Agenda Item No. 10

The Vale of Glamorgan Council

 

Council: 28th February 2018

 

Report of the Director of Environment and Housing

 

Housing Business Plan 2018

 

Purpose of the Report

  1. To present the Housing Business Plan 2018 for approval.

Recommendation

  1. That Council approve the Housing Business Plan 2018 attached at Appendix 1 to this report.

Reason for the Recommendation

  1. To obtain approval for the Housing Business Plan 2018.

Background

  1. The Welsh Government (WG) requires all Local Authorities who retain their housing stock to submit annually an acceptable Housing Business Plan that incorporates a detailed financial forecast in the form of a 30 year financial model.
  2. The Business Plan is the primary tool for a Local Authority's housing landlord service and includes all assets within the Council's Housing Revenue Account (HRA).
  3. The Business Plan must be submitted to WG by 31st March 2018 and requires approval by Council.
  4. The submission will then form the basis of the Major Repairs Allowance (MRA) grant application, a pivotal financing component for the Housing Improvement Programme.

Relevant Issues and Options

  1. The financial model used incorporates the most recent investment requirements based on the Council's Keystone Asset Management System and any other known issues.
  2. Average 2018/19 rents are £93.48 calculated on a 52 week basis (equivalent 50 week average rent would be £97.23). Rents are assumed to increase by inflation plus 1% from 2019/20 in line with WG Business Plan guidance. WG will be issuing its revised Policy on Social Housing Rents shortly.
  3. The Major Repairs Allowance has not yet been advised by WG.  It has therefore been assumed in the Plan as £2.779m per annum, in line with the award for 2017/18. No inflation has been assumed on this grant.
  4. The Plan is able to afford new build and acquisition schemes of £24.993m in the first 5 years to 2022/23, and a further £211.855m in years 6-30.
  5. All other revenue income and expenditure is based on the 2018/19 budget.
  6. The provision for doubtful debts has remained at 6% of rental income to allow for the negative impact of Welfare Reform and in particular, Universal Credit on rent collection. The provision was increased to 6% originally in 2015/16 but was not required as the Universal Credit roll out did not occur. It is seen as prudent therefore, to maintain the provision with a reduction to 3% from Year 2 (2019/20) onwards.
  7. The latest projections are attached at Appendix G(i) and G(ii) to the Business Plan. The total amount of debt outstanding in any year will not exceed £103.72m, which is the Limit on Indebtedness set during the HRA Subsidy Buy-out on 2nd April 2015.

A summary of the movement in the financial position is included in the table below:

 

February 2017

Business Plan

February 2018

Business Plan

Difference

WHQS Target

September 2017

March 2018

Plus 6 Months

Revenue Surplus at Year 30

£86.97m

£50.187m

-£36.783m

Repayment of Debt

Year 28

Year 28

No Change

Peak Debt

£98.4m

£99.723m

+£1.323m

  1. The main reason for the reduction in the revenue surplus  and the increase in peak debt is due to additional investment being allocated to the new build and acquisitions programme.

Sensitivity Analysis

  1. There are a number of risks associated with the assumptions used in the financial projections for the Business Plan. The Council therefore needs to undertake sensitivity analysis to examine the impact of various scenarios on the ability to deliver the Plan.  WG guidance requires authorities to model scenarios that are considered relevant to the Plan.  It is considered appropriate that this analysis covers the first 10 years of the Plan as it is difficult to accurately assess the position in the longer term.  The results are shown at Appendix H to the Plan.
  2. The Business Plan is most sensitive to the following four scenarios:
  • Sensitivity 1 - Cost of repairs and maintenance and WHQS increasing by 1% above inflation per annum.
  • Sensitivity 3 - Increase in rent loss of 2% per annum.
  • Sensitivity 4 - The increase in rental income is restricted to CPI per annum from 2018/19.
  • Sensitivity 7 - The cessation of the Major Repairs Allowance (MRA).
  1. For these sensitivities, the level of investment currently identified in the Plan would not be affordable without a breach of the Limit of Indebtedness. Scenarios 1, 3 and 4 do not take effect until year 8 at the earliest.  This provides time in which the Business Plan could be adjusted if the scenarios start to materialise.  In addition the HRA Revenue Surplus at year 30 is considerably reduced. Under these scenarios, WHQS can only be maintained within the debt cap if there is a reduction in the number of new build developments and/or a reduction of regeneration works.

Resource Implications (Financial and Employment)

  1. The Abolition of the Right to Buy and Associated Rights (Wales) Act 2018 gained Royal Assent on 24 January 2018.  The provisions in the Act mean abolition of the rights will come into force on 26 January 2019 however there are some exceptions.  The Business Plan does not assume any HRA receipts.
  2. The WG is providing grant funding to support new Council house building.  The Housing Finance Grant 2 (HFG2) is available to Local Authorities during 2018/19.  The Council will take out a loan to fund capital expenditure and the HFG2 will be paid as an annual grant over a 30 year period and will be used to finance the interest and capital repayments of the debt.
  3. The Housing Business Plan is both viable and sustainable in terms of meeting the Council's obligations on WHQS for existing stock, the level of debt and the potential for New Build and Regeneration.
  4. Given the forecasted surpluses, the availability of resources to meet the Council's obligation should be relatively resilient to changes in financial conditions.
  5. The figures in the Housing Business Plan are based on current projections and if the financial conditions should worsen then the level of investment proposed may not be achievable and mitigating actions will need to be undertaken e.g. a reduction in the new build programme.  The Plan does cover a 30 year period and will be reviewed on an annual basis and can be amended accordingly to meet any future changes in conditions.

Sustainability and Climate Change Implications

  1. The principles of sustainability run through the Housing Business Plan and the delivery of the Welsh Housing Quality Standard. Communities will be strengthened by having access to good quality housing in safe and secure environments. With regard to WHQS works, key performance indicators are in place to monitor contractors against community impact and environmental impact.

Legal Implications (to Include Human Rights Implications)

  1. It is a legal requirement of the WG for each Local Authority that retains its housing stock to produce a Business Plan and 30 year financial forecast, describing how it will provide the investment to meet and continue to meet, the Welsh Housing Quality Standard.

Crime and Disorder Implications

  1. Many of the requirements of the WHQS contribute to the Crime and Disorder agenda, in particular, the requirements of safe and secure dwellings located in safe and attractive environments.

Equal Opportunities Implications (to include Welsh Language issues)

  1. The Housing Improvement Programme improves the Council's opportunities for assisting disadvantaged members of society.

Corporate/Service Objectives

  1. Wellbeing Outcome 1: An inclusive and Safe Vale
  2. Objective 2: Providing decent homes and safe communities.

Policy Framework and Budget

  1. This report is a matter for Council decision.

Consultation (including Ward Member Consultation)

  1. The Leader and Cabinet Member for Housing and Building Services have been consulted.

Relevant Scrutiny Committee

  1. Homes and Safe Communities

Background Papers

Housing Business Plan - February 2018

Contact Officer

Andrew Treweek - Operational Manager - Building, Tel: 02920 673036

Officers Consulted

Head of Housing and Building Services

Operational Manager Accountancy

Operational Manager Legal Services

Asset Manager

Responsible Officer:

Miles Punter - Director of Environment and Housing