To agree the transfer of land and property from the Housing Development Fund Assets.

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A decision made (04/07/2008) regarding: To agree the transfer of land and property from the Housing Development Fund Assets.

Decision Reference: MD-H-2008-0073
Decision Summary Title :	DS – Transfer of Housing Development Fund Assets		Date of Decision Summary:	2nd July 2008
Decision Summary Author:	Carl Mavity, Director of Estate Services		Decision Summary: Public or Exempt? (State clauses from Code of Practice booklet)	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	N/A
Written Report Title :	Transfer of Housing Development Fund Assets		Date of Written Report:	30th June 2008
Written Report Author:	Carl Mavity, Director of Estate Services		Written Report : Public or Exempt? (State clauses from Code of Practice booklet)	Public
Subject: To agree the transfer of land and property from the Housing Development Fund
Decision(s): The Minister approved the transfer of land and property assets from the Housing Development Fund to the Housing Department and to the Treasury and Resources Department (Property Holdings Section), as set out in Table 1 of the attached report, with effect from 1 July 2008 and directed officers to implement the recommendation.
Reason(s) for Decision: There are no proposals to transfer the land and property assets currently held in the Housing Development Fund to Housing Trusts and, as such, they should be incorporated into the balance sheets of either the Housing or Treasury (Property Holdings) departments.
Resource Implications: Financial: None, other than those set out in the report
Action required: Director of Estate Services to oversee the transfers.
Signature:		Position: Minister
Date Signed:		Date of Decision (If different from Date Signed):

To agree the transfer of land and property from the Housing Development Fund Assets.

- -

Date of Report:- 30 th June 2008

REPORT FOR HOUSING MINISTER

transfer of Housing development fund assets

Purpose of Report
The Minister is asked to consider proposals to transfer land and property assets from the Housing Development Fund (HDF) to appropriate departments within the States.
Background
The HDF was established in 2000 to help meet the requirements for the development of social rented and first time buyer homes as identified in the ‘Planning for Homes’ report (RC10/99) and subsequent strategic reports, primarily in the urban area, to a good standard and specification at a reasonable cost.
Terms of Reference (attached as Appendix A) were approved on 18 September 2002 by the [then] Finance and Economics Committee.
A number of methods have been employed to support the procurement of additional social housing through Housing Trusts, principally:
- disposal of land in States ownership for development by a Trust;
- allocation of a development ‘grant’ to subsidise land purchase.

In more recent years, development by social housing providers has progressed through the acquisition of sites specifically rezoned on a 45:55 Social Housing: First Time Buyer basis.

When the HDF was set up, a number of existing housing units were transferred into it with a view to these assets being sold to Housing Trusts. In the event, the States did not pursue a policy of selling units with sitting tenants.
As a result, there are a number of residual properties on the HDF balance sheet that are either:

effectively social housing units that are being managed and maintained by the Housing Department;

assets in the course of construction, that will be managed either by the Housing Department of an alternative social landlord; or
potential development sites for which there is no approved social housing scheme and which Property Holdings recommends for disposal.

It is, therefore, proposed that officers of the Housing and Treasury Departments pursue a policy of transferring assets from the HDF balance sheet to either the Housing Department balance sheet (for properties that are long-term social housing units) or Property Holdings balance sheet (for properties with alternative development potential) with effect from 1 July 2008.

Comments

Table 1 below shows the property assets held on the HDF balance sheet and the proposed actions:

Table 1

Business Unit	Property Name	Comments	Proposed Action
HZF002	Sunshine Hotel	Acquired by HDF. Social housing scheme not viable. Proposed disposal to private sector.	Transfer to Property Holdings for disposal
HZF004	Aquila Youth Centre	Site transferred to Les Vaux at nominal value - contribution to land value will be received on completion	Retain interest in HDF until development finalised
HZF005	Westley Court	Transferred from Housing in 2000 - assumed onward transfer to Housing Trust - never progressed	Transfer to Housing stock as social housing unit
HZF006	Westley Lodge	As above	Transfer to Housing stock as social housing unit
HZF007	Maison Le Fondre	As above	Transfer to Housing stock as social housing unit
HZF008	Sandybrook	Sheltered accommodation to be retained in social housing stock	Transfer to Housing stock as social housing unit
HZF009	Rue Le Masurier (Salisbury Crescent)	Land acquired for gyratory system works - transferred to HDF in 2000. Proposals to develop housing scheme to compensate for Ann Court	Transfer to Housing to develop into stock
HZF010	19 Midvale Road	17 bedsit units - property maintained by Housing with Health and the Shelter Trust managing the client group	Transfer to Property Holdings for disposal by negotiated sale to Shelter Trust
HZF019	Le Coin	States approved sale to JH Trust at nominal value. JHT did not progress - now part of proposed larger development subject to site assembly issues.	Transfer to Property Holdings for disposal

