THE FINANCIAL IMPLICATIONS OF VACANT FAMILY QUARTERS
6. The number of vacant properties within the family
quarters estate has grown from nearly 11,200 in 1991 to 14,352
in 2000. Measured as a proportion of total family housing stock
this represents an increase from 15 per cent to 24 per cent. The
C&AG's Report noted that the total stock of quarters had fallen
from some 75,000 houses to around 61,000 over the same period.
Demand for quarters had therefore dropped even faster than the
stock, leading to increased oversupply.
7. The Department explained that the increase in
vacancy levels had arisen for two main reasons. First, there had
been a sustained decline in demand for quarters from the Armed
Forces. In recent years the rate of decline had been about four
per cent a year, representing some 2,000 fewer families each year
needing to be housed. This meant that the number of surplus properties
had risen in proportion to the total stock. Secondly, successive
Defence reviews throughout the period had caused planning uncertainties
about the precise numbers of people, types of military units and
their location. That uncertainty only came to an end in the middle
of 1998 with the release of the Strategic Defence Review, but
the Department were still coping with the consequences.
8. The Department assured the Committee that they
were taking steps to counteract rising vacancy levels. Between
September 1999 and August 2000 there had been significant increases
in the numbers of vacant houses agreed for disposal and allocated
to Service families awaiting occupation. And the Department had
also achieved a sharp reduction in the number of houses that had
been held vacant for long periods. At the time of the C&AG's
Report, 3,800 quarters had been empty for more than six months,
of which 346 houses had been empty for more than three years.
These figures had now reduced to 632 and 50 respectively.
9. The Department's target was to dispose of 6,500
houses by March 2001, which was double the target of a year ago.
This would reduce the proportionate level of vacant homes to 18
per cent of the estate at that date. And, by about 2005, they
hoped to get down to a steady state with a core housing stock
of about 40,000 properties and a 10 per cent margin of 4,000 vacant
homes above that. They assured the Committee that this was a better
target than previous targets in that it was built up from individual
area forecasts, not given as a top-down general statement.
10. We noted that, despite the Department's wish
to release surplus property, vacancy levels had continued to increase
in previous years, and that the Department had consistently failed
to achieve their planned levels of disposals for the last five
years. For example, in 1999, the Department had disposed of some
1,800 surplus houses against a planned total of around 2,400.
Taken together with the fact that the Department expected 2,000
more properties to become surplus each year, we were concerned
that the number of vacant quarters might not be very much lower
by the end of 2001.
11. The Department accepted that it was disappointing
that the sharp fall in demand for quarters was working against
the progress that they had made in disposing of property. They
assured the Committee that planned disposals were certain to occur
since, within the terms of the sale agreement, Annington Homes
Limited were required to accept them. Delays could occur, however,
due to difficulties in meeting all the requirements needed for
freehold entitlements such as separation of utilities and securing
access road agreements. These might mean that disposals might
occur later than planned.
12. To date, since January 2000, 2,300 properties
had either been transferred to Annington Homes Limited, passed
to the Defence Estates agency for disposal on the open market
or demolished. The Executive had issued termination notices to
Annington Homes Limited in respect of a further 3,300 properties
with hand back dates prior to 31 March 2001. A further 830 Department-owned
properties were due to be disposed of through the Defence Estates
agency and another 18 properties were due to be demolished.
13. The C&AG's Report estimated that, in 1998-99,
the Department spent £39 million in rent and maintenance
on 14,425 empty family quarters.
In evidence, the Department confirmed that this cost had risen
to £41 million in 1999-2000, partly because the number of
houses awaiting modernisation had grown. They considered only
around £4 million of this expenditure to be not cost-effective,
in respect of genuinely surplus houses for which there was no
immediate Defence use, compared with non-cost-effective expenditure
of £11 million in 1998-99. A large part of the remainder
of the expenditure related to vacant houses that were in the process
of disposal. The balance was spent on a combination of empty houses
that were being held for future unit deployments, that were under
offer to new families, or that were being modernised as part of
the Executive's upgrade programme and represented cost-effective
14. The C&AG's Report noted that, within the
overall number of vacant houses in the estate, 867 quarters were
awaiting demolition as at September 1999.
