How PFI has been used in social housing
1.6 In 1998, the Department launched eight6 PFI pathfinder projects to allow local authorities to refurbish existing council housing stock to the Decent Homes standard. This covered remodelling and demolition, and, from 2003, building new council housing. The programme also funds non-council social housing, largely new build, where the housing is not owned by the local authority at the end of the contract but remains in housing association ownership. Around eighty per cent of funding has been allocated to council housing projects and the remainder to non-council social housing. There have now been six funding rounds in the programme, involving 50 projects which have been allocated a total of £4.3 billion of funding.
1.7 PFI housing contracts typically run for 30 years. A local authority submits a bid to the Department and, if successful, is allocated funds to service capital and finance costs. Following competitive procurement, it contracts with a private sector consortium, which usually includes a housing association, to improve or build housing and then maintain it. Projects may also involve remodelling of estate layouts, new infrastructure and community facilities. The consortium borrows commercially to fund the project and receives payments from the local authority over the course of the contract for the works and services provided. The local authority funds the ongoing service costs from its own revenues. Figure 3 shows the structure of a typical PFI housing project.
1.8 Some local authorities have not maintained their housing stock properly. Local authorities, advisers and private sector contractors identified PFI's ability to ensure long-term maintenance of the housing stock undertaken to a contractually agreed specification as a key benefit. Failure to do so results in penalties being levied against the private sector.
Figure 3
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NOTE 1 In Some projects the housing management function has been retained by the local authority outside the contract. Source: The Department for Communities and Local Government |
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6 One of these projects subsequently withdrew from the programme.