It is proposed that the transfers will be on a ‘nil value’ basis - i.e. Housing would not be required to “purchase” the properties from the HDF. The carrying value of these assets on the HDF balance sheet at 31 December 2007 was £8.87 million
The transfers to Property Holdings would be at current carrying value of £4.05 million as at 31 December 2007. It is proposed that Property Holdings will reimburse the HDF for these properties at current carrying value, but retain receipts from onward sale.
In addition to the above, the HDF has accumulated costs of £3.65 million in respect of development works at Le Marais. It is intended to transfer these ‘work in progress’ costs from the HDF, to the Department’s rolling capital fund.
The net impact of the above proposals, together with completion of outstanding financial arrangements relating to the disposal of the Aquila and Bas du Mont developments, will leave the HDF as a cash account only with an anticipated balance of between £17-£18 million as at 31 December 2008.
The future calls on the HDF are difficult to determine accurately, as the interest subsidy agreements relate to variable loans taken out by Housing Trusts on a scheme by scheme basis. The financial model suggests that, on the basis of a base rate of 5% for the foreseeable future, the HDF will be able to meet its obligations until 2022, but will require additional funding until all existing agreements expire in 2030. If the additional funding is allocated on an annual basis as required, the model predicts a shortfall of some £2 million over the period 2022 - 2030.
It is proposed that officers of the Treasury and Property Holdings bring forward options to limit the States’ interest subsidy liability, for discussion with the relevant Housing Trusts.
Recommendations
That the Minister approves the transfer of land and property assets from the Housing Development Fund to the Housing and Treasury and Resources Department (Property Holdings Section) as set out in Table 1 above with effect from 1 July 2008 and directs officers to implement the recommendation;
Reason for Decision
There are no proposals to transfer the land and property assets currently held in the Housing Development Fund to Housing Trusts and, as such, they should be incorporated into the balance sheets of either the Housing or Treasury (Property Holdings) departments.

C Mavity

Director of Estate Services

30th June 2008
Appendix A

Housing Development Fund - Terms of Reference

Purpose of the Housing Development Fund

“To help meet the requirements for the development of social rented and first time buyer homes as identified in the ‘Planning for Homes’ report (RC10/99) and subsequent strategic reports, primarily in the urban area, to a good standard and specification at a reasonable cost”

Background

On 7th July 1999, the States agreed:
to approve the establishment of a Housing Development Fund (HDF) to be administered by the Finance and Economics Committee;
to authorise the Finance and Economics Committee to enter into the necessary agreements with lending institutions to enable an appropriate level of finance to be secured to develop the housing units identified by the Planning and Environment Committee in the ‘Planning for Homes’ report (RC10/99) and for future and ongoing developments in accordance with Articles 23 and 24 of the Public Finance (Administration) (Jersey) Law 1967;and
to approve an annual allocation, as agreed by the Finance and Economics Committee, from the Capital Fund to enable financing charges to be met.
The first tranche of funding of £10 million was voted to the Housing Development Fund in 2000.
The HDF has been operating for a period of eighteen months on the basis of the general terms of reference as approved by the States. During this period a number of the possible variants have been encountered when seeking to develop housing units in accordance with the general principles of the Fund.
The following specific terms of reference have been developed as a result of the experience gained and will provide the States, through relevant Committees, with a framework that ensures a structured approach to the use of funds without unduly restricting the ability to respond to opportunities that may arise.

