock non-decent at year end

14.93% 9.45% 6.41% 0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

*These figures will be calculated after 1 April 2016

4.11 As discussed above, under the Base Model assumptions, all the required investment in

the stock cannot be fully addressed. For most of the 30 years of the Business Plan

there is a deficit or shortfall on the capital account. This accumulates, over the period,

to £109.8m.

4.12 It should be noted that this shortfall is highly sensitive to assumptions regarding build

cost inflation, which is currently running at about 5%, and this has been projected over

the life of the Plan. The same figure has been used in HRA business planning in

previous years. However, over the last 30 years the BCIS All in tender price index

(TPI) has averaged 3.42%, and the BCIS General building cost index (GBCI) has

averaged 3.89%. Applying the GBCI figure to the 30 year plan would reduce the

funding requirement, and thus the investment shortfall, by around £86m.

4.13 Notwithstanding this, a number of possible options are available in future years in

order to mitigate the potential impact of the resourcing deficit, these being:

Not proceeding with planned larger scale improvements to communal areas,

estate environments and services, and reducing investment to address fuel

poverty and energy efficiency could save around £20m (excluding inflation) over

the life of the Plan.

Newly introduced prudent assumptions regarding a need to continue

improvements to the fire safety of dwellings over the life of the plan could be


27

scaled back and reviewed again when the current programme of fire safety

works are complete in 2018/19. This could save some £6m (excluding

inflation).

Provision has been made for a rolling programme of kitchen and bathroom

replacement of 160 units per annum from Year 6; reducing this could save a

proportion of the £35m (excluding inflation) costs from 2021/22 onwards.

4.14 These mitigations have already been partially implemented in order to ensure that the

programme for years 1-10 can be accommodated within the available resources.

Significant savings have been made by the deferral of planned remedial works and

improvements to boundary walls, estate paths and roads, communal areas, hard to

treat insulation issues and related energy efficiency improvements.

Other issues

Properties off of the gas main

4.15 There remain around 400 properties that do not have a gas supply readily available for

heating and hot water. Heating and hot water in these units are electrically provided

and by their nature are often more expensive to run and less energy efficient. To date

electrically operated heating and hot water systems have been treated exactly as any

other decent homes failure, and renewed only if old and in poor condition.

4.16 Some residents living in these homes have asked if gas heating could be provided as

part of the package of decent homes works when these are undertaken to their homes.

If gas supply pipework is present but unconnected, it is relatively easy and inexpensive

to convert the home to gas heating and hot water. However, if pipework isn’t present, a

new supply needs to be taken from the main network, from the source closest to the

house or block, which may be some distance away. This is relatively expensive and

time consuming given the notice periods required by utility providers and will affect on-

going works programmes.

4.17 Overall additional costs are difficult to establish as each building will have differing

supply pipe requirements. Indeed in some cases it may not be possible to install gas

for technical or structural reasons, and residents’ expectations will need to be managed

accordingly. Also, once gas is installed there will be a capital cost for the provision of a

central heating boiler and ancillary systems as well as the consequent increase in

programmed renewal costs and servicing arrangements which are carried out annually

rather than every five or 10 years in the case of electrical components.

4.18 Based on partial take up, a conservative provision of £1.5m has been made for the

installation of new gas supply and heating, with a further £2m being required over the

30 year Business Plan period to cover the cost of elemental renewals. In addition,

around £50,000 would be required on an annual basis to carry out routine gas

servicing. It has previously been planned that a programme of bringing these homes

onto the gas main would be undertaken once the remaining decent homes related

works have been completed, and these costs have been factored in to the current

iteration of the Business Plan from 2016/17.


28

Door entry systems

4.19 There have also been calls from residents of some flatted blocks to have door entry

systems where none already exist. In many cases where there is no door entry system

there is no door at all to common areas. Such security arrangements have been normal

practice in both new build and retrofit to similar traditional rented blocks elsewhere for a

number of years. Accordingly previous versions of the HRA Business Plan have

proposed that, as with properties off of the gas main, the costs and timing of new

system installations will be factored in to future works programmes at the appropriate

time.

4.20 The Base Model only explicitly allows for funding for limited renewal and improvement

to existing systems in years 1-3. Some provision for continued improvement is funded

from year 6. However, SHP’s Asset Management Strategy states that the ALMO will

canvass the views of residents and work with other agencies to develop an

understanding of crime or antisocial behaviour to inform decision making regarding

future new installations as part of the proposed estate planning process. Funding for

this could be prioritised from within the provision for communal future major works.

Clockhouse ‘Unitys’

4.21 The pre-cast reinforced concrete Unity system-built homes in the Clockhouse area

have been identified as having disproportionately high investment needs. However,

some works have been carried out to these units in the past, including window

replacement, while further works are planned, including external insulation, and it is

planned to undertake a pilot programme of works commencing in 2016/17 in order to

better understand technical feasibility and the practical difficulties that might arise from

such works. This will be undertaken in parallel to exploration of potential grant support

for a wider programme (which is currently limited) and a fuller scale appraisal of both

the stock and the tenure and occupancy position on the estate as a whole is proposed.

