Bringing empty homes back into use: audit of privately owned empty homes

6. Value for money assessment

A long list of 13 discrete interventions for possible VFM assessment have been identified. These are listed below alongside the nature of the intervention and the assessment status.

The nature of the intervention has significant implications for the financial (including risk) profile of the intervention and how it is therefore assessed e.g. a staffing intervention could potentially be assessed annually, but a loans fund intervention requires assessment over the full period of the fund/loan term. The Indigo House analysis has attempted as far as possible to reflect the varying timeframes involved.

In particular, where the cost of public funding for the various schemes is compared, these are set out in both historical cost terms and then assessed using the approach to valuation set out in the HM Treasury Green Book, with payments adjusted to a current and consistent price level (2023/24 in this case) and discounted using the Green Book real discount rate of 3.5%. This allows interventions which have taken place in different years and which have different payment profiles can be compared on an equal footing.

The nature of the intervention also has implications on the value for money assessment in terms of who pays for what. In assessing VFM for the purposes of this report the assessment has focussed on Value for Money for the Public Purse. We have also attempted where possible to highlight the VFM considerations for individual participants e.g. Scottish Government and/or Local Authority partners. However, the focus is firmly on Value for the Public Purse. The leverage achieved under each intervention is set out later in this section.

Comparative Cost of Empty Homes Interventions

The following two tables below set out, by intervention, the number of empty homes brought back into use. The first table focusses on the Empty Homes Officers and the SEHP. It details the total historical cost split between the staffing costs involved and the project costs. It also provides an overview of all years (2010 to 2023), the last 5 years (2018 to 2023) and the Last Year (2023).

The second table sets out the number of empty homes across each intervention, the historical cost and net present value per empty home brought into use.

The following table details the volume of empty homes brought back into use and the cost involved in the Empty Homes Loans Fund, Town Centre Empty Homes Fund, Rural and Islands Housing Fund (AHSP). As these outputs appear to have been delivered in the pre 2018 period, we have shown the all period totals only ie all years, the last 5 years and the last reported year to 31^st March 2023.

The tables above show:

• The Empty Homes Officers brought a total of 9,014 empty homes back into use over the period 2010/11 to 2022/23 representing over 98% of all empty homes reported as being brought back into use. It was also a low-cost intervention at £1,075 per empty property brought back into use. Looking at it through the lense of how many empty homes have been brought back into use for each £10,000 spent would suggest 9 empty homes have been brought back into use per £10,000 spent;
• The Scottish Empty Homes Partnership brought a total of 1,056 empty homes back into use at a cost of £3,542 per empty home. This would support a total of almost 3 homes per £10,000 spent.
• The Town Centre Empty Homes Fund offered a mix of grant and loan funding (on average just under 60% of funding was from grants, and the balance from loans), and achieved a net present cost of £27,110 overall. The homes brought back into use through this fund had to be affordable for a minimum period of 5 years.
• The Rural and Islands Housing Fund is not focussed on empty homes per se, but a number of projects submitted to this scheme involve renovation, refurbishment, or conversion, which are a reasonable proxy for empty homes (or, in the case of conversion, non-residential buildings) being brought back into use for residential purposes. Over the period from 2016-17 to 2022-23 there were 82 units in these categories for which grant funding was approved of which 37 are attributable to empty homes,^[100] at a present value cost of £82,117 per home.
• The Empty Homes Loan Fund constitutes Scottish Government loan funding which is provided to local authorities for on-lending to third parties. Based on data available for 35 out of the 63 units,^[101] the net present cost per unit is £11,126, which is lower than the cost of the Town Centre Empty Homes Fund, reflecting that there is no grant element. Homes must be affordable for the period of the loan, which is typically 5 years.^[102]
• Although schemes which are partly or entirely funded through loans have a lower cost in present value terms, it is the view of the Scottish Government that the duration for which the home is made available in an affordable tenure should also be taken into account. As an example, assuming a unit is only required to be affordable for 5 years, then it will provide around a fifth of the value compared to the unit being required to be affordable in perpetuity (assuming a 60 year lifespan).^[103] Therefore, the value for money of loan and grant scheme may more comparable when an adjustment is made for the period for which the homes is required to be affordable. Relevant factors determining the optimal breakdown of grant and loan funding include the amount and type of funding available in government and local authorities’ budgets, and what mix of housing is required in the area where the intervention is taking place (e.g. is there a particular need for long-term affordable accommodation). Nothwithstanding these factors, as loans are repaid this money is then available for recycling into other projects and delivering additional outputs. This is a very different financial profile of a grant which, by its nature, can only be spend once unless it is also repaid (and which typically they are not).
• Funding for empty homes officers, as well as grant and loan funding for empty homes refurbishment, can therefore form a suite of measures. Homes which are close to marketable condition may only require guidance and information from an Empty Homes Officer in order to bring them back into use, while a smaller number of more difficult cases, where the homes require deeper refurbishment, may need public funding, either in the form of a loan, or, particularly if permanent affordable housing is required in the area, in the form of grant.

The total cost was established from records provided, some indirect costs may have been omitted from the data examined, but as these are likely to be marginal costs in the structures of the participating partners, they are not considered material to the relative assessment of VFM for the purposes of this report. The use of the metric of empty homes delivered per £10,000 was used to assess the comparability of the interventions outlined to assess value-for-money.

