Social housing goes on trial

The UK's first PFI social housing scheme was signed this week between North East Derbyshire District Council, South Yorkshire Housing Association, builder Lovell Partnerships and funder Dexia Municipal Bank.

The deal, to build, manage and maintain 51 new homes at the former mining community of Holmewood, Derbyshire, is being hailed as a breakthrough way for cash-strapped councils to provide affordable rented housing. Other PFI housing schemes are in the pipeline at Berwick, Glasgow and Manchester.

The PFI route still requires some form of Government subsidy, but the council argues less subsidy is needed, both in terms of the capital cost and through savings in Housing Benefit payouts because of lower rent levels.

The council is acting as an "enabler" by setting affordable rent levels, specifying the levels of service for housing management and maintenance and has 100 per cent tenant nomination rights.

The housing association owns the homes and receives money via the rents and a service charge paid by the council. It will manage and maintain the houses for 30 years with incentive payments for good performance.

The service charge is paid largely by the Government grant and by the council. In this case the Government is providing a capital equivalent sum of £361,000 and the council £64,000. The council has provided the land free of charge.

PFI housing schemes have to provide three basic elements: risk transfer; value for money and a contract structure test - up to 20 per cent of the service charge must be capable of being at risk for poor contractor performance.

the risks of designing, financing and building the homes, and managing and maintaining the services are passed to the private sector. Value for money - initial rents will be set at least £15 per week lower than similar schemes funded by Social Housing Grant and will need less than half the public subsidy to build them. Contract structure test - .

The future of social housing PFI will depend on whether it can be used to refurbish existing homes, rather than just new build and whether private finance lenders are willing to put up the cash for such schemes.

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