Future of The Fosters Tower Block, High Green
1. Purpose of the report
1.1 To seek authority to lease The Fosters, High Green, to South Yorkshire Housing Association (SYHA) on a 125 year lease, on terms which allow SYHA to improve the block to an aspirational standard.
2 Background
2.1 The Fosters is a Council owned ten-storey block of 34 spacious two bedroom flats, constructed in the early 1960s, with retail units and a caretaker’s flat on the ground floor, plus telecommunication aerials on the roof.
2.2 In the mid-1990s, the block was in poor condition, hard to let and the Council had no resources to finance the necessary improvement works. However, SYHA had an allocation of Temporary Social Housing Grant from the Housing Corporation available to spend on improvements, so the decision was taken to lease the block to SYHA at a peppercorn rent for a 10-year period. The lease ended in June 2006 and SYHA are currently ‘holding over’ on the same terms.
2.3 The block is currently fully let, with the exception of a few units that are in need of repair and are not fit to let.
2.4 Although structurally sound, the block is now in need of significant investment to achieve the Decent Homes Standard, including the replacement of the 40 year old original bathroom suites, plus timber windows and balcony doors of the same age.
2.5 Due to uncertainty around the future of the block, there has been little investment in the retail units, which have become a magnet for anti-social behaviour, contributing to a relatively poor reputation for the block as a whole.
3 Aspirations for The Fosters
3.1 It is desirable to:
- secure the long term future of the block (at least a 60 year life), and in doing so address any reputational issues, thus ensuring ongoing popularity and sustainability and maintaining the supply of affordable homes in the area
- significantly improve the surrounding environment, beyond measures encompassed by the Decent Homes Standard, to benefit both the residents and the wider surrounding community and remove current opportunities for anti-social behaviour provided by the existing lay out.
3.2 It is estimated that over £2m of investment would be required to achieve this aspirational standard. The Council has resources available to bring the block to Decent Homes Standard, but further improvements are regarded as necessary. A number of options have therefore been considered for the block.
4 Options for the way forward
4.1 There are a range of potential options for the block as described below. In assessing these options 2 key considerations have been kept in mind:
· that if retained, the block must meet the Government’s Decent Homes standard by 2010
· that the block currently provides much needed affordable housing in the High Green area. There are very few other affordable two bedroom flats for social rent in that community, but there is an ongoing need for affordable homes.
5 Option A: Demolition and rebuild by a private developer
5.1 The Fosters sits in an exposed position and the exterior condition of the block is poor (see photograph at Appendix 1). Demolition, coupled with sale to a private developer to build new homes on the cleared site, would certainly improve the appearance of the area, although this alone would not constitute a reason for demolition.
5.2 Under the new Affordable Housing Policy, any replacement housing would need to comprise 20% affordable housing. It is estimated that the redevelopment of the footprint of the block and surrounding area would yield approximately 35 new homes, which translates to a maximum of 7 new affordable homes. This would be a significant net reduction in numbers of affordable homes in an area where demand for social housing is high and properties are relatively scarce: the proportion of social housing in the area is only about half the city average.
5.3 The amount of replacement social housing could potentially be increased by conceding the value of the land, or with the aid of Housing Corporation funding, but this would divert resources from other Council priorities such as Housing Market Renewal.
5.4 The current residents of the block are on shorthold tenancies. SYHA has covenanted to return the block with vacant possession at the end of the lease, and in any case the tenancies are incapable of surviving the ending of the lease, so the Council would not be liable for homeloss or disturbance payments. However, any of the residents may subsequently present as homeless, and the Council may have a statutory duty to rehouse them.
5.5 Given the loss of scarce affordable housing that would result, plus the consequent disruption to the current residents who would find it difficult to access alternative accommodation nearby, this option is not recommended.