As set out above, our assessment of the funding of the interventions found.

• The Scottish Government has provided £7.959M (excluding Rural and Islands Housing Fund projects due to no total costs figure being available) since April 2010. This is equivalent to 38% of all funding for bringing empty homes back into use. Local authorities and other partners have provided £12.646million (62%).
• The Scottish Government provided £637,047 for the Empty Homes Officers which was 11% of the overall cost, the remainder was funded by the local authorities accounting for £5,315,698. By empty home brought back this amounts to £70 per empty home.
• For SEHP, the Scottish Government contributed to 80% of the total cost at £2,888,420. The match funding was 25% by local authority, the total contributed by local authority was £721,995 by the end of 2022/23. This costed Scottish Government £2,735 per empty home.
• For The Town Centre Empty Homes Fund, the Scottish Government funded £2.71million (29%) with local authority and other partners funding £6.608million (71%).

Utilisation/Uptake

The table below sets out the relative uptake across the various interventions.

The Indigo House assessment found a relatively low uptake in these interventions which suggests an opportunity cost of empty homes that could have been brought into use, not being delivered. Using the average homes delivered by £10,000 suggests around 1,465 homes not being delivered, that might otherwise have been achieved if the full funding available had been deployed.

For the Town Centre Empty Homes Fund, of the available £4million there was a £1.725million uptake. Scottish Government funded 29% at £2.71million. Local authority and other partners funding amounted £6.608million (71%).

Conclusions

The Indigo House analysis has shown:

• The EHO and SEHP interventions represent relatively low costs interventions to the Scottish Government.
• The leverage achieved from local authorities (mainly) and other partner contributions (more limited) is significant (in excess of 150%). This means more funds being targeted collaboratively across the public services to tackle the blight of empty homes in local communities.
• Loan interventions, other things remaining equal, provide better value for money to the public purse over the longer term; they enable the recycling of an initial outlay to achieve multiple outputs.
• A short-term focus will impede long term delivery by focussing decisions on the sub-optimal allocation of scarce resources to lower initial outlay interventions. A longer-term approach is essential in optimising the allocation of scarce resources.
• Although historically there has been a poor uptake/utilisation of the loan interventions, these provide the lower/lowest cost intervention over the longer term and once the loan is repaid it is available for recycling/reinvesting.
• There is potential leakage of value from the public purse and local communities from grant provided to private individuals and/or private businesses, particularly, where the intervention fails, and the property becomes empty again. Where grant is provided to social housing providers to bring properties back into use the value would still be retained in the public/quasi public sector and so helps limit potential leakage of public value.
• More work may be required to assess the full cost of all interventions. It has been assumed for the purposes of this report that there are only marginal/de minimis levels of time and resource involved in the administration of empty homes at the local level, where these resources have not been identified/provided through the study.

Key findings summary

The VFM assessment found:

• Over the period under review a total of 9,175 empty homes have been brought into use at a total cost of £20.734M which is equivalent to £2,260 per empty home brought back into use.
• The total cost was established from records provided. Some overhead costs may have been omitted from the data examined. Confirmation is required that these are likely to be marginal in the structures of the participating partner and are not considered material to the relative assessment of VFM for the purposes of this report. Alternatively, confirmation of the costs involved is required. An example is the administration costs of the various loans funds. We appear to have the amounts remitted to specific projects but not the costs of administering the fund.
• In bringing the 9,175 empty homes back into use, the Scottish Government provided funding of £7.959M (38%) of the total £20.734M funding required, local authorities and other Third Party Providers provided £12.775M (62%).
• Overall the cost of bringing empty homes back into use is relatively modest ie £2,260 per empty home and in some cases, can be delivered at very low to no net additional cost to the public purse as the initial outlay is fully recovered over the medium to longer term.
• The cost per empty home brought back into use varies across the interventions from £1,075 (for the Empty Homes Officers and SEHP) to £152,771 for the Town Centre Empty Homes Loans Fund and includes the total estimated project costs not exclusively the funding provided which equated to £44,431 per empty home and falling to £25,817 per empty home following repayment of the loan element of the fund.
• Some interventions have, to date, been more effective than others at delivering comparatively more outputs. The EHOs, for example, have delivered more than 98% of all empty homes brought back into use over the period under review (from 2010 to 2023). As noted elsewhere in this report it is very unlikely that the number of EHOs would be in place, or the number of empty homes would have been delivered without the support of SEHP.
• Taking a longer-term approach and improving the uptake in some of the interventions (the loans fund, in particular) has the potential to significantly improve the value for money of empty home interventions by reducing the average long run cost of empty homes brought back into use.
• Some interventions are more efficient from a VFM perspective (other things remaining equal). For example, low cost loans, in VFM terms are considerably more efficient than grant. The recycling of the initial loan (once repaid) allows the number of empty homes brought back into use to be significantly increased as the loan can be recycled 2, 3, 4, 5 times relative to grant which can only be granted once.
• That said, our analysis found a balanced package of interventions has more potential to maximise/optimise the number of empty homes brought back into use. The low update on the range of interventions requires some further consideration.