In the mid-1990s town planners in the incoming New Labour government envisioned a revolutionary strategy to reverse a £19 billion backlog in spending on social housing through PFI

Decaying estates would be replaced by 'PFI Towns' - providing both housing maintained for the long-term at 'decent homes standard' combined with the support services necessary to provide an attractive living environment.

However both the innate cost of the projects and a number of structural problems have restricted the ambitions of social housing PFI.

In the last three years, Deals at North Derbyshire and Ashford in Kent were abandoned or re-tendered after a dispute over contracts and a lack of market interest respectively.

Symptomatically, the pathfinder PFI deal to renovate the Chalcots estate in Camden was rejected by the Treasury Project Review Group in February 2005 as 'costly and uncompetitive'.

However with the eventual close of a scaled down Chalcots in June and now the second phase of Islington's social housing scheme, hopes are flickering again that the sector may have a future.

The project

The £153 million Islington Street Properties PFI 2 was initially the second of a three-part strategy to replace social housing - however the third scheme was eventually cut after affordability concerns were raised. Street Properties 1 became the first social housing PFI to close in London in June 2003.

Unlike the Camden Chalcots scheme, the second phase of Islington will refurbish a disparate stock of terraced social housing not a central housing estate. The stock will consist of tenanted and leasehold properties spread around the borough.

Under the contract a consortium would manage and maintain 4,100 Islington street properties over a 27 year period.

The refurbishment would involve upgrading tenants' kitchens, bathrooms, wiring and central heating and carrying out repairs in 2,900 tenanted and 1,200 leasehold homes over the next five years.

In 2005 the council awarded the scheme to Partners for Improvement in Islington - the consortium already undertaking the borough's Social Housing PFI 1 -  despite surveyors reports released in June 2005 which had characterised the progress of the first scheme as disappointing.

Partners for Improvement in Islington is composed of:

• United House (45 per cent)
• Bank of Scotland (45 per cent)
• Hyde Housing Association (10 per cent)

Hyde Housing Association will act as the Registered Social Landlord (RSL), while Rydon Facilities Management is the soft FM provider. 

• Hyde Housing Association will act as registered social landlord and provide the housing management service, including rent collection, tenancy and leasehold management and customer services
• United House will carry out construction and hard FM over the first five and a half years, including installation and maintenance of heating systems in tenants' homes.
• Rydon Property Maintenance provides the day to day repairs service.
  The scope of the contract was cut after affordability concerns and the contract was reduced from 27 years to 16 years.

In September 2006, the project was funded by a £153 million financing package provided by Bank of Scotland, which has also financed the Camden Chalcots, Islington PFI 1 and Leeds Swarcliffe housing deals.

Project Risks

The project was tendered under the structurally simplest form of social housing PFI - the Housing Revenue Account (HRA).

Under HRA, the local authority retains its status as landlord and receives rents while the SPV draws its revenue from a standard unitary charge.

As in all PFI each property has to meet an availability standard meaning the consortium will not receive payments for each period if standards are not achieved. There are initial, interim and full availability standards for council and leasehold dwellings.

Unlike conventional PFI there is little construction risk, however the transfer of existing stock has historically created other risks for SPVs.

According to Jonathan Brufal at Norton Rose who advised the consortium working on existing sites provides its own complexities,

'The inclusion of tenants in the whole process is a challenge because you have to gain access to peoples' houses and flats to carry out refurbishment works,' he says.

'There are very detailed access regimes and procedures that have to be followed by the project company and various subcontractors. The sheer difficulty of the arrangements around tenants being in-situ adds to the complexity of these deals,' Brufal adds.

The use of subcontractors by the project company is a standard feature of PFI projects, but in social housing is especially sensitive due to the need to interact with existing tenants.

In June 2005, the consortium ascribed delays in the first PFI to a lack of communication with subcontractors.

Conclusion

Negotiations for the Islington Street Properties PFI 2 were considerably shorter than those for the earlier Camden Chalcots deal signed three months before - aided partially by streamlined housing PFI documentation released by the Department for Communities and Local Government (DCLG).

In a sector where deals have traditionally taken up to six years to close that is encouraging - as is a renewed interest from construction companies that have previously eschewed the sector.

Jonathan Brufal says, 'Historically it is a sector where there have not been sufficient numbers of bidders. Now it is the case that a lot more sponsors are entering the sector and a lot more mainstream contractor entities are looking at social housing.

Brufal cites the £70 million Lambeth project which has just been tendered, where the likes of Balfour Beatty, Bouygues, Gleesons are all rumoured to be interested in bidding.

That and the entry of the Laing/ Pinnacle social housing JV Regenter into the market in 2004 signals a new depth in the market.

But as the grand vision of self sufficient communities designed around social housing PFIs remains a long way off.

The government has slated less than £1.5 billion to social housing PFI from the start of its time in office through to the end of 2008. That scale of investment is more PFI village than PFI Town.

The project at a glance