Scots trust boosts affordable housing
By Keith Aitken in Edinburgh | 2 October 2012
Affordable housing will be a priority for the Scottish Futures Trust in the next financial year, finance director Peter Reekie has told Public Finance.
The housing trust has led to affordable homes like these in Inverness Photo: Scottish Futures Trust
Other items moving up the trust’s agenda include ensuring more rational use of public assets and helping public bodies improve their contract negotiating and managing skills.
It follows a year in which the trust, set up by Scottish ministers in 2008 to develop ways to stimulate public investment at a time of austerity, has made £131m of net savings in Scottish infrastructure investment and increased its portfolio of capital projects to £9bn. At the same time, it has diversified increasingly from its origins as a quest for alternatives to the Private Finance Initiative/public-private partnership investment model.
Reekie told PF: ‘We have been focusing on two things: additionality [leveraging extra value for every public pound invested], and better use of the money that we have. The key focus is needs, not wants.’
One aspect of ‘additionality’ involves the National Housing Trust. This has been set up by the SFT and the Scottish Government, in partnership with the construction industries, as a model for combining private sector funding with council borrowing to build affordable homes for rental.
Development is funded through a Limited Liability Partnership, made up of the local authority, the developer and the SFT. This pays the developer up to 70% of the purchase price for the properties up front, set against future rental income.
Ministers are expected to authorise a third phase of activity soon. In the current year, more than 1,000 affordable homes are under construction.
This contrasts with the approach in England, where developers are being released from affordable housing obligations to get development moving.
‘Actual houses are being occupied by actual families as a result of this, which is a great step forward for our organisation,’ Reekie said. ‘We’re really quite proud of how that’s going. These are modern, well-insulated, efficient homes.’
He revealed that the trust is looking at the possibility of releasing surplus public land for more such homes, as well as mapping the totality of the Scottish public estate to promote shared use of premises. ‘I think the idea of looking at land as a portfolio, rather than as being owned by a set of individual bodies has massive advantages,’ he said.
A more controversial area has been the non-profit distributing model, which finances major capital projects against future revenue budgets. The model is about to be used for the first time in the health sector at Edinburgh’s new hospital for sick children, and Reekie is confident that more such projects will flow.
‘NPD is really there to fill up the bottom of the trough of capital – which has gone down much more steeply than revenue budgets – and to let projects like the sick kids [hospital] go ahead,’ he said.
SFT has simplified the tendering process for major contracts by asking bidders to tender against a pre-ordained design on a comply-or-improve basis, rather than submit competing designs.
Reekie told PF he foresees a growing role helping public bodies manage their contracting more efficiently. ‘We want to create an under-budget mentality, looking at things we really need rather than asking people what they all want and then looking for the means to do it,’ he said.
Other areas being offered by the SFT include contract consultancy, review and assurance. ‘We are generically not very good in the public sector at keeping things maintained that we have built,’ Reekie observed. ‘Now you can use the SFT to do diligence on these projects at arm’s length, and have a ring-fenced commitment to maintain it in your budget every year.’
The trust is also encouraging more joint working and building use in the public sector through its hub initiative. As part of this it is awaiting the go-ahead to build more schools on top of 67 under way. ‘The structures in most areas are already in place to deliver these schools,’ Reekie said. ‘That makes delivery quicker than it would previously have been.’
This story first appeared in the October issue of PF