How the MoD’s plan to privatise military housing ended in disaster

[AvoidDebt]

HPCers will find this a fascinating read. I guess you can work out exactly how this ends. 

How the MoD’s plan to privatise military housing ended in disaster

https://www.theguardian.com/news/2017/apr/25/mod-privatise-military-housing-disaster-guy-hands

Edited April 25, 2017 by AvoidDebt

[honkydonkey]

That's a really good read, thanks.

I'm being pushed from all angles to leave this country these days, reports like this only add to my belief. Our government aren't there for the people.

[spyguy]

Sadly for the Guardian, this is less about the cost of privatisation stuff and more about how incompetent and unaccountable the public sector is.

 

[spyguy]

The main problem they have outsources to a financial company rather than a building maintenance one.

 

[honkydonkey]

38 minutes ago, spyguy said:

The main problem they have outsources to a financial company rather than a building maintenance one.

 

Yeah look who was bidding, Lehman, Berkshire Hathaway, Nomura. All they do is use their vast wealth to muscle into anything and strip the plebs bare.

What can be done to stop it though?

[spyguy]

10 minutes ago, honkydonkey said:

Yeah look who was bidding, Lehman, Berkshire Hathaway, Nomura. All they do is use their vast wealth to muscle into anything and strip the plebs bare.

What can be done to stop it though?

Hmm, Id put aside Berkshire Hathaway. Nomura + Lehman were both examples of clever, leverage morons, who both blew up.

Just like Guy Hands did.

Just because you can borrow loads of money does not mean the deal will work out.

All that BS about amthematical models and this + that. All shite.

[Errol]

Ah yes, Lehman - that great bastion of banking probity and excellence.

As the equally great leader Gordon Brown said:

'I would like to pay tribute to the contribution you and your company (Lehman) make to the prosperity of Britain. During its one hundred and fifty year history, Lehman Brothers has always been an innovator, financing new ideas and inventions before many others even began to realise their potential. And it is part of the greatness not just of Lehman Brothers but of the City of London, that as the world economy has opened up, you have succeeded not by sheltering your share of a small protected national market but always by striving for a greater and greater share of the growing global market.'

- Gordon Brown, speech at the opening of Lehman Brothers EU headquarters, April 2004

 

[Parkwell]

A disgusting display of incompetence from the government, even at the most basic level.

Quote

In 2016, Annington put the 147 houses of what was Howe Barracks up for auction.

The Howe Barracks case encapsulates the short-sightedness of the 1996 deal. In short, state entities used state funds to bid against each other for blocks of properties that were owned by the state just a generation ago.

 

Edited April 25, 2017 by Parkwell

[Saving For a Space Ship]

Speechless

Quote

Among major property developers, the build-to-rent market is growing rapidly, as demand for rental accommodation continues to rise. Annington has an advantage over its competitors in that it doesn’t need to build to rent – it already has tens of thousands of houses available. Senior executives at Annington now believe that it makes more sense to lease out the houses forever, rather than sell them. Sitting in his office, the senior manager looked wistful as he thought of all the houses the company sold off piecemeal to private individuals before identifying the new trend. He made it clear that Annington is not going to make that mistake again.

 

The first indication of this new strategy came last year. In 2014, Howe Barracks, on the eastern outskirts of Canterbury, was closed after being home to the Argyll and Sutherland Highlanders regiment for 10 years. In 2016, Annington put the 147 houses of what was Howe Barracks up for auction. This time, however, rather than selling the houses as it had before, it was selling only short leases of 25 years on the properties.

Canterbury city council saw the properties on Howe Barracks as a way of reducing its long waiting list for social housing, and put in a bid. But Canterbury underestimated the desperation of London councils, frantic to reduce their own waiting lists by accessing cheaper housing outside the capital. A bidding war ensued, handled by Annington. Canterbury was easily outbid by Redbridge council, in east London, 63 miles away. There were protests at Howe Barracks when locals realised that the houses would go to Redbridge residents. One far-right group describing themselves as “angry, white and proud” hung St George flags from the perimeter fence. But Simon Cook, the leader of Canterbury city council, told me it simply could not compete with Redbridge’s bid.

Last summer, families from east London started arriving on Howe Barracks. It is fair to say this might not have been what they were hoping for when they applied for social housing. Not only are they 63 miles away from Redbridge, the Howe Barracks site is not well suited to the needs of the new arrivals. Because Redbridge is moving the largest families on its waiting lists, there are far more children than there were when army families filled the houses, so the local schools are under more pressure. The playgrounds around the estate were all taken out before the families began moving in, because they were deemed unnecessary and expensive. Last autumn, I spoke to Fatuhani Ahmed, one of those who had been moved to this patch of Kent from Redbridge. From Mali originally, Ahmed settled in east London, close to family and friends, and now finds herself completely isolated on the outskirts of Canterbury. “In London, we looked after each other,” she told me. “If I needed, my sister could look after my son as a favour. My auntie was there too.” Ahmed is separated from her partner and says that her son and his father are now only able to see each other “occasionally”.

The Howe Barracks case encapsulates the short-sightedness of the 1996 deal. In short, state entities used state funds to bid against each other for blocks of properties that were owned by the state just a generation ago. This auction was, of course, presided over by Annington, who held all the cards. As the housing crisis continues to worsen, this kind of situation is likely to become more and more common.

---

The MoD now recognises that the Annington deal was a catastrophic mistake. Lord West, who became first sea lord six years after the deal had been signed off, says the deal had caused “major problems” and that the armed forces had failed to understand the long-term consequences. “People thought, ‘Oh, aren’t we clever?’ but I don’t think it was thought through,” he told me.

