The second item on the agenda is scrutiny of the financial memorandum to the Housing (Scotland) Bill. The bill was introduced on 7 March by Malcolm Chisholm, the Minister for Communities. The committee agreed that it would adopt level 2 scrutiny of the bill, which involves taking written evidence from organisations on which costs could fall and oral evidence from Executive officials. We welcome the witnesses from the Executive. Archie Stoddart is head of the bill team, Roger Harris and Jean Waddie are from the private sector and affordable housing policy division and Jonathan Dennis is economic adviser from the analytical services division. The committee has copies of submissions from the Convention of Scottish Local Authorities and the Scottish Association of Landlords. We could probably have written those submissions ourselves, because the stances that the organisations have taken were easy to anticipate. Nonetheless, we have the information. I ask the witnesses to make a brief opening statement before we move on to questions from members.
Thank you for giving us the opportunity to come to the committee to give our view on the bill. I will make a brief comment about the bill, the people who are before the committee today and our focus.
Thank you. As the Finance Committee, we will focus on the financial memorandum rather than on the policy aspects of the bill, although sometimes I have to keep members in check, because they are interested in policy. We will try to focus on the finance issues.
As the convener indicated, the submissions that we have received were not surprising, in as much as they suggest that perhaps inadequate funds have been allocated. COSLA notes in its submission that the financial assumptions that underpin the bill were not shared with it before the bill was introduced. Its submission states:
We spoke directly to four local authorities from around the country. We tried to take account of the different kinds of authorities by speaking to urban local authorities, to a local authority with both an urban area and a rural hinterland and to a completely rural authority. Having spoken to those authorities, we also spoke to COSLA to ask whether it thought that we had considered a representative set and whether it wished to add anything. We showed COSLA the questionnaire that we had sent to the local authorities to ask them for the information on which we based the financial memorandum. COSLA was consulted at that stage. The individual local authorities were given an outline of my findings on the cost of the bill to comment on. Therefore, COSLA was asked in the first instance and I also returned the information to the authorities that had provided information.
More generally—I will leave aside the detail of how we have engaged with local authorities—I should explain that, as much of the bill is about giving local authorities powers to act, costs will depend very much on the policy decisions that individual authorities take about how to use those powers and on the nature of the housing stock in their area. That makes it difficult to be extremely precise on what the costs will be.
COSLA says in its submission that the estimate in the financial memorandum of £3 million in additional costs on local authorities
Yes. We sought submissions from two local authorities, Western Isles Council, which is both a rural and a remote local authority, and Stirling Council, which has both an urban centre and a rural hinterland.
If the figures that Angus Council submitted were extrapolated over the whole country, the costs to local authorities would be considerably in excess of the £3 million that has been allocated.
We looked at four examples—Edinburgh, Glasgow, Stirling and the Western Isles—to form a picture. Angus Council is only one local authority. We are reasonably happy that the broader spectrum of councils that we have examined is representative. As we have said, it is difficult to pin down what the bill will cost. There are differences of opinion about what the cost will eventually turn out to be.
The bill will require the Executive to pay for extended surveys of right-to-buy properties. The estimate in the financial memorandum is £700,000, based on historic request levels multiplied by "a minimum" of £40 extra per survey. Where did that figure come from?
As part of the right-to-buy process, the Executive pays for the valuation. The arrangement is that we negotiate a fee, so we must be slightly careful about how we deal with the figures that have been cited. In the exploratory work that we did, we extrapolated the costs of the additional elements from the core valuation where the person is already on site. We identified some key additional elements about which we wanted to get information and estimated a price based on the marginal cost of a right-to-buy survey.
COSLA's submission is an attempt to get a snapshot of the position. It concedes that its figures are a fairly rough estimate. If the costs of the development of the policy are estimated at £3 million, how will those be broken down in each local authority area? What contribution will each authority make towards the costs? What elements will be required? I should have thought that 80 or 90 per cent of what happens will be the same, irrespective of whether an authority is urban or rural. The process must be broadly similar as regards officer time and so on, although the scale of it may be different.
