The City of Edinburgh Council
Housing Stock Options Study:
Planning, Economic & Development Consultants
Housing Stock Options Report - Executive Summary 1
1. The overall aim of the Stock Options Study was to take an objective and thorough
appraisal of the alternative courses of action available to the Council for the long-term
financing, investment and management of its housing stock.
2. Particular emphasis was placed on the need to assess the options within the context of:
continuing investment in the housing stock, affordable rents, the existing City-wide
resident focus, maximising the receipt to the Council.
3. The study was informed by a number of integral elements including:
the stock condition survey and valuation
analysis of the Council’s current and projected financial position
tenant and wider stakeholder consultation
analysis of the Council’s key housing and corporate objectives.
STOCK CONDITION, VALUATIONS & FINANCIAL ANALYSIS1
Stock Condition Survey
4. In general, the stock condition survey reported that the Council’s housing stock has
acceptable standards of basic services and amenities. However many of the components
(e.g. kitchens, bathrooms) are nearing the end of their useful life. The total like-for-like
investment, which includes limited improvements, for the housing stock over a thirty-
year period is estimated at £493m. The study also developed what is termed the
‘Edinburgh Standard’ focusing on a set of physical improvements to the housing to be
undertaken over a fifteen year period. The estimated cost of implementing the Standard
is an additional £227m2.
The base year utilised for the valuations and financial analysis was 2000/01 therefore it does not take
account of this year’s financial position (i.e. 2001/02).
The Edinburgh Standard is still under development, and will be subject to further work within the
Council and consultation with tenants before it can be finalised. A provisional Edinburgh Standard was
adopted for use in this study, to estimate the likely scale of investment that will be required and the
potential impact that improving the standard of the housing stock would have on the options assessed.
It is stressed that the investment costs associated with the Standard will be subject to change over the
Housing Stock Options Report - Executive Summary 2
5. The investment costs associated with the stock condition survey and the costs
associated with the provision of the housing service have been incorporated within the
valuations of the housing stock. Tenanted Market and Retention Valuations have been
produced at various levels including:
the total Council housing stock (consolidated3)
each of the six management areas4
consolidated excluding the six NHP target areas5
each area excluding the six NHP target areas
consolidated including the costs associated with the implementation of the
6. A summary of the main valuations of the housing stock on a consolidated basis and for
the Central/West and South and East areas6 is provided in the table below:
CEC Housing Stock – Summary Of Valuations (Retention & TMV7)
Area Total (£) Per Unit (£) Total (£) Per Unit (£)
City (consolidated) 285.7m 9,724 200.3m 6,831
Central/West 74.6m 14,730 63.3m 12,491
South & East 66.0m 7,561 40.8m 4,674
7. The positive valuations indicate that the stock could be managed and maintained on a
like-for-like basis by either the Council or an alternative landlord given the projected
8. When the Edinburgh Standard costs are included, the retention valuation declines to
£88.5m (£3,012 per unit) and the TMVdeclines to -£24.8m (-£845 per unit). That is, the
TMV with the standard is negative. This means that cost reflective rent increases (over
The consolidated figure is the value for the total stock. It differs slightly from the summed area totals
because of roundings within the modelling.
These are West Edinburgh, Central/West, North, Leith & City, East and South.
These are Dumbiedykes, Niddrie Marischal, Craigmillar Castle, Hyvots, Moredun and
These two areas were chosen as the partial transfer options to be examined through the option
The Retention Valuation and Tenanted Market Valuation (TMV) are based on the net income
generated from the stock, assuming continued use as social rented housing, not the open market value
of the properties. The difference in valuations for retention and TMV arise from the different cost bases
that would be experienced by the council and by an alternative registered social landlord - in terms of
VAT and management costs (a 20% uplift in management costs is assumed under transfer).
Housing Stock Options Report - Executive Summary 3
and above annual rent increases) and/or a dowry would be required in the event of a full
stock transfer to ensure financial viability.
Financial analysis of the Council’s Housing Revenue Account (HRA)
9. The Council’s HRA amounted to £63.1m in 2000/01 after debt servicing. The
Council’s current housing debt for all the stock is approximately £270m. HRA
surpluses are extremely limited, and the Council is likely to increasingly draw on rental
income over the next few years to make the required capital investment in its housing
10. The HRA analysis shows that the Council has sufficient resources to fund the basic
repairs, replacements and undertake limited improvements. A surplus of £164m is
projected to accumulate over the thirty-year planning period based on a rent profile of
RPI-only increases for each year.
11. When the costs of the improvements within the Edinburgh Standard are included in the
analysis, the picture changes. A shortfall, equivalent to £88m over the thirty years,
emerges between the available HRA resources and the total investment requirements.
Therefore the financial analysis concludes that the Council would be unable to
implement the Edinburgh Standard in full, given the provisional specification and
anticipated resources available.
