Housing Association Guide Part 1 - Appendix 7
Overview of TCI, grant rates and rent benchmarks for 2008/2009
1.01This Appendix - describes the use of, and lists the changes that have been made for 2008/09 to, the:
- Total Cost Indicators (TCI) (see Appendix: 8 to Part 1);
- Grant Rates (see Appendix: 9 to Part 1); and
- Rent Benchmarks (included in this Appendix at Section 7.00).
1.02Also included in this Appendix - is some background on the TCI ‘Mid-Term’ Review (see Section 5.00 – TCI Mid-Term Review).
2 Background and use of Total Cost Indicators (TCI)2.01TCI - are used to achieve value for money in the provision of social housing by registered Housing Associations, and to ensure that the appropriate level of grant is paid. TCI are 'all-in', forecast outturn unit costs and include three main cost elements:
- Acquisition or land element;
- Works cost element; and
- On-cost element (i.e., to take account of all the various activities and costs associated with scheme development such as legal, professional, insurance and statutory fees).
2.02TCI are based on information – on land and property costs supplied by the Valuation and Lands Agency (VLA) in Spring and Autumn reports, and scheme cost data produced by monitoring approved schemes. Account is also taken of statutory requirements, including new forms of Government Tax levies and other costs that will increase the cost of construction works. Over the past years TCI costs have risen considerably due to the increased demand for housing and construction works and, as a result, TCI are now reviewed twice-yearly by the Department for Social Development (DSD) with a mid-term up-lift being introduced if necessary. TCI are subject to consultation with the Northern Ireland Federation of Housing Associations (NIFHA).
2.03TCI and accompanying Grant Rates - are published as close as possible to the beginning of each Financial Year so as to have the benefit of the most up-to-date historic data on development costs. They include the 'average' or 'norm' unit cost of housing on a City/District Council Area basis. A series of key multipliers adjust the costs for different types of procurement including new build, off-the-shelf, rehabilitation and existing satisfactory purchases. A series of supplementary multipliers further adjust the costs for the scheme type including housing for the elderly, supported housing, listed buildings, single storey, wheelchair etc. Other essential cost data is included and this allows Associations to proceed with schemes with the minimum reference on cost issues.
2.04In application to Housing Association schemes for social housing provision - those schemes with unit costs at or below the TCI are considered to represent value for money. Schemes where the unit cost exceeds the TCI are subject to additional scrutiny to identify the underlying reason and confirm that the proposals represent value for money. In such cases, the Association, as well as submitting the Economic Appraisal, must give detailed reasons why the unit cost exceeds TCI. Normally non-Tariff schemes can be approved up to 130% of TCI with supporting evidence. Schemes over 130% would not normally represent value for money and will only be considered in the most exceptional circumstances. Where an Association is seeking approval for schemes that exceed TCI the Association is advised to contact the NIHE (DPG) at the earliest possible opportunity.
2.05Further information - on the application of cost parameters, cost overruns and special provision for Tariff Funded Associations is included in the Grant Rates (2008/09) (See Appendix: 9 to Part 1).
3 Special Percentage Adjustments (SPA's) to TCI3.01Special Percentage Adjustments (SPAs) - are adjustments to TCI and can be set at NIHE’s discretion, in consultation with DSD, to reflect abnormally high cost locations within a City/District Council area and so make the index more sensitive to exceptional local circumstances. SPAs can be set for specific schemes, for types of scheme in an area, or to apply to all schemes in a particular District Council Area. Normally a SPA is required to bring schemes below 130% of TCI. The need for a SPA is normally identified during scheme work and examples have included schemes requiring exceptional acquisition/works costs in areas of high demand, where alternative housing options are limited.
4.01The TCI for 2008/09 - (See Appendix: 8 to Part 1) was produced as a result of a review of the operational aspects of the previous TCI, and amended to reflect the previous year’s performance, and to take account of the usual indicators such as BCIS, unit costs, residential land costs and various forecasts. In addition a number of scheme related issues identified during the year were also investigated. The TCI for 2007/08 provides for 6No TCI Cost Groups (Cost Groups A to F) with the 26 City/District Council areas allocated to a Cost Group on the basis of ‘best-fit profile’. The main TCI elements, Key Multipliers, Supplementary Multipliers, Key On-costs and Supplementary On-costs were also reviewed and adjusted where required.
