Why is Lancaster City Council selling off some council housing on Mainway?
24 October 2023
With thanks to the reader who wrote in asking "Why are you selling off council housing?"
Here is the first of an occasional series responding to your council policy questions in detail.
Cllr Caroline Jackson, Cabinet member for Housing and Deputy Leader of Lancaster City Council, explains the background to the difficult decision that councillors have taken to sell off some Council housing on Mainway that would be too expensive to upgrade, in order to help fund 130 new and refurbished Council-owned homes in Skerton, on the site of the former Skerton School.
Making the most of Council Housing
The city council has 3,000 individuals and families on its waiting list and gets hundreds of people presenting as homeless every month. It owns and maintains just over 3,000 properties, of which only a handful become vacant each month to satisfy the huge demand. About 20 of those properties are bought each year by residents using the government Right to Buy scheme over which we have no control. Our bill for supporting homeless families and individuals in temporary (B&B) accommodation will be half a million pounds overspent by the end of the financial year 23/24.
Against this background, Council Housing does everything possible to increase its stock of available property, including conversions and rebuilds such as the four new flats just started on Alder Grove. Funding new council housing is hugely difficult: the payback on council rents can be 50 years, but we have to find the cost up front by borrowing. The interest on the loan has to be paid for by council house rent payers. So occasionally a building that is too expensive to upgrade is sold and the money raised by the sale is used to fund a new property.
How did we come to sell Lune and Derby blocks?
Mainway is a housing estate in Skerton which had 256 council homes. Of these, 18 were sold under right to buy so those owned by the Council was reduced to 238 homes. The Mainway estate was built in the 1960s and needs significant refurbishment or rebuilding in the fairly near future to be safe.
Refurbishing the Lune and Derby housing blocks was originally seen as a good way to pilot the refurbishment techniques and costs for Mainway, with a view to rolling out a similar programme over a number of years, on the larger blocks. There were 16 flats in the blocks, of which 3 had been bought with right to buy. Residents were offered rehousing and given help with moving. No one was forced to move out.`
Originally it was assumed that some funding (possibly 30% of costs, approximately) would come from Homes England. However, the Environment Agency has certified that Lune and Derby blocks are on a designated Level 3 floodplain, and Homes England stipulate that public money cannot be put towards refurbishment (etc) within this level of floodplain. This left a gap in funding for the refurbishment. As rents are very low, the rental income is very low, which unfortunately meant that a business case to refurbish these two blocks even with a return over 50 years couldn’t be made to work.
Under the circumstances, acquiring some money for the two empty blocks was better value than refurbishment, and councils are required to use value for money as a criteria for their decisions. So those 2 blocks had to be sold. However, the funds realised from the blocks will be directly used as a contribution to the much bigger programme of refurbishment of council housing homes on Mainway and the 130 units of housing to be built on former site of Skerton School. With additional funding required from Government to enable the works to be done.
How the Skerton School site will be used
Over the period 2020-2022, Skerton School site was purchased from Lancashire County Council. This enables new homes to be built and facilites the broader re-development of existing homes on Mainway to high quality, energy efficient standards. The plan for Skerton School Site is for 130 new homes - mainly I understand via three blocks of new apartments (not high rise) - plus some new terrace housing behind it. Ground floor space in one of the new blocks is expected to create community spaces, work shop units, etc. The planning application is now due to go to planning in December 2023.
Was the Community involved?
The ‘My Mainway‘ shop has been a drop-in facility for residents, open every week. Over the last two years a series of events have been run involving residents in the plans for the Mainway blocks.
Why have the final plans taken so long?
In a word, costs! The millions of pounds to do the new homes in the former Skerton school site one is hugely significant council borrowing. Not only are there issues about ‘business cases’ i.e. pay back times, but also there are limits to how much capital the council can borrow. We also want high specification energy efficiency in all new properties. However, the Skerton site as a new build on brownfield land has attracted government brownfield funding and a Homes England grant. So although it requires huge capital - and building costs soared last year - it should still repay within the 50 years. The Skerton area is also being looked at for potential district heat networks within the on-going Local Area Energy Plan.
For Mainway, the funding outlook has changed several times. Mainway was unable to attract any funding at all until six months ago, so we had to plan refurbishment by borrowing. The total amount we can borrow is limited by what we can repay, so we could only see a way to fund it in total by handing over some control to another body such as a Housing Association or private developer. This we are reluctant to do. Now Homes England - which will not fund refurbishment - will help fund rebuilding if we demolish the high-rise blocks - Skerton House, Bridge House, and Park House.
So we actually find ourselves with fewer council homes available right now, which apart from the obvious social need, means lower rental income to fund council housing costs.
Rent levels and why they are important
The costs of funding building having risen dramatically along with interest costs. This creates pressure to consider selling some of the Mainway site to ‘registered providers‘ i.e. Housing Associations to build housing so that the council not does not have to borrow the money.
Registered providers have greater amounts of funding and shorter payback times than councils because they charge ‘affordable’ rents and not social rents. The government definition of ‘affordable’ rents is around 80% of local market price. Whilst social rents are properly affordable at about 60%. Lancaster City Council charges rent below Local Housing Allowance rates, because not all council housing tenants have their rents covered by housing allowance. Some are working and so do not receive any top up.
One change that could be considered is for the Council to set rent levels at Local Housing Allowance rates - i.e. more than current social rent but covered by Housing Benefit.
What do we hope for?
We hope in order for the first phase (Skerton School) to be able to develop more easily:
- that the government will become more generous with grant funding to local councils for refurbishment and for new social housing. Local authorities all over the country are lobbying for this given the housing crisis - that interest rates will reduce, and quickly.
For wider Mainway the finance cannot all be from borrowing by the local authority - the whole 256 units would have a price tag of upward of £100 million. Even spread over 10 years or more, outside finance will be necessary in order for the whole project to take place. Also, there could be advantages in having ‘some private/mixed tenures’ in the area if it brings money for design and landscaping.
If you have read this far you will understand why we have finance officers with the jitters and housing officers with their heads in their hands. We have to be bold because council housing is essential and Mainway has once more to be made safe, attractive and liveable. But we also have to not take too many risks because we all know councils all over England have already exceeded their budgets and we don't intend to join them.
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