General Description of the HDF

The HDF is a continuation and formalisation of the activities previously undertaken within the Housing Development Scheme Account, which is an ongoing fund set up to provide the Housing Committee with bridging finance to develop properties for onward sale. The Scheme bears the cost of land acquisition and development, which is then recovered on the disposal of completed sites.
The HDF provides a mechanism for funding housing developments undertaken by the States, as well as providing subsidies (where necessary) for developments undertaken by other providers of social rented housing (such as Housing Associations) and, if necessary, for certain private sector ‘first time buyer schemes’.
The nature of the HDF’s operation is such that funds flow out of the account in the early years to be repaid over the longer term, leaving the Fund initially in a deficit position.
The existing agreement with Housing Trusts provides an interest subsidy that caps the repayment rate for Trust borrowing at 4% per annum. Capital development subsidies are also made where rental levels are too low to sustain the scheduled repayment. For this reason funding, in addition to that raised from rental income gained on the new housing units, is required to ensure the fund is fully repaid. These subsidy arrangements are extended to include developments undertaken by the Housing Committee as well as those undertaken by Housing Trusts.
The forward financial forecast presented to States’ Committees on 20th May 1999, included a preliminary allocation of £10million per annum to be added to the amount available for capital expenditure. This amount, or such other amount as the Finance and Economics Committee considers appropriate, is to be earmarked for transfer to the HDF on an annual basis, subject to the agreement of the States.
The borrowing liability of the HDF would then need to be repaid. The funding to meet the repayments is realised from a number of sources:

allocations from the Capital Fund as earmarked and referred to above;

an annual transfer from the Housing Committee Revenue Budget, based on a proportion of the gross rental income gained from the new units to be developed and added to that Committee’s stock;
any ‘surpluses’ from first time buyer sales or sales to other providers of Social Rented Housing. Where, for example, a development is undertaken on land already in States’ ownership, the sale price for those properties may exceed the cost of development. In such cases the net ‘surplus’ is allocated to the HDF to offset schemes where a development subsidy is required.
any other such alternative means of funding as may be considered appropriate by the Finance and Economics Committee

Terms of Reference

Overall

The following terms of reference are a guide to the use of the HDF and are a confidential document within the meaning of Part III, paragraph 3.2 (a) (xii) of The Code of Practice on Public Access to Official Information.
When structuring these ‘rules’ it must be recognised that there may be opportunities for beneficial States involvement in schemes which do not fit precisely within the terms of reference. In such cases, the specific approval of relevant Committees, including the Finance and Economics Committee and where required, the States, must be obtained.
Expenditure from the HDF is directed to the development of properties which achieve a net increase in the housing stock. The HDF will not normally be used as a substitute for funding routine maintenance or renovation of existing stock, whether held by the States or others.
Exceptionally, funding from the HDF may be considered to support the transfer of existing properties to Housing Trusts where units are in urgent need of maintenance to remain in the Island’s Social Rented Housing Stock. Where such schemes are proposed the prior agreement of the Housing, Planning and Environment and Finance and Economics Committees is required before detailed proposals are developed.
Properties constructed using the HDF will be for Category ‘A’ housing, whose occupiers will be residentially qualified.
The HDF can be used to fund developments anywhere within the Island where zoning for such housing is permitted.
The Fund is controlled by the Finance and Economics Committee, which is ultimately responsible for expenditure decisions taken.

Housing Task Force
A group of officers known as the Housing Task Force (HTF) has been set and meets on a regular basis to provide an initial assessment of sites being proposed, together with other issues relevant to the acquisition and development of social rented and first time buyer housing.
The HTF is chaired by the Director of Property Services and comprises representatives of Housing, Planning, Property Services and Treasury. Meetings are recorded and minutes circulated to HTF members.
The HTF is responsible for making recommendations to relevant Committees in respect of prospective developments. In undertaking this task, the HTF specifically considers whether a site be further explored, held in abeyance pending further information or rejected as unsuitable for development.
The HTF is funded from an allocation from the Central Planning Vote (as determined by the Finance and Economics Committee) and reports on its progress annually to the Housing, Planning and Environment and Finance and Economics Committees.
The report format will contain relevant performance measures, including:

Number of units provided, by class and with progress to date (i.e. Feasibility, Planning, Development, Completed)

Estimated average cost per unit for land acquired
Average development cost per unit
Average capital subsidy per unit
Progress to date against the need identified in the ‘Planning for Homes’ document (or its successor) including a statement as to the continued need for the HTF.