The Department explained that it was sometimes necessary to demolish
houses because of structural defects or because they were too
small to meet Service requirements. In addition, much of the existing
housing was too densely built and they were seeking to provide
a better living environment for families by thinning out the estates.
15. We asked how much compensation the Department
were required to pay Annington Homes Limited in respect of demolished
properties. The Department said that the terms of the sale agreement
required them to pay a ghost rent for each property that was demolished
but not subsequently rebuilt. The sale agreement provided for
a full site review to be undertaken at each 25-year point in the
Annington underlease. The review would take into account all changes
made to properties and revised rent levels would be negotiated
accordingly. Any ghost rents then in payment would be subsumed
within the review. While there were currently 977 properties falling
into this category, the Department were unable to forecast accurately
the full cost of the ghost rents relating to them because of the
difficulty of anticipating movements in market rents generally,
on which future rent increases would be based. However, on the
basis of best available information, they estimated that the current
ghost rent liability throughout the first 25-year period was likely
to be in the region of £50 million to £60 million -
or between £50,000 and £60,000 for each ghost property.
16. While the overall size of the family quarters
estate has fallen from around 75,000 houses in 1991 to some 61,000
houses in 2000, the number of vacant properties has grown from
nearly 11,200 (15 per cent of the estate) to 14,352 (24 per cent)
in the same period. This level of vacancies is unacceptably high
and represents a significant drain on resources, costing some
£41 million a year in rent and maintenance.
17. The Department plan to dispose of 6,500 surplus
houses by March 2001. They expect that this will reduce the proportion
of empty quarters on the estate to 18 per cent. The Department
plan to reduce further the level of vacant properties on the estate
to around 10 per cent - the management margin that they estimate
is needed to run the estate efficiently. While the setting of
such targets is welcome, the Department's track record is not
impressive and the expected continued decline in demand for family
quarters places in doubt the Department's ability to achieve the
targets set. We therefore expect the Department to provide the
Committee with reports showing progress against their disposal
and vacancy targets each quarter until the end of 2001. Where
shortfalls against target are reported, the Department should
notify the Committee of the recovery action proposed.
18. We are not persuaded by the Department's contention
that only £4 million of a total of £41 million spent
on vacant housing in 1999-2000 was not cost-effective and that
the balance of £37 million was an acceptable cost for the
management margin needed to run the estate. Vacant houses cost
the taxpayer money whether or not they are planned for disposal,
awaiting upgrade or are simply surplus to requirements. The vacancy
target adopted by the Department should exert pressure on all
reasons for vacancies, to provide an incentive for the efficient
management of all housing operations. They should therefore define
their targets in terms of the number and costs of vacant houses
19. The Department have reduced considerably the
number of houses that they hold empty for lengthy periods, from
3,800 houses empty for more than six months in September 1999
to 632 houses in August 2000. But the very small reduction in
the overall numbers of vacant properties in the estate, from 14,425
houses to 14,352 during the same period, indicates that many of
these houses were still awaiting disposal or occupation by families
and therefore continuing to attract rent and maintenance costs.
The Department need to ensure that these houses are released or
occupied as quickly as possible.
20. Where the Department retain an interest in the
site of a demolished property, they are required to pay Annington
Homes Limited a "ghost rent" for up to 25 years until
disposal, equivalent to the rent on the type of property that
has been demolished. The Department believe that their liability
in respect of such empty sites during the first 25-year period
of the operation of the sale agreement may amount to as much as
£60 million. The Department should draw up plans for relinquishing
their interest in such sites at an early stage so as to minimise
the potential liability for ghost rents. They should include details
of the progress made in reducing the number of such sites in their
quarterly monitoring reports to the Committee.