Public & Private

A few weeks back, the Office of the Deputy Prime Minister published a report that had been commissioned from research body BRE on how much needed to be spent on management and maintenance in the local authority housing sector (HT 13 June, page 11). The report concluded that the total spending need in 2001/02 was about £5.5bn, or just over £2000 a home.

As a number of commentators have already indicated, this is substantially more than was available in management and maintenance allowances at that time (about £3.1bn) or was actually being spent (about £4bn, with the extra £900m coming from rent increases before rent restructuring or other income).

How much of the £5.5bn relates to management costs and how much to maintenance costs has yet to be revealed, but it will be interesting to see what the further work being carried out by BRE uncovers.

There has been a tendency for management unit costs to increase as stock levels fall through right-to-buy sales, largely because of the element of fixed costs in their budgets. At the same time, maintenance budgets have been squeezed with a considerable knock-on impact on future major repairs bills.

It has been well documented that average rents in the local authority sector will need to increase about 1.5% above inflation every year in order to converge with the registered social landlord sector over the next eight years. This will be higher once service charges are also taken into account. When combined with the other changes in the subsidy calculations, this could generate an additional £1bn a year by 2011/12. Of this, about 20% (perhaps £200m) would be retained by authorities in the form of service charge income.

There has been a tendency for councils’ management unit costs to increase as stock levels fall

The ODPM has sought to redistribute the additional rent income through management and maintenance allowances, although it will take a while for the allowances to grow and, even then, this might not quite match the total resources needed. There will also be significant demands to use those resources towards additional capital investment. In the mean time, BRE has the task of coming up with a new allocation formula.

What is not clear is how this compares with the resources required in the RSL sector. RSL stock is generally newer, of course, apart from the properties already transferred from the council sector, so there is probably less of a need to spend on maintenance at the moment. Average reported RSL spend on management and maintenance in 2001/02 was about £1200 a unit (and RSLs have to pay VAT).

The BRE research could, nevertheless, pose some interesting questions on future needs in the RSL sector and perhaps on grant funding formulae, which in turn will present even greater demands on resources.

At the same time, both sectors face inflationary pressures. Continuing staff shortages in some key areas and the shortage of skilled trades is forcing up costs and this has not been helped by the combined effect of pension and National Insurance increases.