Our bottom line is that we are building on an existing framework. We are not introducing many new types of powers, but are extending and developing the range of powers that local authorities have. As a result of the bill, local authorities will have to introduce some new measures. There will be costs to operating the scheme of assistance, for example. There will be a core cost—authorities will have to have the necessary infrastructure in place—but costs will also depend on the number of houses and people caught and the priorities for action that authorities set. You asked how we extrapolated the figure of £3 million. Glasgow City Council gave us a detailed breakdown of costs for both staff and activity. We do not think that much of that activity will be fundamentally different across the country. There will be differences on some issues because of local circumstances, but we believe that it is reasonable to extrapolate that task approach across the country.
The information that Glasgow City Council provided was helpful. I asked the council whether the bill expands the range of services or whether it builds on the offices and services that are already in place and the tasks that staff are already expected to perform. The council responded with some hard evidence. It said that it needed resources for people to do more of the same sort of tasks. I refer to people such as building surveyors, accountants, administrative officers and contact staff. The council saw the bill as building on existing legislation.
How do you see the £3 million being allocated among local authorities, given that they may have different and competing demands?
The figure of £3 million is the estimated cost of implementation. There is a broader issue of how local authorities are resourced to fund that. There are two strands. First, the Executive funds private sector housing grant, which is made directly available to local authorities. The baseline is £65 million, although £72 million will be made available this year. It is possible for some of that money to be used to meet administrative costs. Secondly, there is a specific budget line of £10 million for housing improvement task force implementation. We will reach a view with stakeholders on the distribution of that money, which will fund implementation and set-up costs. We anticipate that a number of the costs will be met by the Executive.
There is a fair amount of private rented stock in the constituency that I represent. There are officials in place who know what is required and some good community-based housing organisations, which may consider ways in which they could intervene and assist if they were brought into ownership. However, in places such as Glasgow, there is a genuine fear that, even if there are enough staff to carry out assessments, the scale of the investments that are required to deal with some of the property will be way beyond the capital allocation that is available or may impact on other areas of spending. It is not the case that authorities do not recognise the problem. However, if they open the can, they may find that it contains much more than they would normally want to deal with in a given financial period.
First, it is important to hold on to the fact that local authorities and COSLA have broadly welcomed the powers in the bill. I guess that they do so with their eyes open. Secondly, funding to local authorities to address issues of private sector disrepair has increased dramatically in recent years.
The private sector housing grant, which was introduced recently, replaced an arrangement under which local authorities borrowed to fund their activity in the private sector. When the decision to change the arrangement was taken, authorities were borrowing less than £50 million on that account. Last year private sector housing grant was £70 million and this year it is £72 million. The spending review set a base level of £65 million. It remains to be seen whether in the future we can top it up beyond that, as we have done this year and last year.
Grant aid will be one way of assisting people, but the underpinning principle of the bill is that individuals should be responsible for maintaining their housing. In some cases, grant aid will not be the best way of ensuring that that happens. The bill frees up local authorities to make strategic decisions.
What do we do about individuals who cannot—or who indicate that they cannot—afford improvements and landlords who have chosen not to make improvements? Local authorities will be concerned about non-recoverable costs. Do you have a sense of where those may fall in Scotland? Is the situation fair and equitable? Will costs be different in different areas, because of differences in the scale of problems?
The private sector housing grant is a relatively recent arrangement. We allocated it for last year and this year on the basis of a formula that reflects past spend and past local authority priorities, as well as the bidding process for identifying projects. The grant is managed through Communities Scotland, partly through its area offices' detailed contact with individual authorities. Therefore, the system is already sensitive to variations in local authority circumstances, including variations in the proportion of older stock. We will review how the allocation of the grant is managed this year, but it is intended to be managed in a way that reflects the varying demands on local authorities.
We are currently locked into a system in which a statutory notice is followed by a mandatory grant. That is an incredibly restrictive approach for dealing with issues relating to condition and quality.
The financial memorandum estimates that the total cost for the single survey and the valuation survey will be £650. However, in oral evidence to the Communities Committee, the Law Society of Scotland provided a ballpark figure of £750, with the caveat that the cost could much higher than that. How did you arrive at the estimates in the financial memorandum for single survey and valuation costs?
I spoke to the Law Society of Scotland to try to get a handle on the matter and asked it for its general opinions on what additional tasks might arise in the house buying and selling process as a result of the bill. The figure that was arrived at took into account greater guarantees and collecting all the additional information that is required in purchasers packs, for example. A figure of £100—which is set out in the financial memorandum for the solicitors' side of things—was reached for bringing together everything from a legal point of view.