Expenditure from the Fund
The majority of the HDF expenditure relates to the provision of development (capital) and interest subsidy payments. In addition to these sums, funds are expended to produce indicative schemes of development for potential or acquired sites.
Feasibility and planning expenditure will take place on potential projects which may not come to fruition. It is essential that the necessary investigative works are undertaken to provide sufficient information to determine whether a prospective scheme meets financial and other criteria. To ensure that an inappropriate level of abortive costs are not generated for schemes that do not proceed, the following criteria will be applied:

Before any feasibility expenditure is authorised, the scheme will be considered by the HTF

The HTF will provide an initial opinion on the suitability of the proposal, with particular reference to issues of value, planning and housing management. Any fundamental weakness identified will be recorded, no expenditure will be authorised and any third party contacted to inform them of the HTF’s decision;
If the HTF consider that the proposal has merit, it will determine a maximum sum to be allocated for investigative and feasibility works. The sum will be commensurate with the size and complexity of the proposal, but will not exceed £50,000.
Should the size or complexity of a particular proposal warrant, in the opinion of the HTF, a sum greater than £50,000, the prior written authority of the Treasurer of the States is required;
A cost centre will be created in the appropriate HDF range to record all expenditure.

Proposed schemes are suggested from a number of sources, HTF proposals, other States Committees and direct contact from both developers and prospective social landlords such as established Housing Trusts.

Each approach is different and has its own idiosyncrasies which makes it impossible to create a set of ‘hard and fast’ rules suitable for all circumstances.
The financial objective of these terms of reference is to use the funds available most effectively to maximise the number of units created, within an acceptable quality threshold. The type of unit created must also make a positive contribution to the shortfall identified in the Island Plan and other strategic documents.
The following guidelines provide a framework for dealing with all proposals for acquisition and development of land in accordance with the terms of the HDF.

Acquisition of Land
Where the proposal is for the acquisition of land (undeveloped), an assessment of the building potential of the land is to be developed. This assessment will form the basis of a report to the Housing, Planning and Environment, and Finance and Economics Committees (and such other relevant Committees), which will also include any relevant factors pertaining to the site (e.g. contamination, ground conditions, ownership issues, access to services, agreed development brief, etc.)
When negotiating the acquisition of a site it will be made clear to prospective vendors that any offer is subject to contract and to the agreement of those Committees of the States.
As a guide to acquisition, sites in the built up area should deliver a ‘site cost per unit’ not greater than the following sums (to be reviewed from time to time in line with ):

Table 1

Property Type	Urban Area - Guideline Maximum Site Cost Per Unit
bedsit/one bed flats	£50,000
two bed flats/maisonettes	£60,000
two bed house	£65,000
three bed flats/maisonettes	£70,000
three/four bed houses	£100,000

Where it is considered that the site could be developed as a mixed development (i.e. more than one type of dwelling) the above maximum guidelines should be applied to determine an overall maximum for the site.
It is recognised that there may be compelling reasons for proposing the acquisition of a site which falls outside the above financial guidelines (e.g. the extinguishing of a ‘bad neighbour’ business; where a ‘marriage value’ is obtained, etc.). These reasons must be explained with any assumptions clearly stated.
Where the site has factors which reduce its market value (e.g. contamination, complex site boundaries, etc.) the estimated impact on the land value will be identified, reported to the relevant Committees and factored into any negotiations.
The HDF will not normally be used to purchase sites in the non-urban area as it is considered that such development will proceed through the private sector, principally on rezoned sites, with site values determined through prevailing market conditions.
Any non-urban sites offered for development as social rented housing will be considered by the HTF on a case by case basis. In such circumstances, the above guideline site costs will be considered as absolute maxima.

Assessment of Proposed Developments
The HTF is often approached by developers (either directly or through a Housing Trust) with a view to developing land in the ownership of a third party.
As with the acquisition of land, above, a set of guideline costs is required to set a benchmark for comparing development with each other and in terms of their estimated impact on the HDF.
To effect a social rented housing development at nil capital subsidy, the cost of the development must be repayable from the rental it generates. A standard model is used to evaluate the sum that can be paid back, which assumes:

interest rates payable by the landlord are capped at 4% per annum

rents increase at an average of 3.5% per annum, and
a payback period of 25 years.