4.02The TCI Base Table covering the 6 No Cost Groups (See Appendix: 8 to Part 1, Section 6.00, TCI Base Table: Self-Contained and Shared Accommodation) took account of:
- The Acquisition Element – was adjusted to take account of the estimated cost of residential building land on a City/District Council area basis and reflects the changes found in some City/District Council areas. Although this element has increased substantially since 1995 due to the demand for residential land, in the past 6-months prices have fallen in approximately one third of the Council areas and remained relatively static in the remainder. Overall the average bulk land cost has reduced by 7% and small sites by 5%. As a consequence, plot costs generally have been taken to be an average of 3.7% below the levels assumed for the December 2007, TCI revision. Further adjustment to this element may be necessary in future.
- The Works Element – was adjusted to take account of tender price differentials between City/District Council areas, forecast tender price inflation. For the next 6-months an increase of 2% based on BCIS forecast data has been assumed
The On-cost Element – these are normally reviewed by DSD every 3 years. The last review was in 2005 and a review was scheduled for implementation in the TCI for 2008/09. Unfortunately, delay in obtaining and collating scheme data means that this exercise is unlikely to be completed until October 2008 at the earliest. Although it is not possible to anticipate the finding of any review, a small number of items which make up the on-cost have increased considerably; and well above general inflation due to being linked directly to the acquisition element – with this particular element increasing by around 200% since 2005. As an interim measure, the adjustments made to the December 2007 TCI will continue and this reduces some items back to 2005 levels, plus an increase for general inflation.
4.03The TCI ‘Base’ Table - when all the above are taken into consideration the ‘base’ TCI reduces from the Dec 2007 figure by a simple average (taken over the 26-Council areas) of approx 1.4% - or approx 0.9% on a weighted basis. This is the first overall recorded reduction in the base TCI since 1994/95, but still records an increase of 6.3% over April 2007/08 figures. As the composition of the TCI Cost Groups has not changed, it is possible to directly compare the 2008/09 TCI figures with the previous figures and the following changes apply:
% Adjustment from the 2006/07 TCI (Effective 01/12/07) to the 2008/09 TCI (Effective 19/05/08)
Cost Group |
A |
B |
C |
D |
E |
F |
| % adjustmentIncrease (Simple average)
|
-9.9
|
-8.1
|
-8.5
|
-8.2
|
-8.2
|
-7.2
|
| % of programme (2008/09)
|
49
|
18
|
11
|
11
|
5
|
6
|
| % adjustment (weighted to the 2008/09 programme)
|
-5.8
|
-1.4
|
-0.7
|
-0.7
|
-0.3
|
-0.4
|
4.04Other notable changes to the TCI for 2008/09 include:
- 8.00 & 10.00 Key and Supplementary Multiplier Tables – some Key and Supplementary Multipliers have changed due to the adjustments to the acquisition, works and on-cost elements within TCI. Changes to the TCI Base Table and Cost Groups are also reflected in the Key and Supplementary Multipliers.
- 11.00 TCI Cost Groups – a number of changes have been made to the composition of the 6No. TCI Cost Groups to reflect the differences in acquisition and works elements. As stated at Para 4.01 above, six TCI Groups have been retained with each of the 26 No City/District Council areas allocated to a Group on a ‘best-fit’ basis.
- 14.00 & 15.00 Key and Supplementary On-Cost Tables – changes have taken place to the ‘acquisition and works’ on-costs as described at Para 4.01 above.
- 17.00 Tranches for Grant Payment – a minor revision has been made to the new build, Supported Housing, Tranches for Cost Group F.
- Home Loss and Disturbance Payments - Associations are reminded that the practice of including Home Loss and Disturbance payments within the TCI system has been discontinued. This is due to the increases in such costs and the distortion that these costs can have on TCI and Grant Rates. The HA Guide will be amended detailing how these costs will be treated in future schemes.
- From 1 April 2008, all ‘new build’ self-contained schemes must meet the Code for Sustainable Homes – Code Level 3 – A new Supplementary Multiplier has been introduced to cover this requirement, which will supersede the EcoHomes ‘Very Good’ requirement introduced last April in such schemes. New build self-contained schemes already assessed or at an advanced stage of being assessed to the EcoHomes ‘Very Good’ standard can continue, subject to the scheme meeting the EcoHomes requirements. The Code for Sustainable Homes covers more than energy/CO2 issues and, amongst other things, also embraces Lifetimes Homes and the Secured by Design requirements. The Code will also apply to Category 1 Elderly, Category 2 Elderly and self-contained Wheelchair units. Further information on the Code is included in Appendix: 1 to Part 3 of the Guide.
- From 1 April 2008, Major Rehabilitation and Re-Improvement schemes must meet the EcoHomes ‘good’ standard or better.
- Grant Rates for 2008/09 – these have been revised to take account of the reduction in TCI and to take account of Government efficiencies (Note: see 6.04 below for details).