Are you satisfied that the extra £13 million to the legal profession and the extra £22 million to the surveying profession represent added value?
Additional information will be given to the consumer about the properties and the value of a house. The valuation report is, in effect, a mortgage survey—it does not go into any more detail than the building's fabric. People might be slightly blind when they want to buy a property—they can move in and find problems that were not identified beforehand. Indeed, in its work for the housing improvement task force, DTZ Pieda Consulting Ltd asked people about the reports that they used when they moved in and the problems that they found with their houses. The additional costs will allow people to see a few more warts on the house and to judge whether they want to make a bid for a property and what price they should bid at. Purchasers will receive information for the additional money. Personally, if I wanted to buy a house, I would like to know more details about it.
However, the £35 million represents additional costs and there is nothing to offset them. Given that we are talking about moving to a single survey, there must surely be something to offset those costs. Are you telling me that, in acting as the reservoir of provision, the legal and surveying professions will tool up to the extent of an additional £35 million?
Two strands are involved. We estimate that, if there is a level 2 requirement, there will be an additional cost for surveys, which we have tried to identify. The cost to the legal profession depends on the information requirements; the profession has quoted the extra £100 for dealing with the duties in the bill relating to checking the authenticity of documents and so on.
The question in the undercurrent is whether we can take other steps to increase competitiveness rather than simply having additional overheads going—absolutely untampered with—straight on to the consumer's shoulders.
We are not specifying fees but, equally, we must try to have a realistic picture of what costs will be, which has very much been the basis of our discussion with the professional bodies. You are right. Ultimately, the market will determine things. I have a brief additional point to make.
Before you make that point, I want to press you on what you are saying. My experience of professions is that, if the Government says that something is a reasonable amount to specify, that amount will become the fee or the fee will become that plus something. Are you frightened that you will set a threshold or a floor for fees?
No, because the market is quite dynamic. There is a market of individual surveying practices, for example. I cannot be sure of setting a threshold or floor, but there is a dilemma. If we do not try to establish what the costs will be, we will rightly be vulnerable to accusations that we do not know what things will cost. I cannot know what will happen, but the market is pretty dynamic. Of course, we are talking about the market over time and the housing market in particular quickly changes and evolves.
Have you considered other jurisdictions in order to find out what they do in a similar climate and how they have created genuinely competitive markets for legal and surveying services?
Addressing the competitiveness of the surveying and legal services was not part of the bill's remit. However, we have considered other examples of how people deal with the house buying and selling process. The system in England is the obvious example. Although the issue of multiple surveys does not arise there, a whole raft of other issues is being addressed through the introduction of home information packs.
When single surveys were first mooted, many people argued in favour of them, saying that buyers would be saved the expense arising from multiple surveys. For the record, will you clarify that that is not the bill's purpose? It is clear that buyers will pay more money on average.
Two issues are involved. The primary purpose is to have condition reflected in the price. Addressing the problem of multiple surveys is a secondary issue. Whether people will save money will very much depend on market conditions at the time. It is not that long since prospective buyers in hot markets got a whole series of valuation surveys done. Market responses will be different—in Edinburgh, for example, the practice of making offers that are subject to survey has developed. I am sure that the committee will be aware of the issues around that. The bill will result in significant added value—although it is difficult to predict the extent of that precisely, because there are many factors to take into account—in that people will have a much better picture of the house that they want to buy.
Yes, but the purpose of the bill is not to save people money through stopping them having to have multiple surveys.
That is a secondary purpose. The bill will save people money in that way, because of the single survey.
Yes, but that single survey will be much more expensive. You estimate that, alongside a saving of £7 million, there will be an extra cost of £29 million. That means that the bill will result in a net additional cost of £22 million, so the average seller will be worse off by £22 million divided by the number of transactions.
The arrangements to do with who pays for that will be a matter for each transaction.
Okay.
Yes.
How much evidence do you have that that will happen? We can argue about the figures, but it strikes me that when the bill comes into force, there will be £35 million less money sloshing about between buyers and sellers—in most cases, buyers are also sellers—with which to carry out repairs. The people who will have to carry out repairs will be £35 million less well off; that money will have gone to lawyers and surveyors. Is there not an argument that repairs are less likely to be carried out, because people will not have the money to do them?