‘Uneconomic voids’

4.22 There may be occasions when a property or group of properties become empty or void

and for various reasons could be assessed as ‘high risk’ (i.e. classified as ‘Red’) under

the sustainability modelling criteria. Where these arise options appraisals will be

undertaken in relation to their future use. Where considered appropriate they then

might be put forward for redevelopment or disposal as part of the wider approach to

asset management.

Estate re-modelling

4.23 SHP’s asset management strategy acknowledges that the number of homes on certain

estates could be increased through imaginative design solutions, re-modelling existing

buildings or through ‘infill’ developments. Such initiatives could not only add to the

social rented stock but could also help to improve the environment and positively

contribute to the life of the community. An earlier review of under-used garage sites

has already yielded a number of potential plots which have now been included in the

current new build programme. Going forward SHP will continue to explore and

develop ideas for further estate re-modelling.


29

Miscellaneous parcels of land

4.24 The HRA portfolio also contains a number of miscellaneous parcels of land, often

under-used, and found particularly on the St Helier estate. These have often been the

subject of enquiries from people living in the area seeking to extend their gardens or

build extensions to their homes. However, SHP has made clear in its asset

management stategy that disposal of these assets will be resisted since it could

prevent or limit future options for alternative public use. The ALMO will undertake a

review of these areas as part of its estate planning process, which will take into

account the wishes of the local community.

Existing Regeneration schemes

The Lavender Partnership

4.25 The Council has a long track record of housing regeneration, with the wholesale

redevelopment of the 2,000 home Roundshaw estate in Wallington over the last two

decades, the ownership of which has since been transferred to the housing association

sector. Our current major project is centred on the former Durand Close estate in

Carshalton, in which the 295 unit estate of unattractive system-built maisonettes is

being replaced with a mix of new social and private housing.

4.26 The Lavender Housing Partnership (comprising the Council, AffinitySutton, Rydon

Construction Ltd, Pollard Thomas Edwards architects and the local residents

association) has already completed a number of associated sites mainly in The Wrythe

and St Helier areas but including sites in Sydney Road, Sutton, Ruskin Road

Carshalton and Harcourt Avenue, Wallington. The Partnership is due to complete the

remaining sites in 2017/18, incorporating the Orlit system-built houses located in the

Carshalton area. The flats at Corbet Close in Carshalton, which are of an identical built

form to the former Durand Close, are also included in the programme.

4.27 To date 440 new homes have been completed at the former Durand Close (now “The

lavenders”) and 11 other sites, with a further 241 in the pipeline. Of the total some

63% of the new homes are to be affordable rent or shared ownership.

Former Elizabeth House site – Cheyham Park

4.28 A second major project, due for completion this year, is the redevelopment of one of

the Council’s sheltered schemes - Elizabeth House in Cheam Village. The new

scheme - Cheyham Park - provides 131 new homes, for both rent and sale, for older

people and younger adults with a range of disabilities. The development programme is

being undertaken by Viridian Housing. Elizabeth House was one of a number of

sheltered schemes identified in a previous review as being no longer fit for purpose in

terms of its design and facilities. Following the planned review of the sheltered housing

service, the Council will be working with SHP to address issues with a number of other

schemes over the coming years.


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5. Local Authority New Build

5.1 For the first time in decades, with the introduction of HRA self-financing and the

Government’s ‘reinvigorated’ Right to Buy policy, the Council is in a position where it

can build new homes again. Based on external consultancy analysis undertaken in

2014 the Council took a decision in July of that year to adopt a ‘twin track’ approach,

delivering new homes within the HRA and separately within its General Fund through

the setting up of a wholly-owned development company. The HRA Business Plan is

focused solely on the former.

5.2 Set out in Appendix E is an indicative outline programme of HRA new build over the

coming six years. This is based on the use of the £14.9m of available borrowing (with

a currently assumed amount of £2.4m approx funding land transfer costs) and the

award of a further £4.050m of borrowing headroom under the Local Growth Fund. It

also takes into account, and prioritises the use of, estimated reinvestable RTB receipts

set to arise over the period.

5.3 For convenience the programme is summarised in the table below.

Table 5.1: Outline HRA New Build Programme

Year Scheme Total

spend

(£’000s)

Total no.

units Richmond Green,

Beddington Ludlow lodge,

Wallington Century House

Carshalton Garage sites

(various locations)

Spend

(£’000s)

No.

units

Spend

(£’000s)

No.

units

Spend

(£’000s)

No.

units

Spend

(£’000s)

No.

units

2015/16 199 - 204 - 177 - 218 - 798 -

2016/17 1,984 - 5,101 1,436 - 1,366 - 9,887 -

2017/18 2,361 - 6,100 1,706 - 1,672 - 11,839 -

2018/19 410 21 1,034 59 299 15 19 16 1,762 111

2019/20 3 - 4 - 2 - 2 - 11 -

Totals 5,059 12,452 3,629 3,286 24,426

5.4 As can be seen, the outline programme comprises four sites or schemes, which have

already been approved by the Council for HRA new build development. Development

within the HRA garage site portfolio will be spread over a number of locations,

prioritising those which are likely to be the most viable. In total the programme is

currently set to produce 111 new homes, these being a mix of sizes and tenures, the

latter including Affordable Rent (capped and discounted at average rent levels between

£164 pw and £174 pw) and shared ownership.

