The MoD is under fire over a ‘disastrous’ sell-off of military homes that a commons committee claims could cost taxpayers more than £5bn in losses.
MPs also noted that during a national housing shortage, it was ‘scandalous’ that the MoD had 10,000 empty properties which cost £30m to rent and maintain.
A report by public accounts committee says that the previous estimated loss of up to £4.2bn after selling and leasing back 55,000 family homes for the military will rise when a new rental deal is renegotiated in three years.
The committee identifies a £1.66bn single payment deal with Annington Property – backed by John Major’s Tory government in 1996 – as ‘appalling’.
The MoD would have been better off if it had kept the properties, the committee concludes.
Ministers face a battle to avoid paying more to Annington’s private equity fund in a new negotiation over renting back the estate to accommodate servicemen and women.
One housing expert estimates the final bill to the taxpayer could reach £5bn.
Committee chair, Meg Hillier, said: “Taxpayers have lost billions as a result of this appalling deal and there could be worse to come.
“The uncertainty over those negotiations is a further slap in the face for those forces’ families who, for far too long, have endured poor standards of subsidised accommodation.”
When the deal was signed off, the MoD intended to release funds to improve the quality of housing for servicemen and women, and reduce exposure to the housing market.
As part of the ‘sale and leaseback’ deal, the MoD then rented the homes from Annington on 200-year underleases.
In January, the National Audit Office said the losses on the deal could reach £4.2bn.
MPs said the losses might well increase after a renegotiation of the rental deal from 2021.
While the MoD predicts the rental costs will fall, Annington’s expectations imply a rise of around £84m a year, auditors found.
The report remains pessimistic about the government’s prospects during the negotiation.
“The department’s costs could increase significantly at a time when the defence budget is already stretched,” the report said, adding that the MoD did not have “the strategy, capability or information required” to negotiate with Annington.
The MoD has more than 10,000 empty properties, roughly the same as 21 years ago, despite a 30% fall in the total number of properties rented back from Annington over that period.
An MoD spokesperson said: “We have a dedicated team working to prepare for the upcoming negotiations with Annington and believe we have strong grounds to retain current rent levels.”
Regarding criticisms over empty houses, the spokesperson added: “A percentage of our housing stock needs to be empty between occupancies to allow for essential maintenance to take place before new tenants move in.
“Military personnel also move around the country regularly and a certain number of houses need to be kept in reserve to accommodate them.”
In addition to the Annington deal, the department has a number of other challenges with service housing.
Many service personnel have for some time been dissatisfied with the performance of the Department’s contractor CarillionAmey, which is responsible for maintaining their homes.
In July 2016, the committee reported that CarillionAmey, a partnership between Carillion plc and Amey plc, had ‘badly let down’ service families.
In March 2017, the committee found ‘some improvement’ in the quality of maintenance but families were still unclear as to what service levels they could expect.
New concerns arose in January this year when Carillion plc was liquidated, with the MoD telling the committee that the liquidator and Amey plc were fulfilling the contract with Amey and expected to take it over completely ‘in the near future’.
The MoD aims at service family accommodation meeting or exceeding the government’s Decent Homes Standard, with the committee told the quality of its occupied properties is universally above this standard – with suitable response times set for maintenance problem.
Despite this, the level of satisfaction with the standard of accommodation among service personnel has remained at around 50% for some years.
The committee notes that MPs continue to receive a significant number of complaints from service families about accommodation standards.
Of the 18,500 properties that the MoD has surrendered under the Annington deal, almost all have been refurbished and sold to the general public, two thirds to first-time buyers and one third to service personnel.
Annington told the committee the average selling price for the existing stock of properties is around £235,000 – which, given the majority of geographic locations involved, make it ‘incredibly affordable’.
Annington also offered the committee commitments to help first-time buyers by selling and renting out surplus accommodation at affordable prices, saying it was moving into the general rented sector and is open to the idea of turning some of the former service family properties into rental properties.
Annington defined affordable as property that people on an average salary—in the region of £28,000—could afford on a monthly basis.
This equates to being in the region of between £600 and £900 a month.
The committee asked Annington if the commitment to affordable rents also applied to new build properties such as at Brize Norton, where Annington is building 135 properties on sites it had received back.
Annington said that was its objective, offering assurances that it had no intention of building luxury homes at high rents near to MoD sites in an attempt to increase average rent, and use this as a negotiating tool.
Subsidised housing is an important part of the remuneration package provided to service personnel and their families, which takes account of the need for them to move regularly or work away from home.
Support can take the form of an appropriate allowances package, or publicly provided family or single person accommodation.
In the early 1990s, the Department’s Housing Task Force concluded that the quality of service family accommodation was inadequate and poorly managed.
Subsequently, in 1996 it sold most of the estate for £1.66bn following a competition.
The department sold 999-year head leases on some 55,000 housing units it wished to retain on its married quarters estate – now known as service family accommodation.
It then rented them back on 200 year underleases from Annington.
The deal also involved over 2,000 additional properties no longer required by the department.
All the properties were situated in England and Wales.
The department secured a 58% adjustment (or discount) to open market rents on properties for the first 25 years of the contract.
This reflected its ongoing maintenance responsibilities, the bulk nature of the lettings and the quality of the department’s covenant, as well as the benefit to Annington of the guaranteed minimum rent payments.
The discount is currently worth £250m a year.
From 2021, the rents will be reviewed on a site-by-site basis, and the extent of any adjustment beyond this is unclear.
The MoD currently holds around 20% of its estate empty citing an ‘operational necessity’ to retain a higher level of empty properties than its longstanding target retention of 10% which is needed to manage routine personnel movements.
On top of its target retention, the MoD acknowledges a need for up to an additional 15% of ‘rattle space’ for estate optimisation and troops coming back from Germany – with properties needed for the rebasing over the next 18 months.
The army has opened up a home front with hundreds of troops on the move.
For service families relocating from Germany to South Wiltshire there is a £250m fast-track building programme on Salisbury Plain which will create more than 900 new homes.
In May, a report from the Royal United Servicess Institute warned a ‘coherent and detailed’ housing strategy was needed to house military personnel.