There are two or three factors at play. The fact that most sellers are also buyers means that they will get a financial benefit at the other end because the buying process will involve a different order of costs. We cannot net those off, because we do not know how people's payment behaviour will be affected. It is important to remember that, as most sellers are buyers, they will benefit from the proposal.
A likely scenario is that if someone got a single seller's survey that said that £1,000 of roof work needed to be done—the figure would probably be much higher, given how much it costs to get roofs fixed—some kind of cosmetic repair would be done or the price would simply be dropped by that amount. In other words, the required repair would not necessarily be carried out. How will the bill achieve its object of improving the state of our housing stock, rather than ensuring that sellers achieve values that more realistically reflect the state of that stock, which of course is not the same thing?
Our aim is to provide people with better information. To continue with your roof example, if X thousand pounds' worth of work needed to be done and everyone who was interested in buying the property was aware that the roof would have to be replaced in a number of years, I would have thought that they would make a bid that reflected the cost of repairing the roof. Although they would spend an additional £250 on the survey, the fact that they would submit a lower bid would mean that, if they were successful in securing the property, they would have access to funding that they could use to repair the roof. If they then did not go ahead and do that repair or got a cosmetic repair done, one would hope that that would be picked up when the house came back on to the market. The surveying profession should be able to pick up on the fact that the roof has not been repaired, which would mean that the value of the house would again be adjusted accordingly.
There could be a price penalty for not doing maintenance, which would be a powerful driver in the housing market. At the moment, more than 90 per cent of people get only a valuation survey. The provision of more information will have a positive impact.
If the fact that maintenance has not been done will have a price penalty, why do we need to introduce new legislation to make that happen?
At the moment, it is not apparent that maintenance has not been done because more than 90 per cent of people rely on a valuation survey. It is acknowledged in all quarters that the purpose of such surveys is simply to satisfy the lenders that they will be able to secure the loan.
I back that up. The DTZ work said that when people moved into their houses, they had to spend more than £3,500 on unexpected repairs in the first year. One could argue that if the necessary information had been available up front, the cost of those repairs would have been offset by a lower bid price. We know that the market is not working efficiently, in that people are moving into houses and then covering significant levels of expenditure. In some cases, the fact that a buyer has bid the maximum amount that they can afford to get the house of their dreams means that they do not have the finances to undertake the necessary repairs. The bill is an attempt to give purchasers of houses the information that is required to make informed decisions.
I want to return to the £35 million, which seems to be a rather large sum of money. Have you calculated how much of an uplift that represents on current legal and surveying fees? I have done some back-of-an-envelope calculations. If there are 2 million homes in Scotland, that additional cost amounts to £17.50 per house per annum. If 10 per cent of those houses are sold in a year, the uplift will be £175 per deal; if only 5 per cent of them are sold in a year, the uplift will be £350 a deal; and if only 2 per cent of them are sold in a year, the uplift will be £875 a deal. It seems that the uplift will be large. Do we know the size of the surveying and legal-fee market?
When I spoke to the RICS, I asked whether the industry had sufficient capacity. It said that, whereas at present its members carry out a certain number of valuation surveys per day, in future they would carry out more detailed surveys on fewer properties in a day. Its opinion is that sufficient capacity exists in the profession for the work to be undertaken.
You have not answered my question. I asked how big the market is at present and how much of an uplift the figure of £35 million represents.
Are you asking about the surveying market?
I am asking how much is being spent by Scottish consumers on legal and surveying fees and how much of an uplift on that the £35 million represents.
I will have to come back to you with the precise figures. If I base my answer on the DTZ work, I think that people are spending £1,000 per house on legal fees and payments to the surveying profession. There are about 130,000 transactions a year, which represents about 10 per cent of the market on the owner-occupier side.
I trust that you understand my concern, which is that we are on the cusp of giving certain professions a state-sanctioned sinecure that allows them to charge Scottish consumers considerably more. We do not know how much of an uplift on existing levels the £35 million represents. That means that we are scrutinising the situation in the dark and that you are putting forward numbers in the dark.