5.5 It should be stressed that the programme is yet to be finalised and is still in a state of

flux, with the possibility that alternative arrangements may be made to redevelop the

garage sites. Also, there could be scope for the development of further garage, and

potentially other HRA sites over the coming years. Additionally links could be made


31

with the proposals for developing homes through the new housing development

company - Sutton Living.

5.6 A remaining concern is that although full use of net RTB receipts is made in funding the

current proposed programme, by 2021/22 over £15m of further net receipts is set to

build up. If all of this amount is to be deployed on council housing building, additional

schemes totalling £51m would need to be developed.

Buy Backs

5.7 Depending upon the actual resource position that emerges it may also be possible for

the Council to consider funding ‘buy backs’ of council homes where tenants who

purchased under Right to Buy get into financial difficulties. As well as benefitting the

individual household it would have the advantage of returning a home to the social

rented portfolio. It is proposed that the policy in this area be revisited once final

decisions have been taken regarding the resourcing of council new build.


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6. Strategic Options for the Future

6.1 In terms of the condition of the existing stock, the recently updated modelling showed

almost all of the Council’s homes to be viable into the future. Only a small number of

homes have been classified as either ‘Red’ or ‘Amber’ due mainly to relatively high

level of required investment per unit.

6.2 In terms of the stock as a whole, under the Base Model there are insufficient resources

to deal fully with all investment needs, with a capital shortfall of almost £110m building

up by Year 30. Even during the next 10 years, the outline programme of works as set

out in Appendix J, falls short of the identified investment requirement by over £21m,

albeit that for Year 1 the required investment is fully funded.

6.3 It is clear that there are two essential reasons for the resourcing position to have

shifted so greatly from that described in previous HRA Business Plans – these being

the loss of revenue as a result of the Government imposed rent decreases and the

significant increase in the identified investment requirement (discussed in more detail in

chapter 4).

6.4 The Base Model, however, arguably takes a relatively optimistic view of future

resources. Both of the separate sensitivities show a much worse position, to the extent

that in both cases the HRA becomes unviable in 8 to 10 years’ time. Were they to be

combined it is likely that the result would be the HRA going into deficit even earlier.

But it it should be understood that both of the sensitivities are at least as realistic as the

Base Model in their assessment of future available resources.

6.5 Given the potential risk of the HRA becoming unviable in the not too distant future it is

clear that options for how the funding shortfall can be addressed will need to be

considered. Essentially these involve finding further efficiencies in the delivery of major

works programmes and/or savings in the delivery of revenue or day to day housing

management services. These will be addressed in the next iteration of the Business

Plan, with updated modelling commencing early in 2016/17.

6.6 As mentioned in the previous chapter, there is now in place a proposed programme of

local authority new build within the HRA, which in the short to medium term is set to

yield over 100 new homes. However, as also discussed, a great deal of work is still

needed to bring these units to fruition. Nevertheless the programme, as currently set

out, is fully funded, albeit that further work may reveal the need to either cut down on

unit numbers or review the tenure breakdown in order to ensure viability. There

remains, however, the concern that by 2021/22 over £15m of further net receipts is set

to build up which would require additional schemes totalling £51m to be developed in

order to ensure that all of this amount is deployed on council housing building.

6.7 Work will continue on looking in more detail at the various HRA-owned sites initially

identified as being options for the building of additional homes, with this linking in to the

corporate approach to reviewing the Council’s building and land assets.


33

7. Monitoring and Review 7.1 This HRA Business Plan sets the broad strategic context for the delivery of investment

in Sutton Council’s housing stock in both the medium and long term. As described in

chapter 1, actual service delivery, in terms of housing management services to tenants

and leaseholders and the day-to-day repair and routine maintenance of the stock, is

carried out on the Council’s behalf by Sutton Housing Partnership and is reflected in

the ALMO’s delivery plans.

7.2 The Council and SHP work together in this process, with the latter having been closely

involved in the detailed production of this Business Plan. Fundamental to the

relationship between the two organisations is the management agreement and, within

that, the agreed monitoring arrangements. These set out, through the annual delivery

planning process, performance standards and targets and programmes of works

against which the Council monitors the services delivered by SHP.

7.3 In light of this relationship the delivery of this Business Plan, and in particular the

programmes of capital investment, will be monitored closely through the existing

performance management arrangements we have in place, these involving resident

representatives, senior officers of the Council and SHP as well as the ALMO board and

Council Members via the Capital Monitoring Board.

7.4 The Council intends to produce revised versions of its HRA Business Plan on an

annual basis, which will include an updated 30-year model with Year 1 moved on each

time. These will be able to take into account any changes to Government policy, the

latest revenue and capital funding positions and an updated understanding of our stock

investment requirement.


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HRA Business Plan - Sutton A HRA... · E Outline Programme of HRA New Build F (i) Base Model Revenue ... 30-year HRA Business Plan modelling, based on current and ... cost effective

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