Summary

Figure 1
Background on PFI housing

What is a PFI project?

Private Finance Initiative (PFI) projects in the housing sector are long-term contracts between local authorities and private consortia to deliver and maintain housing to a specified standard. The costs are paid by the local authorities to the private consortia through annual payments. Central government allocates funds to cover capital and finance costs whilst local authorities pay ongoing service costs from their own revenues. Local authorities can also contribute towards the capital costs of some projects and do so to varying degrees.

Types of PFI project in housing

There are two types of PFI housing project with different characteristics:

•  The majority of funding has been allocated to projects which refurbish existing council housing or, since 2003, build new council housing.

•  PFI also funds new non-council social rented housing which will ultimately be owned by housing associations (the most usual form of registered provider).

Key players

•  The Treasury is responsible for overall PFI policy.

•  The Department for Communities and Local Government is responsible for housing policy, governance and for allocating funding to projects.

•  The Homes and Communities Agency is responsible for managing the PFI housing programme delivery.

•  Local authorities are responsible for the procurement of PFI projects, contracting with the private sector, and for the local delivery of projects.

•  Tenants are the main users of housing services and have a right to be consulted about some decisions about their homes.

Main alternatives to PFI

The Decent Homes Programme requires local authorities to ensure social housing reaches a defined standard. Where local authorities are unable to self-fund improvements there are three options available. Not all routes will be applicable to the particular circumstances of individual local authorities. The three investment options are:

•  Transferring stock for a payment equivalent to the value of the stock to a housing association who funds refurbishment through private borrowing and its own resources. Where the stock has a negative value, this has only been possible where there has been gap-funding.

•  Establishing an Arms Length Management Organisation to manage and improve stock using additional central funding. This has not been available where significant investment and estate remodelling is needed.

•  Using PFI where central government funding is available covering extensive refurbishment and remodelling of existing stock. The PFI route allows for improvements beyond Decent Homes standards.

The main alternative to PFI for local authorities to building PFI non-council social rented housing is through the existing grant regime funded by the National Affordable Housing Programme.

The programme to date

Since 1998, the Department has allocated £4.3 billion to local authority PFI projects through six rounds in which local authorities bid for funding. There are 50 approved projects of which 25 are signed deals.

By April 2009, the programme had refurbished 12,343 homes through the Decent Homes Programme and purchased or built 991 further homes. The Department estimates that the first five rounds of the programme will deliver 28,000 homes, allowing it to tackle large-scale problems and areas of high investment need and provide high quality management and maintenance of homes.

Source: The Department for Communities and Local Government and the National Audit Office