On the basis of the assumption that it costs about £150 to obtain a mortgage valuation report and that it will cost £400 to obtain a single seller survey, we reckon that individuals face an uplift of £250 in surveying costs. That must be netted off against the benefits that a single survey will offer. For example, people will no longer have to get multiple surveys done when they are unsuccessful in buying a house. It is not a straightforward case of saying that there will be an uplift of £250. We face the difficulty that our ability to give precise figures depends on how the market is operating at any given time. For example, the practice of submitting offers that are subject to survey—around which there are issues—changes the dynamics of the game, but the practice is not followed throughout Scotland. Such matters are extremely difficult to pin down.
I think that there is still more work to do on that. When will detailed information be available to assist people who are likely to incur costs to work out what the full costs will be? How will that be managed?
Do you mean landlords?
The bill will provide for mandatory assistance to be given to people. How will that work in practice?
Do you mean assistance with carrying out work?
Yes.
The principle of the scheme of assistance that is set out in the bill is that local authorities should be able to target assistance, which will be drawn from a raft of measures, including grants, loans, subsidised loans and practical advice. We are not at a stage at which we can comment on the detail of how the scheme will work for individuals: first, because much of the process will be driven by local authority priorities and policy decisions when the bill has been passed; and secondly, because the bill gives ministers powers of direction on how the scheme of assistance will be applied, which will be used in the context of enacted legislation, when ministers form a view on how the scheme will operate. In the context of the bill process and given the nature of the powers, we cannot say how individuals will benefit from the scheme.
The bill provides that a local authority should devise and publish its criteria for using the provisions in relation to the scheme of assistance. The local authority will take a decision in the light of its strategic housing priorities, but it must make a public statement of its criteria. At that point, people will have a clearer idea of the assistance that they are likely to receive in different circumstances.
Do you expect there to be uniformity in local authority criteria?
The intention of giving ministers powers to give guidance and directions is to enable us to achieve reasonable consistency throughout the country. That does not necessarily mean that there will be uniformity, because it is obvious that housing circumstances differ enormously. For example, the approach to dealing with substandard housing in the Western Isles is very different from the approach in Glasgow. However, both areas are making substantial efforts to address the problems that they face.
I want to ask about the rights of people with disabilities. I do not think that anyone would argue against the provision, but my question is about its financial implications. During the pilot exercise, did you ascertain how many people might benefit from the rights that the bill will confer? Did you examine carefully the potential costs for local authorities or other social landlords?
I take it that you are referring to the right of a tenant to carry out adaptations to suit a disabled resident. The provision is geared towards the private sector, on the basis that the tenant will bear the cost, so there should be no cost to the landlord. There are approximately 170,000 private sector tenancies, but we do not have firm figures on how many of those households include a disabled occupant who might need an adaptation that would be sufficiently significant to require the exercise of the new right. Furthermore, we do not have information about the number of occasions on which a landlord might have refused consent for an adaptation, who, when the bill is passed, will be obliged to agree to the adaptation because there is no good reason to refuse consent. We do not have that level of detail about the provision's potential impact. However, the impact on the landlord should be minimal, because it will be the tenant's responsibility to pay for work, possibly with assistance from the local authority.
That is the issue. The money will come from somewhere. Reading the provisions carefully, I suspect that the local authority will be expected to make a contribution. As I understand the financial memorandum, the bill could lead to a situation in which a tenant's legal entitlement becomes a legal obligation on the local authority to provide grant assistance or support that is not budgeted for.
The provision gives tenants the right not to be refused unreasonably. It will be for tenants to decide whether to proceed with the work. A tenant can approach the local authority for assistance, as can an owner-occupier who has a disability or whose household includes a disabled occupant. Under the terms of the bill, the local authority will be obliged to give assistance of some sort. Whether that is financial assistance will depend on the circumstances and on the local authority's decision.
Let us look at it from a local authority's point of view. It is quite likely that a local authority occupational therapist, or someone from the social work department or a specialist part of the local authority, would be involved in assisting an individual in identifying whether they have a right under the legislation. Presumably then another part of the local authority would be asked to make a financial contribution to meet the costs that notionally—according to the bill—fall on the tenant, although the tenant might be looking to the local authority to provide financial assistance because of their financial circumstances. Have you no quantification of that?