THE OPTION APPRAISAL
12. The option appraisal framework comprised a set of options, evaluation criteria and a
scoring and weighting system. The framework was developed in consultation with the
Project Steering Group (including tenant representatives). The options for assessment
retention of the housing stock by the Council with variations including the
implementation of the Edinburgh Standard (retention plus) and the exclusion
of the six NHP target areas
full transfer of the housing stock to an alternative social landlord/s and the
exclusion of the six NHP target areas. The impact of implementing the
Edinburgh Standard investment was also considered, but not scored.
partial transfer of some of the housing stock to an alternative social landlord/s
on a geographic basis – the two examples examined were the Central/West
housing management area and the amalgamation of the South and East areas
to illustrate the key differences between relatively low and high investment
Housing Stock Options Report - Executive Summary 4
13. The appraisal criteria fell within the broad categories of:
impact on tenants and other users of housing services
impact on Council policies and the quality of services
impact on staff and employment
impact on other key stakeholders.
14. The main issues to arise from the analysis of each option are outlined below.
The Retention Option
15. Impact on Customers - The retention option's key advantages were that it already
actively facilitates tenant involvement at both a strategic and operational level; that
tenants would continue as secure tenants of the Council and could expect the Council to
continue to pursue service improvements through Best Value. However rent guarantees
are unlikely to be available and it is anticipated that there would continue to be a high
number of applicants on the waiting list.
16. Impact on Council policies and the quality of services – The Council’s enabling
activities to increase the supply of social housing may be limited and this was viewed
as a disadvantage. The main advantages included the continuation of corporate working
with other services to meet social inclusion and Best Value objectives, the ability to
fund the repairs and maintenance of the stock on a like-for-like basis and ability to meet
homelessness objectives more easily.
17. Financial Appraisal – The Council has sufficient resources to meet the repairs and
maintenance investment on a like-for-like basis over the next thirty years and service
the housing debt.
18. Impact on Staff/Employment – There would be no real impacts on staffing levels or
other employment considerations under this option. This was considered an advantage.
19. Impact on Other Key Stakeholders – It was not anticipated there would be any great
impacts on other stakeholders.
Housing Stock Options Report - Executive Summary 5
20. Under the retention plus option, the introduction of the Edinburgh Standard could have
positive impacts on a number of the criteria. However the Standard could not be fully
implemented on the base case financial assumptions. The conclusion was that seeking
to implement the Edinburgh Standard within retention could result in deterioration in
general housing services, increased rents and only a partially implemented Standard.
21. There was no significant differences identified between the basic retention option and
retention excluding the six NHP target areas.
The Full Transfer Option
22. Impact on Customers – The transfer option may offer opportunities for increasing
tenant involvement and control, particularly through tenant representation on the
governing body of the landlord. Transfer would also bring the likelihood of improved
service delivery and rent guarantees for tenants. However it may have a negative
impact on other service users, allocations may become more complex and the future
role of ETF is unclear.
23. Impact on Council policies and the quality of services – Advantages include the
Council gaining control of the strategic housing budget, which would enhance its
strategic capabilities. The disadvantages include loss of influence over social housing
management, increased complexity in administering homelessness services and the
uncertainty and potential loss of income for other Council services such as Edinburgh
Building Services (EBS).
24. Financial Appraisal – The transfer valuation (£200.3m) is lower than the outstanding
housing debt by £69.7m. The residual debt would be serviced by the Scottish Executive
and positive cashflows would be achieved throughout the thirty year period.
25. Impact on Staff/Employment – It is anticipated that all housing staff would transfer
under TUPE arrangements thus minimising some of the implications. However other
Council services may be adversely affected by the transfer particularly those involved
in central services and employed by EBS.
26. Impact on Other Key Stakeholders – There may be increased competition for
development funds among housing associations and a markedly different profile of
social housing in the city. The Council would gain control of the strategic housing
budget and would need to strengthen partnership working through the local housing
strategy. Consideration would have to be given to voluntary organisations funded
through the HRA.
Housing Stock Options Report - Executive Summary 6
27. The introduction of the Edinburgh Standard could have positive impacts on a number of
the criteria including meeting tenant priorities and facilitating improvements to the
housing stock. The TMV including the Edinburgh Standard is negative, which means
that in overall terms on a discounted basis expenditure on the housing stock exceeds the
income generated by it. Work would need to be undertaken to resolve this and options
include negotiation of the transfer price, persuading the Scottish Executive to provide a
dowry that would fund the investment gap, agreement on cost reflective rent increases
or an adjustment to the investment programme. It is worth noting that the Scottish
Executive may not be sympathetic to a case for a dowry payment, so the burden of the
funding gap may rest with price negotiations, rent increases or a reduction in the
28. There were no significant differences between the basic full transfer option and transfer
excluding the six NHP target areas.
The Partial Transfer Option
29. Impact on Customers – Tenant involvement could be realised for the transferring
tenants, while the majority of tenants remaining with the Council would continue to
benefit from its relatively well-developed structures for involvement. Under the South
and East partial transfer option there may be a negative impact on the remaining tenants
as the residual debt burden would have to be serviced by the Council five years post-
transfer. On the other hand the net capital receipt obtained through the Central/West
transfer may enhance the Council’s enabling capabilities, although there is no guarantee
that the Council will be permitted to use the monies for this purpose.