The implications still appear to be sinking in. First, there is the long-term capital loss, as the value of property in the UK keeps rising. Second, the MoD’s rental costs are rising: from £2,575 per house in 1997 to £4,865 in 2016. Third, according to the contract, the houses must be returned in a decent condition. This means that when the MoD hands back unused houses to Annington, they have to pay “dilapidations” to ensure properties are in an acceptable state for Annington to sell them. The average dilapidations payment was £21,809 per property last year. Last year, 248 houses were handed over to Annington.

 

 A post office and shopping complex at the St Eval former airbase, Cornwall. Photograph: Alamy Stock Photo

On at least one occasion, the MoD has even had to buy land straight back from Annington for more housing. From 2001, the MoD had handed over various parcels of land at RAF Brize Norton in Oxfordshire. Annington secured planning consent to redevelop the land for private housing, before the MoD decided that it wanted to buy some of it back. In 2014, the MoD paid Annington more than £28m to buy back a site at Brize Norton that included 194 houses. This means the MoD has paid about £145,000 per house for properties sold off for an average of £28,000 in the original 1996 deal.

It isn’t just Guy Hands and PFG that did well out of the deal. His investors, too, made vast profits. As Hands explained in his property conference speech last year, he made a slight miscalculation at the outset. “We had done something in 1996 and 1997, which made sense at the time, but in hindsight was not the best decision,” said Hands. “We had securitised Annington’s rental payments at a cost of 7.54% through to 2021.” In other words, Hands had locked in the “mortgage” on the Annington houses at a very high rate. He was then stuck making the higher payments for years. This stabilised the deal – Hands knew that the rental would cover the debt costs – and took the deal off Nomura’s balance sheet.

This had another consequence: the high borrowing costs meant that all the hundreds of millions paid in rent by the MoD in the last two decades has washed straight offshore, endlessly servicing debt. Annington’s investors – the biggest winners in the deal – have made the largest profits. And because all the rental income floods offshore, Annington has never made an operating profit in the UK. Despite receiving £168m in rent from the MoD last year, Annington didn’t pay a penny of corporation tax.

 

[billybong]

1 hour ago, Errol said:

Ah yes, Lehman - that great bastion of banking probity and excellence.

As the equally great leader Gordon Brown said:

'I would like to pay tribute to the contribution you and your company (Lehman) make to the prosperity of Britain. During its one hundred and fifty year history, Lehman Brothers has always been an innovator, financing new ideas and inventions before many others even began to realise their potential. And it is part of the greatness not just of Lehman Brothers but of the City of London, that as the world economy has opened up, you have succeeded not by sheltering your share of a small protected national market but always by striving for a greater and greater share of the growing global market.'

- Gordon Brown, speech at the opening of Lehman Brothers EU headquarters, April 2004

 

 

That pretty much sums it all up.  Gross incompetence on top of gross incompetence (mixed in with hefty dollops of self servery).  

It's amazing the way the UK staggers from economic crisis to economic crisis yet the majority of the electorate are still prepared to vote for the blue or the red version of what is basically the same incompetent party continuing with the same unstable and unbalanced policies.  

 

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Edited April 25, 2017 by billybong

[billybong]

.

Quote

The MoD now recognises that the Annington deal was a catastrophic mistake. Lord West, who became first sea lord six years after the deal had been signed off, says the deal had caused “major problems” and that the armed forces had failed to understand the long-term consequences. “People thought, ‘Oh, aren’t we clever?’ but I don’t think it was thought through,” he told me.

It would be thought through alright but sold in 1996 (John Major's Conservative government) still at the bottom of the house price market at a time that few if any expected NuLabour's crazy house price boom and then the Conservatives (they're the free market party you know ) to continue to prop up and reinforce the house price boom.

Indeed a catastrophic mistake by the MoD is an apt description but seemingly even their top people running things weren't party to the insider information about the possible consequences of banking deregulation and unrestricted lending etc etc on house prices.  Likely Annington the developers (and Nomura the lenders) did know as they went deep into property.

At the time in 1996 for the general public the media outlets were still spouting the old misleading Enterprise Economy guff and how investment in housing and house prices was a waste and was damaging to the economy and they intended a rebalancing back to the real economy.

Edited April 26, 2017 by billybong

[billybong]

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Quote

 

The deal signed by the MoD has become a millstone. Today, the houses that Annington bought for £1.67bn are worth £6.7bn. Under the terms of the deal, the MoD rents back thousands of houses for members of the armed forces and their families. Last year, the rental bill for 39,014 houses around the country was £167m. Of those houses for which the MoD was paying millions in rent, 7,680 were empty.

There is worse to come. The original deal gave the MoD a 58% discount on renting the houses for the first 25 years. It also allows a rent review every 25 years. The first rent review will take place in 2021 and there is nothing to stop Annington charging full market value after that point. If that happens, the MoD’s bill for accommodation for its servicemen and women will rocket and Britain’s armed forces will be faced with enormous existential questions.

 

No matter.  When push comes to shove they'll still defend the system like voters still vote for the red and blue party come what may - after all in 1996 likely the money (£1.67 billion) was needed for something elsewhere such as increasing general benefits and housing benefits and/or for some freebies just before the 1997 general election.

"Britain’s armed forces will be faced with enormous existential questions".  One suspects that as usual the questions will just be passed right on to the British tax payer to answer.

 

Edited April 26, 2017 by billybong