Is Coveney’s social housing PPP a expensive high risk vanity project?

Posted: March 27, 2017 in Coveney, Housing, Uncategorized

The government is about to embark on a major shift in the funding of social housing. Five local authorities are being asked to initiate a public private partnership to deliver 500 homes.

This is the first of three such projects being proposed by Government.

Dublin City, South Dublin, Wicklow, Kildare and Louth are the guinea pigs in what looks set to be a slow and expensive Ministerial vanity project.

Traditionally Council housing is funded with 100% up front capital from central government. Policy experts argue that long term low cost loans from the Housing Finance Agency would be a more efficient financing model.

In his wisdom Minister Coveney is ignoring this advice and proposing a funding mechanism which has a controversial history, to put it mildly.

His proposition is as follows. The Councils will enter into an agreement with a Private Consortium who will finance, build and maintain the properties for 25 years. An Approved Housing Body, also part of the Consortium, will manage the tenants.

In return the Department of Housing will pay the Consortium a monthly availability agreement fee to cover the finance, construction and maintenance costs. The payment will also include a premium for taking on the ‘risk’ of the project and a margin of profit.

Councils will provide the land and the tenants and in return will own the properties at the end of the 25 years.

Councillors in the five local authorities are being asked to sign up to this package now, without knowing either the full costs of the deal or the details of the contract between the state and the private consortium.

The consortium will be chosen via a competitive tendering process. At the heart of this will be a public service benchmark. This is a Departmental calculation of the cost of the public sector delivering the same project based on traditional funding and delivery mechanisms.

To secure the tender a private consortium must bid at or below this benchmark. We are told that this exercise will guarantee value for money.

We know the cost of building new social houses and the cost of maintaining those homes in the past. What we don’t know is how to price the maintenance for the next 25 years.

If the private consortium is to ‘protect itself’ against the ‘risk’ of future price inflation it will demand a thick cushion in the availability agreement. Political fear of future price overruns will push Government to opt for price certainty over value for money.

The net result will be a public sector benchmark that will be substantially inflated.

Councillors from the five local authorities will have no opportunity to scrutinise this process in advance of tenders being awarded. They are being asked to support a major project completely blind to the cost to the taxpayer.

Even if the benchmarking exercise achieves value for money, and that’s a big if, the complexity of the contract between the state and the private consortium is loaded with additional risk.

A recent report from the European Services Strategy Unit by Dexter Whitfield examined fifteen years of PPPs in Britain, including a significant number of social housing projects.

His conclusion is that, contrary to the claim of risk transfer to the private sector, the state ends up with significant additional costs arising from contractual disputes, defaults and bailouts.

Families dependent on social housing also suffer either from delays in the deliver of new or refurbished units or poor quality build and maintenance arising from use of shoddy sub contractors.

If Minister Coveney’s current proposal goes to plan, widespread use of subcontractors will be a feature of the delivery of these 500 homes, with no protection against the use of bogus self employment contracts or exclusions for builders with poor track records.

The project will take at least three years to deliver, and that is assuming there are no delays during contract negotiation, construction or disputes/defaults of the contracts post tenanting.

There is also a dramatic increase in the complexity of project management and delivery.

Instead of a single local authority looking after its own social housing delivery there will be eight state agencies (NTMA, Departments of Housing and Public Expenditure and the local authorities) and a private consortium with multiple parts (investors, builders, maintenance contractors, an approved housing body and multiple sub contractors).

When asked to justify this complex, cumbersome, expensive and high risk funding and delivery mechanism Government has a simple reply – it’s off balance sheet.

Minister Coveney has repeatedly claimed that money is not an issue in the Governments response to the Housing Crisis. The Housing Finance Agency and the Irish League of Credit Unions are blue in the face offering Central and Local Government low cost loans to build social housing. So why the need for off balance sheet financing?

Families trapped in emergency accommodation or languishing on council waiting lists desperately need these houses. Those of us working on the front line of the housing crisis have no desire to delay the delivery of much needed homes.

Minister Coveney is presenting us with a Hobson choice – deliver the houses irrespective of the financial and legal risks or block the houses at a time of chronic housing need.

It appears that the Ministers reputation for attention to policy detail has been sacrificed by his desire for a big press announcement, turning the sod on some green field site to announce the delivery of 1500 homes.

 

This article was first published in the Sunday Business Post on 26.3.17

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s