Many pressures on Brent housing put projects at risk

 A Quarter 2 financial report LINK going to Cabinet on Monday covers a range of areas where inflation and the cost of living and energy crises have impacted on the Council’s budget. Of particular interest is the impact on housing, both the Housing Revenue Account (HRA- council housing) and the capital programme (building of new homes). [My emphasis throughout]

There is a double whammy of homelessness increasing and the affordable private rental sector reducing:

3.6.7  As the cost of living crisis deepens, with energy costs and day-to-day expenditure increasing steeply, there has been a rise in homelessness applications, resulting in an increased use of temporary accommodation (TA).

3.6.8  In addition, the affordable Private Rented Sector (PRS) has contracted, which means there is a lack of supply to move households on from TA, which will put further pressures on the budget. Although, the recent opening of Anansi and Knowles house has alleviated this pressure to some extent, both schemes are now full and silted up due to the lack of move on accommodation available.

The cost-of-living crisis is expected to increase the number of families in rent arrears while the financial impact on the HRA budget could mean an increase in rent and reduced services:

3.6.9  The current economic climate could also have an impact on the rent collection rates and result in increases in rent arrears. Collection rates are being closely monitored and there are ongoing investigations to better understand the drivers for the movements.

3.9.2  The HRA is forecasting a break-even position for 2022/23. This is the net result of overspends on voids and a backlog of repairs being offset by underspends due to staffing vacancies and a reduction of the capital programme. There are also a number of other risks and uncertainties in this fund that could pose financial pressures.

3.9.3  High levels of uncertainty around the inflation and rising interest rates pose a financial risk to the HRA. This has an impact on the cost of materials and repairs, as well as the cost of new build contracts. Rising energy costs are to be passed on to tenants and leaseholders resulting in an increased risk of non- collection. In addition, rising cost of living is likely to impact rent collection rates and consequently result in increased rent arrears. Other pressures involve the capital programme as there is no new government funding having been made available to meet environmental priorities and requirements such as carbon reduction works to homes.

3.9.4  The increased costs experienced by the HRA would have to be met by rent inflation and modifying service delivery. The rents policy is currently under consultation and it is unclear at this stage what restrictions the Council will face.

The delivery of new homes is in jeopardy due to inflationary pressures and the report anticipates further changes in tenure of the kind already reported on Wembley Matters at Watling Gardens where the amount of genuinely affordable housing at social rents is reduced to ensure viability of the project. This could mean the proportion of private housing and controversial shared ownership being increased and London Affordable Rent becoming the norm  and some projects being abandoned or postponed:

Capital Programme

4.1  Rising inflation, a continued shortage of labour and materials and events such as the COVID-19 pandemic and the war in Ukraine have had an adverse effect on costs and therefore the financial viability of schemes. The Government reported an increase of 23% in the costs of materials such as steel, timber and concrete last year alone.

4.2  For those projects in contract and being delivered, the Council is already receiving requests from contractors to re-negotiate pricing due to the cost of raw materials of which the Council are exploring all options to sustain viability including value engineering and tenure mix to allow schemes to continue. This is also impacting viability for schemes that are not yet in contract but within the Capital Programme and those in the forward plan pipeline. Even with the mitigating measures, it is likely there will be schemes that are cancelled, paused or reduced in scope to ensure funding can be prioritised appropriately.

4.3  The Council is in the process of reassessing the viability of our Housing Capital Programme in light of recent inflation figures. The exercise will model the potential impact of expected cost increases for schemes not yet in contract or received a recent tender price. In anticipation of the adverse affect on the scheme’s viability, the Council will assess the scope of the scheme whilst also reviewing the impact of cross subsidy.

4.4  The impacts of inflation are not reflected to the full extent in the budget variances reported as above due to:

·  The variances analysed in this report are for the financial year 2022/23 only;

·  Some impacted projects have had additional budgets secured by Cabinet for example Watling Gardens which now includes 23 shared ownership homes which protected the Council’s ability to deliver 45 Extra Care homes and 56 homes at London affordable rent;

·  Many projects have the initial phases of the budget approved which is forecast above, however the further build phases of the scheme are yet to have been approved.

A further pressure is over-spend on Housing General Fund project.

4.6  Housing General Fund

The General Fund Housing Programme is projecting a variance of £2.8m (overspend of £3.3m and slippage of £0.5m). An overspend of £2.5m is forecast on the Learie Constantine Centre as a result of amendments to the cost plan and contract arising from changes in building safety regulations. A £0.4m overspend is forecast for Empty Property Works Programme based on the project team’s assessment of the need. There is an £0.2m overspend forecast on Church End development due to the need to redesign RIBA Stage 3 to comply with the new Building Safety Act. There is a £0.2m overspend forecast on Peel Road to account for the contractor’s claims which they have assigned to variations instructed by the Council. There is a slippage of £0.1m on Clock Cottage and £0.4m on Nail Acquisition & Refurbishment resulting from the ongoing assessment of scheme progress and spend timing estimates.

 

4.9 St Raphael’s

The two St Raphael’s schemes, Estate Regeneration and Phase 1 of the Infill Development, are forecast to spend to budget for the professional fees and works to support the planning applications associated with the scheme of £1.4m and £0.5m respectively.

Risk and Uncertainties

For the Infill housing development, the project team are working on the planning application for Phase 1 as per the Masterplan. The viability of the development is under regular review and work is ongoing to understand the implications of the current market environment for delivery on the site.

 

A further risk not covered by the report is that slippage of some schemes will mean that Brent Council is not complying with the timetable demanded by the GLA as a condition of their grants and the funding could be lost: