Stock transfer, case study: Part 2, the proposed transfer
[Continued from yesterday’s Part 1.]
The proposed stock transfer. Stock transfer is one of three ways that existing local authority stock can be recapitalized (the other two are Arm’s-Length Management Organizations, ALMOs, and the Private Finance Initiative, PFI), and in many ways it is the cleanest. It is simply a change of landlord, from local authority to a (pre-specified) housing association.
Stock transfer
The layman’s definition
1. Deeding of ownership in an existing social housing scheme from the local authority to a housing association (or special-purpose subsidiary thereof)
2. Transfer price is £1, plus an assignment of all (x) benefits such as authority subsidy flows, rights, and (y) costs such as operating responsibilities (including renovation, repair, upkeep, maintenance, management, and administration).
3. Effective only if approved by a majority of residents voting in a special plebiscite.
Local authorities are willing to make these stock transfers when they think that (a) by themselves, they cannot get the job done, (b) they believe that the nominee can do it, and (c) desperation and mission commitment enable them to put aside their egos (no small feat).
A mechanism created in 1988 as part of the Thatcherite revolution along with 1980’s right-to-buy (about which more in future posts), stock transfer has had a dramatic effect on the British affordable housing landscape: a million or so homes have moved from local-authority control to housing associations, with substantial additional capital investment and a higher satisfaction rate (82% to 69% according to the National Housing Federation). With nearly two decades of activity, stock transfer has become an accepted tool in the housing toolkit, with largely successful results.
Just as HUD in the US is squeezing public housing authorities in ways legitimate and illegitimate, so too is the Labour government squeezing local authorities, by differentially funding the various alternatives. Chancellor Gordon Brown has been emphatic (he usually is) and unrelenting (ditto) in emphasizing that if authorities want money, they must go through ALMO, PFI, or stock transfer. Lewisham has chosen door number three.
By US standards, the scale is enormous: 1,840 apartments (470 owned under right-to-buy, 1,370 still owned by the local authority) in 5 distinct sites (Winslade, Hatcham Park, Kender, Hatfield, and Telegraph Hill) over an area of several square miles, all to be privatized at one go, if the residents follow the local authority’s recommendation and approve the buyer: Hyde Housing.
Why Hyde Housing? Hyde is very large (over 33,000 apartments), very well established (founded more than 25 years ago), well regarded (two-star rating from the Audit Commission), and a dominant housing association in Lewisham, with 11,200 apartments throughout nine boroughs of London. Hyde is also committed to the area (including neighboring Southwark), doing new affordable and pure urban regeneration projects like this for-sale condo, The Atrium:
Selling rapidly at £400 (that’s $750) per square foot.
Additionally, Hyde’s properties are interspersed (pepper-potted, in English vernacular) among the very local authority housing stock Hyde proposes to inherit:
Portrait of a developer and its creation:
Tom Titherington in front of Hyde’s newest Lewisham property
Hyde has experience with stock transfer in
Hyde Southbank Homes
Our biggest regeneration programme to date is the refurbishment of over 2500 homes in Stockwell, South East London. We were already managing these homes on behalf of Lambeth Council when residents voted to transfer their homes to a new community-based housing association, Hyde Southbank Homes, marking the beginning of a five-year, £62 million programme of renewal and refurbishment to completely transform Stockwell.
The programme was a huge success, delivered on time and within budget. Following this success, in March 2005, the Kennington Park and The Bridge estates transferred a further 850 units to Hyde Southbank Homes [Link in .pdf — Ed.] from the London Borough of Lambeth, in order to secure a £21million investment in the homes and estates.
As set forth on the borough’s Web site:
Hyde has pledged £50m of investment to improve the homes, environment and services in the New Cross Gate area.
Hyde can do this for two reasons:
· Privatizing the ownership into a special-purpose vehicle (SPV) means that the property is now independently underwriteable as a project-finance exercise (similar to what we do in the States) without having to examine the local authority’s finances.
· Hyde, as a private and well-capitalized company, can bring to the table credibility, assets, and credit enhancement both managerial and financial.
In other words, stock transfer immediately enhances financeability, which adds value. Hyde also — again, this is the locality talking — has a strong track record of both economic and mission performance:
They are based in south east
There is still a lot of work to be done and over the coming months residents will have the opportunity to help shape the offer that will be put to all New Cross Gate residents before tenants vote in a ballot, which is planned to run in spring 2007.
The New Cross Gate stock transfer. As one might expect from its extended geography, the New Cross Gate property includes a wide range of physical configurations.
1. Winslade, nicknamed the Red Estate, is comprised of fairly new walkups with a clear ‘property-development’ streetscape:
Only one guess how it got its nickname!
Management is further complicated by the presence of isolated right-to-buy homeowners, who can improve or modify their property:
Can you spot the owned garage from among the local authority rentals?
2.
3-4. Kender and Hatfield also have an institutional quality, including one of the more remarkable configurations I’ve ever seen: walkup duplexes (two-floor apartments) stacked one atop the other:
Four floors, two apiece for each of two duplexes
— which I’ve seen only a handful of times in the
5. Telegraph Hill is the strongest neighborhood, with some streets clearly showing substantial appreciation and investor-owner interest:
Photo from 1905: built 100 years ago
Aside from its capital investment, Hyde expects to improve property management and asset management. (As we were touring the site, we heard a glass-shattering crash as a fourth-floor resident tossed his rubbish into the chute leading to where a dumpster was supposed to be … but wasn’t.)
Always better to have them under the chute!
The state of play. Stock transfer operates much like a referendum campaign, but with that self-effacing reserve judged so essential in British politics. Housing associations seeking to become the new owner have to provide extensive legal and other disclosure to the residents. That creates a dilemma: On the one hand Hyde is trying to explain in clear and uncomplicated language. On the other, Hyde has to conform to a small stack of regulatory and procedural requirements that, if not observed and documented, could allow legal challenges to overturn the referendum vote.
Which doesn’t preclude Hyde from providing what some might deem advertising, in the form of an if-you-lived-here-you’d-be-Hyde-now sign just across the street:
Stock transfer thus moves Lewisham away from being in ancillary operational businesses and more toward being the essential housing authority, about which more in future posts.
Summing up. Stock transfer ranks very high among the UK innovations I wish we had in the US, because it both:
· Gives residents a measure of strategic choice that they lack in US public housing.
· Moves the local authority toward being the essential housing authority performing only intrinsically governmental activities.
In future blog posts, I’ll have much more to say about what constitutes the essential housing authority — and how the
Meanwhile, the Lewisham stock transfer proposal is being prepared for an eventual vote sometime in the spring. For now, let’s add AHI’s endorsement:
Residents of New Cross Gate should vote Yes on stock transfer
Let’s hope they do.