6 Option B: Upgrade the block to the Decent Homes Standard
6.1 Under this option, the Council would take the block back from SYHA. The current SYHA tenants would be granted secure tenancies. Sheffield Homes would manage the properties and the improvements through the Decent Homes programme, using government ALMO funding. This option would retain 34 units of social housing at the Decent Homes standard, but would not guarantee a long life (ie. 60 years) for the building. Whilst ageing bathrooms, windows, balcony doors and heating systems would be replaced, and cosmetic improvements made to the external decoration, other requirements would be unmet. There would be no replacement of the lift, no external cladding, no significant improvements to the surrounding environment and a minimal positive effect on the neighbourhood as a whole.
6.2 This option requires the investment of £1.1m of public money by 2010, but does not reduce the likelihood that similar sums would have to be spent by the Council, over the following 20 years, in order to maintain the block at Decent Homes Standard. Neither would the reputational issues be fully addressed. In the longer term, this option does not represent best value for the significant initial public investment, and is not recommended.
7 Option C: Joint investment with SYHA to reach higher standard
7.1 This is an innovative opportunity to combine Council investment to reach the basic Decent Homes Standard, with additional private investment from SYHA, which would allow the Council’s aspirations for The Fosters to be achieved. It arises from the long term commitment SYHA are demonstrating towards The Fosters, and their willingness to commit a significant amount of their own resources to creating social rented accommodation of a very high standard, over and above what the Council could hope to achieve via the Decent Homes programme.
7.2 In the short term, SYHA would continue to lease the block from the Council, on the current terms, whilst Decent Homes works were completed. Following the completion of the Decent Homes programme by 2010 a new longer lease of 125 years would be granted to SYHA. The Council would retain the freehold, and conditions within the lease would ensure the future of the block as well-managed affordable housing.
7.3 SYHA’s contribution, financed by private borrowing against their future rental income, would exceed the public investment at approximately £1.3m towards the improvement of the block.
7.4 This additional investment by SYHA would allow the renewal of the lift, the external cladding of the block, improvements to the external environment (including boundary treatments), rejuvenation of the communal areas, and a higher general specification for fixtures and fittings within the flats. The block would reach Housing Corporation Scheme Development Standards, Eco Homes ‘Very Good’ Standard, and SYHA would aim to achieve a Secured By Design certification.
7.5 The existing tenants would remain with SYHA throughout the process. SYHA would carry out the improvements under licence from the Council. The Council would retain the lease on the retail units and the licence for the telecommunications aerials.
7.6 This option retains all 34 units of social rented housing and guarantees a long life for the block, thus securing best value from the Council’s investment through the Decent Homes programme. It would improve the appearance of the block and surrounding area. It would secure approximately £1.3m of additional private investment, maintaining the supply of social housing in the long term. For these reasons, Option C is the preferred option.
8 Option D: disposal of block for private sale or renting
8.1 There is also an option to sell the block for private sale or letting. However, this would both remove all the affordable housing and potentially leave a largely unimproved block, achieving none of the Council’s aspirations for The Fosters, and has therefore not been considered.
9 Project delivery and risk management
9.1 A joint Project Group comprised of staff from the Council and SYHA will meet regularly to develop and deliver on a Project Plan for the project. The Project Group will identify and agree the most efficient procurement method for the delivery of the programme of works and develop a consultation plan to keep the tenants and other stakeholders well informed.
9.2 An agreed Risk Management Plan will form part of the overall Project Plan, identifying potential risks and putting in place appropriate mechanisms to manage them both within the Council and at SYHA.
9.3 The Project Plan will be approved by Neighbourhoods Investment Programme Board, which will also monitor the progress of the project.
10 Legal implications
10.1 The Council’s investment in the block, as part of an agreement with SYHA, constitutes assistance in connection with privately let housing accommodation and would require consent under Section 25 Local Government Act 1988.
10.2 In order to comply with its fiduciary duty, the Council must consider the scheme as a whole as at the present date; it must consider the market value and cost of the investment it proposes to make; against which it should set out what it will receive for the block and consider whether the benefits of the scheme justify that expenditure or loss of receipt.