Based on the current (April 2002) approved rentals, the following costs can be sustained without recourse to development (capital) subsidy:

Table 2

Property Type	Weekly Rental Range	Sustainable Total Cost Range (per unit)
Bed-sit	£80 - £100	£77,400 - £96,800
One Bed Flat	£100 - £120	£98,800 - £116,100
Two Bed Flat	£120 - £140	£116,100 - £135,500
Two Bed Maisonette	£130 - £150	£125,800 - £145,200
Two Bed House	£150 - £175	£145,200 - £169,400
Three Bed Flat	£170 - £200	£164,500 - £193,500
Three Bed Maisonette	£180 - £210	£174,200 - £203,300
Three Bed House	£200 - £225	£193,600 - £217,800
Four Bed House	£220 - £240	£212,900 - £232,300

The above unit cost range represents a ‘best case scenario’ - i.e. no development subsidy required. The ‘worst case scenario’ which is acceptable under these guidelines is for the States to provide a development subsidy no greater than the value of the land.
On the basis of guideline costs provided in Tables 1 and 2 above, properties developed using the HDF will meet housing and planning minimum guidelines and fall within the following guideline maximum range of costs:

Table 3

Property Type	Maximum Total Cost Range (per unit)
Bed-sit	£127,400 - £146,800
One Bed Flat	£148,800 - £166,100
Two Bed Flat	£176,100 - £195,500
Two Bed Maisonette	£185,800 - £205,200
Two Bed House	£210,200 - £234,400
Three Bed Flat	£234,500 - £263,500
Three Bed Maisonette	£244,200 - £273,300
Three Bed House	£293,600 - £317,800
Four Bed House	£312,900 - £332,300

Tables 2 and 3 are at a 2002 price base - to be updated in line with annual increase in fair rents and significant movements in land prices.

Reporting Lines
All proposals for the purchase of land or a completed development are to be reviewed, in the first instance, by the HTF.
The HTF is responsible for preparing a report for consideration by relevant Committees. The usual order for consideration should be the Planning and Environment Committee followed by the Housing Committee and finally the Finance and Economics Committee.
Should an issue arise which makes the proposal unworkable (e.g. would not achieve planning permission), the HTF may consider that it is not further pursued through the remaining Committees.
The report’s content will vary depending on the nature of the proposals, but should:

compare the financial implications of the proposal with the guideline maximum costs

show the financial impact of the proposal on the HDF
refer to the limitations of the site in planning terms and specifically where those limitations impact on yield (e.g. height limitations) or additional costs (e.g. the requirement to include an underground car park).
identify the acceptability of the site in terms of its suitability for housing management. Issues such as adjacent amenity space, child density and access for specialist client groups (e.g. elderly and/or disabled) will also need to be addressed.
determine the impact on other areas of States activity (e.g. Educational facilities, traffic management etc.)
identify any issues that are particular to the site (e.g. ground conditions, previous use of the site etc.)
in respect of social rented housing, identify the ultimate landlord
provide sufficient information for the Housing, Planning and Environment and Finance and Economics Committees to evaluate its cost effectiveness in advance of funding commitments being entered into

Each scheme proposed for funding through the HDF will need to be agreed by the Finance and Economics Committee before any significant funding implications are entered into.

The cost involved in preparing the report will be closely monitored and kept to a minimum.
Where a scheme provides social rented housing to be owned and managed by a third party, such as a Housing Trust, that third party will need to satisfy the Housing and Finance and Economics Committees that it is a suitable body to function as a social landlord.

Post Approval Process
Once a scheme has received the approval of the relevant Committees (including funding approval by the Finance and Economics Committee) and the States, where required, it can move into the development/acquisition stage.
Where the scheme constitutes the acquisition of a completed development, the terms and conditions of the acquisition will have formed part of the approval process. At this stage, the professional expertise of the States Property Services Department and Law Officers will be required to conclude the transaction.
Where the scheme constitutes a development being undertaken by a third party (such as a Housing Trust), that third party will be required to provide the States with monthly progress reports in a format agreed by the Treasury.
Where the scheme has received development funding (either in cash or through the transfer of land at a below market value), the States will reserve the right to undertake a full audit of the project.
Where a development is being undertaken by the States, either as an addition to the States’ housing stock or on behalf of a third party, the development will follow best practice as described in Code of Direction No.8 or any other associated relevant guidelines.
The Treasury will be responsible for producing annual accounts for the HDF as a special fund and also for producing an expenditure forecast for inclusion in the HTF annual report.