5.01TCI Mid-Term Review – a mid-term review was undertaken in August/September 2008.Details of this are set out below.
5.02The TCI Base Table covering the 6No Cost Groups (See Appendix: 8 to Part 1, Section 6.00, TCI Base Table: Self-Contained and Shared Accommodation) took account of:
- The Acquisition Element – has been adjusted to take account of the estimated cost of residential building land on a City/District Council area basis and reflects the changes found in some City/District Council areas. Although this element increased substantially since 1995 due to the demand for residential land, in the past 12 months prices have fallen significantly across all Council areas. Overall, in this period, average bulk land/small sites prices have fallen by in excess of 30%. Further adjustment to this element may be necessary in future.
- The Works Element – has been increased marginally to reflect actual scheme cost data received.
- The On-cost Element – A review of on-costs is currently being carried out. The outcome of this review will be reflected in the next (Spring) TCI exercise.
5.03The TCI ‘Base’ Table – when the above factors are taken into consideration, the ‘base’ TCI reduces from the May 2008 figure by a simple average (taken over the 26-Council areas) of approximately 8.2% - or approximately 9.2% on a weighted basis. This is only the second recorded reduction in the base TCI since 1994/95 and it is reflective of the recent downturn in land and property prices. As the composition of the TCI Cost Groups has not changed, it is possible to directly compare the Autumn 2008/09 TCI figures with the previous figures and the following changes apply:
% Adjustment from the 2008/09 TCI (Effective 19/05/08) to the 2008/09 TCI (Effective from 31/10/08)
Cost Group |
A |
B |
C |
D |
E |
F |
| % adjustmentIncrease (Simple average)
|
-9.9
|
-8.1
|
-8.5
|
-8.2
|
-8.2
|
-7.2
|
| % of programme (2008/09)
|
49
|
18
|
11
|
11
|
5
|
6
|
| % adjustment (weighted to the 2008/09 programme)
|
-5.8
|
-1.4
|
-0.7
|
-0.7
|
-0.3
|
-0.4
|
5.04Other notable changes arising from the mid year review of TCI for 2008/09 include:
- 8.00 & 10.00 Key and Supplementary Multiplier Tables – some Key and Supplementary Multipliers have changed due to the adjustments to the acquisition, works and on-cost elements within TCI
6 Background and use of grant rates6.01In conjunction with the TCI - Grant Rates are set for the various types of Mixed Funded developments for each TCI Cost Group. This takes into account a number of factors including:
- TCI Cost Group - unit cost of provision (taken as TCI);
- Management allowance (taken from rental income);
- Maintenance allowance (taken from rental income);
- Major Repairs Provision (taken from rental income);
- Rental income (Target Rent);
- Provision for voids/bad debts in rental income; and
- Private Finance Repayment Factor (taken from rental income to repay a Private Finance loan over a given period of time).
6.02The Process - assumes that over a given period of time, rental income will cover Management, Maintenance and Major Repairs provision and pay-off the Private Finance loan. The Private Finance Repayment Factor is on a low-start/deferred interest basis, and this evens out the costs over the given period of time. Unlike a conventional repayment loan, where the capital/interest repayments would generally be the same each year - assuming the interest rate remains the same - the Private Finance Repayment Factor assumes that yearly increases in rents will allow the repayments to increase by a corresponding percentage. Examples of loan repayments are included at Annex ‘A’.
6.03A typical Mixed Funded example - is given below:
(a) TCI for 90/95m² 2-storey/3-bedroom new build General Needs house: £150,933
(b) Management, Maintenance and Major Repairs Provision: £1,447*
(c) Term (e.g. 35 years for New Build, General Needs): 35 Years
(d) Long term Interest Rate: 6.0%
(e) Repayment Growth / year: 2.5%*
(f) Private Finance Repayment Factor (i.e., Deferred Interest Rate (c),(d)&(e) = 5.2%): 5.2%
(g) Rent per week: £77.52*
(h) Void/Bad Debt Provision (e.g 2% for General Needs): 2%
(i) Private Finance Repayment per Year ((g)x52–(b), less voids (h)): £2,446**
(j) Total Private Finance Input ((i)/(f)): £47,646
(k) HAG Required ((j)–((a)): £103,287
(l)Grant Rate ((k)/(a)): 68.3%
Note (1): *=Year 1 assumptions only.
Note (2): The above is for example only. In practice Associations may be able to use reserves or borrow at more favourable rates..
