Derby Homes: striving for sustainability

1 May 15

Derby provides a case study in sustainable finance for social housing

David Enticott

David Enticott is a director of Derby Homes, an arm’s length management organisation (ALMO) created by Derby City Council to manage its council housing assets.

When he began working in social housing in 2003, a year after Derby Homes’ founding, Enticott recalls that finances were desperately tight. ‘The Housing Revenue Account (HRA) had just £1m, or 2%, in reserves,’ he says. Fortunately a reinvestment programme was underway, underpinned by £97m in Decent Homes funding. ‘This improved the state of the housing stock massively, but the underlying financial position was poor, with low rents and insufficient spending on core long-term maintenance.’

Today, following the 2012 HRA reforms, the situation is very different. ‘Income from rents is almost exclusively from one source: tenants’ rents and service charges,’ says Enticott. ‘This means that as long as those rents are not unaffordable, and homes can be maintained and managed within those rents, there is a clear and sustainable financial framework for council housing.’

Councils can now plan for the long term with a degree of clarity. ‘That is not to say that there is no financial pressure on HRAs – far from it – but service standards can largely be maintained, and even improved where we are able to drive efficiency gains.’

The reforms have made a real difference to the prospects for council housing. ‘The part that many of us – including CIPFA, the Local Government Association and the National Federation of ALMOs – played in lobbying for this reform is without doubt for me the best thing that we have achieved together,’ he says. Instead of massive deficits in funding repairs, rental income should allow not only proper maintenance but also the building of new homes.

Getting to this point has not been plain sailing. In July 2012, Derby Homes’ chief executive Phil Davies died after a brief illness. This was shortly followed by a review of the organisation’s future. ‘The team that remained had to promote our value to the council against a backdrop of many councils opting to take back ALMOs, to reduce costs,’ Enticott recalls.

‘Our approach was to build consensus that a new, less arm’s-length partnership approach was more suitable,’ he says. This meant integrating support services and office space with the council, cutting the executive team by a quarter and the board by more than a third. These and other measures reduced costs by £0.6m, on top of existing plans to save £1m, or 10% of management costs. With the savings funnelled directly into supporting new stock, the plan was sufficient to persuade the council to renew Derby Homes’ contract until 2022.

‘We are starting to deliver new homes,’ Enticott says. As well as maintaining the council’s stock, Derby Homes is now increasing its directly owned portfolio from 15 homes in 2012 to about 300 within three years. The partnership has already delivered 180 homes, of which 84 are on Derby Homes’ balance sheet.

Overall, however, Derby is still losing more council homes than it can replace. Right to Buy is, according to Enticott, the main imperfection in the new system. ‘With council housing stock in Derby being both low value and in reasonable condition, we are losing more homes than most,’ he says, adding that net receipts are insufficient to replace on a like-for-like basis.

A variety of approaches have been explored to bolster council-owned housing stock, he says, including the conversion of redundant council buildings into flats and one of the largest community-led projects in the country. There is also a joint venture with the private sector and the council, where hundreds of homes are to be built on the site of a former Rolls-Royce factory.

Deeper questions remain unanswered, Enticott says: ‘Why should a new home produced by the council be sold for up to 70% below its price? How can we invest sensibly at such a risk? Giving away a publicly owned asset at a huge discount makes no financial sense whatsoever and undermines new investment.’

David Enticott is a member of the 2015 Public Finance Top 50 Trailblazers

  • Lem Bingley
    Content Development Director at Public Finance and Public Finance International

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