The transfer/purchase process was complex, being driven by a set of government rules, including how homes were valued. All parties, including the tenant group, had independent expert advisers to guide them through the process.
The transfer agreement involved us delivering on 109 promises over five years, many relating to improvements to tenants' homes.
Trevor Morrow, Chief Executive at Red Kite, explains:
Voting for the transfer resulted in tenants receiving millions of pounds of investment in their homes to bring them up to, and keep them to, a modern standard. This is something the council could not have done owing to constraints on borrowing.
We paid the council for the homes transferred in accordance with a valuation set by government. This looked at the cost of improving the homes and running the service to tenants over 30 years, compared with the income that would be received from rent over the same period. This took into account that rents are social and not market rents, therefore the income is lower.
The value of the homes is based on what is called the existing use value, i.e. that the properties are occupied by a secure tenant on a social rent, producing a significantly lower valuation than open market value. The homes are asset locked to delivering the social purpose of Red Kite. They cannot be sold, and the funds used for another purpose.
This resulted in £65 million being paid to the council. Shortly after the transfer, the government changed the rent setting rules, upon which this sum was calculated, causing a loss to us of £170 million over 30 years. If this had been known at the time of transfer it would have had a negative value, with no sum being paid to the council, and potentially payment due from the government to us at Red Kite.
Despite this, we've made efficiency savings in the way we procure and structure services, so that this has not impacted on either our investment in our homes or the level of service that we provide. The loss in income has reduced our capacity to build as many new homes as we could have. However, we still have an ambitious development programme to build 375 homes by 2023, providing a range of different tenure types of homes that meet people's individual affordability.
This includes homes that we build to sell which will help subsidise homes for social and flexible rent - allowing us not only to help the community, but to still be able to build truly affordable homes for those that need them.
We're a charitable purpose organisation. We operate a group of companies to deliver our purpose. Any surplus funds generated must be reinvested in delivering our charitable purpose. There are no shareholders who can take money from the organisations, but we do have a large membership of tenants who have a say on key decisions and the direction of the organisation.
Our subsidiary companies, Twenty11 and Edenmead, are wholly owned by us.
Twenty11 is our innovative, charitable purpose organisation that was set up to offer more flexibility and modern opportunities, free from some of the restrictive government rules. A key feature is rent being set based on individual affordability rather than on the property.
Edenmead allows us to conduct our charitable aims in a tax-efficient way. Any surplus they generate is returned to us at Red Kite to use for our charitable purpose.
Developing new homes with rents local people can afford requires us to invest a level of funding. Without investment from these subsidiary companies, our ability to build these much-needed affordable homes is adversely impacted.