6.04Grant Rates for 2008/09 - in order to keep within the finance available for social housing provision, and to take account of wider Government efficiency requirements, during the 2007 mid-term review the DSD had to revisit some of the assumptions used in calculating the Grant Rates and reduce these downwards in order to reduce HAG. This realised efficiencies in the order of around 5%. However, further efficiencies are required as outlined in the Ministerial Statement to the Assembly on Thursday 26 February 2008 (on the Outcome of the Affordability Review). The reduction in the TCI ‘Base’ Table for 2008/09 will realise approximately 2%, but to achieve the required efficiency, the General Needs and Elderly (Cat 1 & Cat 2) new build loan-term assumption has been increased from 30-years to 35-years. The loan-term assumptions for Rehabilitation and Supported Housing remain as before, i.e., 30-years and 25-years respectively. Some examples of how the grant rates have changed since April 2007 are included below for information purposes:
New Build/General Needs/Self-Contained
Cost Group |
A |
B |
C |
D |
E |
F |
| ‘Norm’ Grant Rate (Eff. 01/04/2007)
|
77.1%
|
76.8%
|
74.5%
|
73.3%
|
72.4%
|
71.5%
|
| ‘Norm’ Grant Rate (Eff. 01/12/2007)
|
76.6%
|
75.5%
|
73.8%
|
71.6%
|
71.1%
|
70.4%
|
| ‘Norm’ Grant Rate (Eff. 19/05/2008)
|
74.4%
|
72.9%
|
71.0%
|
68.8%
|
68.4%
|
67.4%
|
Rehabilitation/Re-Improvement/ESP/General Needs/Self-Contained
TCI Cost Group: |
A |
B |
C |
D |
E |
F |
| ‘Norm’ Grant Rate (Eff. 01/04/2007)
|
90.5%
|
91.9%
|
90.6%
|
88.8%
|
89.1%
|
88.3%
|
| ‘Norm’ Grant Rate (Eff. 01/12/2007)
|
88.3%
|
89.4%
|
88.5%
|
86.2%
|
86.0%
|
86.1%
|
| ‘Norm’ Grant Rate (Eff. 19/05/2008)
|
88.3%
|
89.3%
|
88.3%
|
86.0%
|
86.1%
|
85.6%
|
New Build/Category 1/Self-Contained
TCI Cost Group: |
A |
B |
C |
D |
E |
F |
| ‘Norm’ Grant Rate (Eff. 01/04/2007)
|
84.2%
|
84.3%
|
82.4%
|
81.3%
|
80.8%
|
80.1%
|
| ‘Norm’ Grant Rate (Eff. 01/12/2007)
|
82.9%
|
82.3%
|
81.0%
|
79.0%
|
78.8%
|
78.3%
|
| ‘Norm’ Grant Rate (Eff. 19/05/2008)
|
81.4%
|
80.4%
|
78.9%
|
77.0%
|
76.8%
|
76.1%
|
New Build/Supported Housing/Self-Contained
TCI Cost Group: |
A |
B |
C |
D |
E |
F |
| ‘Norm’ Grant Rate (Eff. 01/04/2007)
|
90.1%
|
90.3%
|
89.0%
|
88.2%
|
87.9%
|
87.4%
|
| ‘Norm’ Grant Rate (Eff. 01/12/2007)
|
88.4%
|
88.1%
|
87.1%
|
85.7%
|
85.5%
|
85.2%
|
| ‘Norm’ Grant Rate (Eff. 19/05/2008)
|
86.3%
|
85.6%
|
84.4%
|
82.9%
|
82.8%
|
82.4%
|
7.01Under the Capital Grants System - new rents should be set at a level to ensure that a project is financially viable for the Association. At the same time account must be taken of a range of factors, including the client groups and their ability to pay without hardship.
7.02To assist Associations - in deciding what rents should be charged by Associations for new tenancies in the various need categories, benchmark rents should be based on the NIHE Rent Point scheme with adjustment for new dwellings completed after 1976 and rehabilitated dwellings. These rents are also the typical rents used in calculating the Grant Rates for the various needs, and are considered to be fair and reasonable rents for both Housing Associations and tenants.
7.03Rent Benchmarks – should be based on the NIHE Rent Points scheme with adjustment as follows:
- For new dwellings and ‘age’: an additional 6-rent points being added.
- For rehabilitated dwellings and ‘age’: an additional 6-rent points being added.
- The cost per rent point: should be based on the Financial Year the dwelling is completed and available for letting.
The costs for 2007/08, 2008/09 and 2009/10 are given below.
Financial Year: |
|
|
|
| Rent Point:
|
£1.440
|
£1.480*
|
£1.520*
|
[Note: *estimated figures.]
|