30. Impact on Council policies and the quality of services – There may not be any
additional supply of social housing realised through the partial transfer option although
the investment needs of the stock in the transferred area would be met. The delivery of
the Council’s broader aims may become more complex necessitating effective
partnership arrangements. There would be an impact on other Council services
although this would not be as great as the full transfer option. The transfer of the South
and East area while perhaps contributing to wider regeneration objectives may make it
more difficult for the Council to meet homeless needs given the larger stock numbers
and turnover in this area.
31. Financial Appraisal – The Central / West area has strong cashflows which are
sufficient to cover the cost of the management and maintenance of the housing stock, to
cover the apportioned outstanding housing debt and provide the Council with a capital
receipt (circa £17m). The South and East areas have much weaker cashflows, with
residual debt of approximately £39m. After the initial five year debt servicing period
has expired, the cost of the balance of residual debt would be passed onto the remaining
Housing Stock Options Report - Executive Summary 7
32. Impact on Staff/Employment – Those staff who are employed on housing work in the
partial transfer areas would be transferred to the alternative landlord and have their
terms and conditions protected through TUPE. Some Council services may see a
downturn in workload and hence resources.
33. Impact on Other Key Stakeholders – Partial transfer would present opportunities to
existing RSLs where the Council did not intend to set up a new organisation. However,
there may be increased competition for development resources were a new organisation
34. A summary of the scoring outcomes for the main options is provided below:
Stock Option Appraisal: Summary of Scores
Retention Retention Full Partial Partial
Criterion plus transfer Transfer Transfer
Impact on customers 5.67 3.67 5.33 5.33 5.67
Impact on Council policies 6.12 5.25 5.83 4.96 5.83
Financial appraisal 4.50 -1.50 4.50 2.25 5.25
Impact on staff/employment 2.25 1.5 2.25 2.25 2.25
Impact on stakeholders 1.50 0.75 0.37* 1.12 1.12
Total Scores 20.04 9.67 18.28* 15.91 20.12
Note - were the transfer be to a number of organisations, the score for impact on other stakeholders
would be 0.94, bringing the total score to 18.85.
Housing Stock Options Report - Executive Summary 8
35. While the partial transfer of the Central/West area is the highest scoring option, there is
no clear rationale for this course of action within the Edinburgh context. There are also
uncertainties over the potential use of the net capital receipt generated. The option has
been scored on the assumption that the Council would be able to determine how these
funds are used, although this may not be the case. The other issue is that, while the
financial implications of the Edinburgh Standard has not been broken down by
management area, building the cost of these improvements into the valuation would
most likely result in a residual debt situation as opposed to realising a net capital
receipt. Tenants may have to pay for these improvements through cost-reflective rent
increases above the annual RPI+1% increases. This would have repercussions in terms
of rent divergence, affordability and inequitable housing standards when compared to
the tenants that remain with the Council.
36. The study found that there was no material difference whether these areas were
included or excluded in the retention or full transfer options. This suggests that neither
of these options would be compromised if the NHP areas were to transfer separately.
Retention and Full Stock Transfer
37. The retention option performs best at the like-for-like level. The financial analysis
shows that the cash flow is sufficient to resource the expenditure identified by the Stock
Condition Survey to repair and maintain the housing stock, and to continue to fund
housing services to current levels. In addition, the retention option would be able to
pursue wider housing and council objectives, and to support external agencies. It is,
however, noted that an early rent freeze makes the retention option considerably more
fragile with significantly reduced HRA surpluses.
Housing Stock Options Report - Executive Summary 9
38. The main disadvantage is that the retention option cannot resource the full
implementation of the Standard as it is currently defined. Attempting to achieve the
Standard would demand re-prioritisation of resources within the housing service, which
would compromise achievement of wider housing and corporate objectives. The
necessary rent increases would further erode affordability of Edinburgh council rents. It
is appreciated that the Standard is still at an early stage of development and the cost of
the final standard may be manageable within the retention plus option. However, it is
noted that the interim Standard used in the study was not considered particularly
aspirational, tending to formalise current practice and programme its extension to the
whole stock. Furthermore, the situation with regard to HRA surpluses is less favourable
towards the implementation of the Standard given the current rent freeze.
39. The transfer option performs well at the like-for-like level but not to the same degree in
overall comparative terms as the retention option. It was considered less well-placed to
support tenant involvement, particularly in the short-term, or to contribute to some
housing and corporate policy objectives. On the other hand, the advantages identified
included rent commitments, the potential to develop new social housing, and additional
resources would be made available for housing management. Where the transfer was to
a number (around four or five) organisations, benefits for the RSL sector in terms of
savings from economies of scale and increased influence of the sector in strategic
housing policy were identified.
40. The transfer valuation would not fully fund the Edinburgh Standard. Given that the
Council's rents are already very high, it is likely that the Scottish Executive would be
sympathetic to arguments that, at least some of, the cost of the Standard should be built
into the valuation. Including the full cost of the Standard in the valuation would result
in a negative valuation, requiring a dowry payment to facilitate the transfer. It is unclear
whether a dowry would be acceptable to the Scottish Executive, so tenants may be
required to pay some cost reflective rent increases.