Northampton Borough Council Housing Stock Options Financial - PowerPoint PPT Presentation

KEY DOC 22 Northampton Borough Council Housing Stock Options Financial analysis savills.com

Agenda Recap on financial position presented previously Stock condition survey – development of Northampton standard HRA business plan – key elements and different options Government guidance on stock transfer Stock transfer business plan – key elements and different options Options discussion – break out session 2

Recap on financial position  Landlord income and costs ring fenced  Analysis of day to day expenditure within Housing Revenue Account (HRA)  Northampton spends more on housing  Expenditure on housing management services compared to other similar and maintenance landlords  Income from rents, service charges,  Government assessment of need garages, shops etc considers it reasonable that Northampton spends at this level  Ongoing day to day expenditure is lower than it first appears – so the service is underfunded  Performance and satisfaction is poor, and getting worse  Some increase in funding is reasonable to deliver the performance improvement required 3

Stock condition survey – Decent Homes  Decent Homes  Key features  Total £693m over 30 years  A minimum basic Government standard introduced in 2001  £96.9 m in the first 5 years to upgrade council homes to  Current target for meeting this for NBC is 2015 basic standard  A property is Decent under this standard if:  This represents a lower standard of investment than – It meets the current legal minimum standard for the Council is aiming for in housing its current housing – It is in a reasonable state of repair business plan. – It has reasonably modern facilities – It is reasonably well insulated  Does not allow for non essential improvements or any work to the general environment 4

Resident consultation – Northampton standard  Developed in consultation  Key features include: with residents and informed  Bathroom improvements such as heating, adjustable by the stock condition survey height shower heads, choice of bath or shower (with findings both in larger homes), mixer taps  Kitchen improvements such as layout changes to  Includes all expenditure in increase space for appliances, improve flooring and Decent Homes standard and cupboard space, quality materials with choice of more finish, and more electrical points  £851m over 30 years  A budget for environmental improvements to estate  £249m in the first 5 years roads and paths, improved parking provision, secure bin storage.  Costs assume improvements  A budget for security lighting and window locks and are delivered as part of the for improvements to heating and insulation to reduce scheduled replacement heating costs in hard to heat homes. timetable rather than a one off improvement beforehand 5

Comparison of stock condition spend  £57K per unit Decent Homes versus Investment standard comparison £70K per unit for Northampton standard and £65K in current HRA £300,000,000 business plan  The Northampton Standard is not £250,000,000 excessive but contains high costs in the early years £200,000,000  Key difference between the Northampton standard and the current £150,000,000 business plan is an additional £80m (approx) for environmental improvements, kitchen and bathroom £100,000,000 alterations and solid wall insulation £50,000,000  Still need to consider the case for investment in each property as part of asset management strategy £0 Years 1 to 5 Years 6 to 10 Years 11 to 15 Years 16 to 20 Years 21 to 25 Years 26 to 30  The importance of environmental Northampton standard Decent Homes NBC HRA BP works to create sustainable neighbourhoods Source: Savills survey 6

HRA business plan – key elements  In addition to major investment expenditure, the HRA business plan must include all the income and expenditure the Council needs to spend as a landlord  Income  Rents  Service charges  Other income (e.g. Garages, shops)  Leaseholder charges  Expenditure  Day to day management and repairs  Major works to an agreed standard  Any regeneration/new build to be held in HRA  Servicing HRA debt  Assumptions largely informed by current business plan  Future costs  Assume current one off management costs are continued long term to fund service improvements  Assume management of major repairs programme is funded by capital not day to day maintenance 7

HRA business plan – key factors to consider  Rent assumptions must reflect agreed rent policy  The plan must manage risks of changes e.g. to inflation or interest rates, or future cost increases.  Starting debt reflects the cost of HRA self financing  Where expenditure is greater than income in the early years, the Council can consider whether it is affordable to borrow money to repay in the longer term  Under government rules HRA debt cannot be more than £209.1m.  This means that even if it is affordable, there may be limits in the amount that can be borrowed 8

Current (approved) NBC HRA business plan  Capital programme is above the decent homes level identified in the survey but less £000 NBC approved HRA BP 250,000 than the “Northampton standard”, particularly in the first five years 200,000  Significant proportion of capital expenditure met from revenue (so not spent on service) 150,000  Includes 40 new build homes per year from 100,000 2014  Plan “designed” with an objective to repay 50,000 borrowing over 30 years 0  Key issues 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30  Net Indebtedness Debt Cap Expenditure is lower than the Years Northampton standard Debt curve (red line) is a standard illustration of  Assumes existing rent policy business plan affordability - to show the potential  Council can choose what to do with to repay debt within 30 years surpluses e.g. New build v increased investment 9

Testing different scenarios  Five different versions of the business plan have been modelled, with the aims of testing the maximum debt required and how quickly it can be repaid  Three scenarios (2, 4 & 5) include new build at 40 homes per year from 2014 with an average cost of provision of £135,000 (current prices) and rents of £100 per week (current prices)  The key income and expenditure assumptions, which are common to all scenarios are as shown in Appendix one  These broadly reflect the assumptions in the current HRA business plan but also take into account government proposals for changes in social housing rent policy which restrict future rent increases  All scenarios include major investment costs based on the Northampton standard though the timing of some investments (as explained) forms part of the scenario testing. 10

Scenario 1: Northampton standard, no new build  An increase in expenditure to deliver the Northampton standard would mean the Council would need to increase borrowing to just over £262m Scenario 1: HRA debt with Northampton standard investment  This level of borrowing is potentially 300.00 affordable but not allowed under current 250.00 government HRA rules 200.00  To deliver the Northampton standard the 150.00 Council would need to borrow £53m more 100.00 than allowed 50.00  Key questions 0.00 ? How to manage within the debt cap 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Debt cap Debt ? Could expenditure be reduced, or delayed 11

Scenario 2: Northampton standard, with new build  An increase in expenditure to deliver the Northampton standard and new build from 2014 would mean the Council would need to increase borrowing to over £286m Scenario 2: HRA debt with Northampton  This level of borrowing is potentially (just) standard investment and new build affordable but not allowed under current 350.00 government HRA rules 300.00  To deliver the Northampton standard the 250.00 Council would need to borrow £77m more 200.00 than allowed 150.00  Key questions 100.00 ? How to manage within the debt cap 50.00 ? Could expenditure be reduced or 0.00 delayed 1 2 3 4 5 6 7 8 9 10 11121314 15 16171819 20 21222324 25 26272829 30 ? Could new build be developed in another Debt cap Debt way – not affected by HRA limits on borrowing 12

Scenario 3: Northampton standard, no new build and early re-profiling of spending  In order for Scenario 1 to remain within the debt cap, the Council would need to consider options to adjust: Scenario 3: HRA debt with Northampton  the level of expenditure and/or standard investment, no new build ‐  the timing of investment. improvements in years 1 to 10  there will be a range of options to be explored in consultation with residents 250.00  Scenario 3 is developed from Scenario 1. 200.00 It maintains the Northampton standard 150.00 but assumes that £44 million of expenditure is delayed from years 1 to 5 100.00 to years 6 to 10. 50.00  This is equivalent, for example, to 0.00 extending the programme of 1 2 3 4 5 6 7 8 9 101112131415161718192021222324252627282930 environmental and property Debt cap Debt improvements over the first ten years rather than the first five. 13