ALMOs come into their own?

Monimbo

A short while ago some commentators were tempted to write-off ALMOs, given the numbers of councils who’d taken housing management back in-house or – in a few cases – opted instead for stock transfer.

The key blow looked likely to be the cutting of finance for the decent homes programme, and – even more damaging – the government’s ending of Labour’s requirement that councils getting finance should have an established arms length management company with at least a ‘two-star’ performance.

In fact, announcements of the death of the ALMO proved premature.  Many have strong tenant support and indeed several now have tenant chairs.  A number of councils have recently extended their contracts with ALMOs, and two have set up new ones even though they no longer provide a route to extra funding.  And now a potential new lease of life has been provided – almost certainly by accident – as a consequence of one of the key features of council housing finance reform.

When councils become self-financing next April, they will gain a lot of financial autonomy but will continue to be subject to a cap on their borrowing.  As assiduous readers of Red Brick know only too well, this is because their debt is still part of public borrowing.

However, a new report from the National Federation of ALMOs offers three ways in which much-needed investment might be achieved, despite the cap, by authorities who have ALMOs (or decide to create them).

The essence of all three proposals is to reconstitute the ALMO so that is no longer exclusively owned by the council.  Indeed, the proposals offer an excellent opportunity for tenants to build on the strong role which they already have in most ALMOs, taking a larger ownership share and a bigger role in the governing board.  The ALMO could stay as simply the manager of the housing, as it is now, but as a result of its new constitution be able to borrow privately to supplement the council’s borrowing. It would do so on the strength of its income stream.  A second option is the same but with the added assets of
some transfer of land or (perhaps redundant) stock to the ALMO, to give it a partial asset base.

A third, and more radical, option is for the ALMO to take over the stock, but keeping a financial relationship to the council that wouldn’t exist in a conventional stock transfer.  The key here is that, instead of paying off the council’s housing debt, the new ALMO (now named a ‘CoCo’ – Community- and Council-Owned Company) covenants to pay the council’s debt charges over the long term.  This preserves the advantage of the cheaper debt which councils invariable already have, while creating headroom for new investment that doesn’t count towards the council’s borrowing ‘cap’, and ensuring that the council has a permanent interest in the ALMO’s performance and financial health.

In the next few months councils are going to be so preoccupied with getting ready for self-financing that none of these options are likely to be much explored.  However, one of councils’ key tasks will – for the first time – be to produce proper, long-term business
plans.  In many cases this will reveal the extent of the investment shortfall facing them if they have to stay within the borrowing ‘cap’.

One of the new ALMO options proposed this week, giving them the potential to invest more in stock improvements, regenerate estates, or even recommence new build, might then start to look very attractive, both to councils and to tenants.

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4 Responses to ALMOs come into their own?

  1. Pingback: The build up to HRA reform | Red Brick

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  3. Monimbo says:

    It’s correct that two of the options in the report are similar to PFI and – as the report makes clear – there would have to be a procurement exercise. This involves a risk of the contract going elsewhere, but there are also valid ways in which the LA can reduce this risk significantly, through the contract terms.
    As for the third option, the idea is create to a model which is even more sustainable than conventional stock transfer and where the overall cost of the debt will be lower. A key aim is to tie the new landlord more closely into the LA than is the case with transfer, too.
    For any of the new options, tenants are the key. There was a lot of interest from ALMO tenant board members in the new options when they were presented at conferences and seminars over the past few months, but any solution must inevitably be worked out by tenants, the LA and the ALMO at local level in each case. The report aims to provide enough information on the options and their pros and cons to start off this process – and of course to put potential options on the table that previously weren’t there.

  4. Paul Lowenberg says:

    Are you sure that these options really do offer progressive solutions in the current scenario? The first two options are in fact forms of PFI. They require something like 30/35 year contracts from the local authority in order to be able to raise any private finance and they can only be implemented following a PFI style EU procurement exercise. The consultants who have produced the report for the NFA have themselves suggested that a local authority would need to budget several million £’s in order to procure and establish this type of contract. There is no guarantee that an ALMO would win these contracts. They would clearly be attractive to large private sector organisations with PFI experience. So while in theory it offers a potential mechanism to raise some additional private finance, is it really a sound approach? The cost of the finance will be considerably higher than public sector borrowing, the process itself would be expensive and the outcomes for residents and staff uncertain.
    The third option is stock transfer to a community based housing association and as you say the financing of the stock transfer and onward investment takes on a form whereby the local authority continues to provide a form of debt finance. There the issues are different. First, is it sound to end the provision of local authority housing in areas of high social demand? Will these community based organisations be sustainable? A great many of the local authority stock transfers in the past of ended up being merged with large housing associations. Is the finance model really sustainable? A large part of the assumed benefit relies on a solution that overcomes the VAT costs that are normally borne by housing associations.
    While I agree that it is vital that we find effective, innovative approaches for social housing in the coming period, I have serious reservations about these suggested approaches. Do we not need to scrutinise these and other ideas closely against a set of progressive social housing principles before jumping on any bandwagons?

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