The local authority already has a duty to assess the housing needs of anyone with a disability and to help them to meet those needs. A disabled tenant can already access grants to deal with adaptations. The provision in the bill simply says that a landlord cannot refuse a tenant consent to do stuff to that landlord's property. We would hope that landlords would not refuse at the moment, and any tenant whose landlord is willing has access to grants anyway, so the bill does not change the position on assistance to get adaptations done.
I understand the point, but you are now creating a new mechanism whereby a local authority might be asked by a disabled person to establish their right to a specific adaptation in relation to their landlord. As a follow-up to that, the local authority might then be asked to make financial provision for that adaptation. Although I appreciate that the bill says that the landlord cannot refuse, the reality from a local authority point of view might well be that it gets drawn into a cycle that has significant financial consequences. As you know, adapting houses to meet the requirements of disability can involve significant expense.
We considered the issue in a rather different way. As Jean Waddie said, there is already a framework for funding adaptations. We see the new measure—as do disability representative groups—as freeing a blockage in the system rather than introducing a new system. Again, the bill builds on the existing system and allows people to get work done where needed. The context for landlords is that they cannot refuse unreasonably.
Tim Hooton, the drinking water regulator, has drawn attention to the fact that there are new European requirements on the quality of drinking water and that Scottish Water will need to address the connections between reservoirs and people's houses. I understand that a significant number of the pipes running into people's houses are lead pipes, and lead in the water certainly has a significant health impact. I would have thought that one of the major health priorities would be to get that lead out of the water. Is there an opportunity through the bill to identify whether there are lead pipes going into a house? You have identified electrical safety. Is water safety another issue that might be addressed in the context of the bill?
Our approach is based on the European Union drinking water directive, under which what comes out of the tap is measured. The directive was transposed into our Water Supply (Water Quality) (Scotland) Regulations 2001, so it struck us that our approach should be to measure what comes out of the tap rather than to engage in trying to identify lead piping. Are you suggesting that the presence of lead piping should perhaps be a factor in the tolerable standard?
I was wondering whether it might be considered in the survey. If the single survey is introduced and one of the tests is on what comes out of a drinking water pipe, I am sure that people would want to know about that.
Our regulations are driven by such considerations because they transpose the European Union directive. There will be a measure of what comes out of the tap and that will be the determinant. The tolerable standard is a condemnatory standard. If a house falls below that standard, it cannot be lived in and a raft of powers come into play, including powers on compulsory purchase and demolition.
Yes, but the single survey process does not have a test of what is coming out of the tap.
No, but the regulations that transpose the EU directive do include tests for water quality. We feel that that is the appropriate approach.
I am not sure about that.
Grants are available at the moment, and assistance will be available in future, to deal with lead piping that has become an issue in a particular house. Local authorities differ in the policy priority that they give to dealing with lead piping. Depending on where one is in the country, there might be a significant amount of lead in properties and the water might be such that it causes a problem—the chemical composition of the water might or might not dissolve the lead. It will be for local authorities to determine how high a priority they give to dealing with lead. At present, there is a minimum percentage grant. If someone gets a grant for removing lead piping, they receive at least 50 per cent. That is the kind of measure that we use to highlight national priorities. We would imagine that that sort of thing would continue.
I am interested to hear that local authorities can set priorities in relation to health standards. It seems a rather strange approach, but I will not pursue it because it is a policy issue rather than a finance issue.
We have a number of statistical and other tools that we can use to monitor the effects of the bill—for example, monitoring of tolerable standards, the cost of repairs and whether those repairs are urgent or critical. We have a statistical database that will allow us to monitor impacts and to see whether those impacts are starting to disappear. I am not suggesting that that will be easy. Obviously, things other than the bill will have an effect. Houses deteriorate irrespective of other measures.
I do not think that committee members have further questions, so I thank the witnesses for coming.
May I make one further brief point? I want to make it clear that water does indeed feature in the tolerable standard: there has to be a wholesome supply of water in the house. Issues to do with lead could feature, but it is not lead in itself that would feature.
Is there a test? Is water quality tested as part of the single survey?
It would not necessarily be tested as part of the single survey.
Should it be?
That is an interesting question for the professions.
I thank all the witnesses.
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