11 Equalities Implications
11.1 The equalities implications have been considered in a separate Equalities Impact Assessment. No significant negative implications were found. We will ensure consideration of equality issues are written into any agreement and that these are monitored by the Council and Housing Corporation. The Council will work with SYHA to monitor access to the properties and ensure that any disadvantages are identified and addressed.
11.2 South Yorkshire HA will carry out effective consultation with BME, Disabled, Lesbian, Gay, Bisexual and Transgender and female tenants as part of developing the final specification for the improvement works, following the completion of a more detailed Equalities Impact Assessment in Spring 2007.
12 Financial Implications
12.1 There are differing financial implications for the Council arising from each of the potential options.
Option A
12.2 Given the costs of demolition and buying out the shop lease and aerial licences, the net capital receipt to the Council from this option is estimated at £110,000. The Council would, however, lose the £10,600 revenue per annum currently received from the lease and licences, so in the medium term there would be no financial advantage to the Council from this option.
Option B
12.3 Under this option of returning the block to Council management, via Sheffield Homes, the Council would invest approximately £1.1m from the Decent Homes Programme budget. In return it would receive the rental income from the flats, shops and aerials, balanced by the requirement to make necessary expenditure on management, maintenance, major repairs and improvements. Over 30 years, the average net income is estimated at approximately £40,000, although the surplus would reduce over time as maintenance costs increased.
Option C
12.4 As part of the joint investment option the Council would invest approximately £1.1m from the Decent Homes Programme budget. It would then transfer the block on a long lease, at a discount from market value which reflects the investment and other commitments which SYHA will be required to meet. According to current estimated costs SYHA would need to raise approximately £1.3m to bring the block up to the aspired standard. SYHA’s development appraisal showed that they would need the block to be transferred at nil consideration to allow this level of investment.
12.5 The estimated open market value of the block, with the benefit of Council investment to Decent Homes Standard, for private letting, is nil. However, if the block were sold with consent to demolish and redevelop, the estimated value rises to £110,000. Therefore, the transfer of the block at nil consideration constitutes a discount of £110,000 from market value. The Council would continue to receive £10,600 per annum from the shop lease and aerial licences.
VAT
12.6 Works to the property will be subject to VAT at 17.5%. The extent to which VAT can be recovered and, therefore, removed from the cost of investment by the Council, SYHA or both is currently under active consideration by SCC's Principal Taxation Officer in Corporate Resources. This issue may affect the final project structure.
13 Conclusion
13.1 The joint investment proposal (Option C) would retain all the existing social housing and guarantee a long life for the block, thus securing best value from the Council’s investment through the Decent Homes programme. Additionally, it would substantially improve the appearance of the block and, therefore, the surrounding area which it dominates, including other Council housing which will also be the recipient of Decent Homes funding. Importantly, it offers an opportunity to secure approximately £1.3m of private investment which would not otherwise be available, maintaining the supply of social housing in the long term without using Housing Corporation funding, leaving this money available for other priority schemes.
14 Recommendations
That subject to Secretary of State’s consent:
a) the Executive Director, Neighbourhoods in consultation with the Cabinet Member for Safer Neighbourhoods, be authorised to negotiate and agree terms with South Yorkshire Housing Association (SYHA) for a joint investment programme, with the City Council, for the Fosters Tower Block, High Green, to achieve the standards described in Section 7; and
b) the Executive Director Neighbourhoods in consultation with the Assistant Chief Executive Legal and Governance, the Head of Strategic Property Management and the Cabinet Member, be authorised to negotiate and agree terms with South Yorkshire Housing Association for the transfer of The Fosters to SYHA on a 125 year lease, at a discount from market value which reflects the investment and other commitments which South Yorkshire will be required to meet.
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This is a document containing Appendix 1 to the Fosters Tower Block report (790 KB)