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HMRC internal manual

VAT Government and Public Bodies

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Other local authority activities: miscellaneous (F to M): Housing Market Renewal

Background

The Housing Market Renewal (HMR) Fund was established to address the lack of demand for certain types of private and social housing in certain areas of Northern England and the Midlands. It was acknowledged that the decline in population in certain areas, coupled with people moving away to seek work elsewhere, had lead to decline and economic deprivation, leaving behind those unable to move with little or no services and a reduced quality of life.

Pathfinders

As part of the strategy to regenerate the targeted areas, HMR Pathfinders have been established and central funding earmarked for the pathfinder areas as part of the Sustainable Communities programme.

The Secretary of Sate has specific powers within the Housing Grants, Construction and Regeneration Act 1996 to give financial assistance for the regeneration of an area. This funding is subject to any terms that may be imposed which the recipient is obliged to comply with.

For the pathfinders this is imposed via the bidding mechanism and the prospectus they submit. Targets are imposed on the number of houses to be demolished, refurbished or built and their exploitation in terms of income from sales and rent. Compliance is verified by the Audit Commission acting at the request of the Secretary of State, with the threat that any non-compliance will result in the recovery of funds from the bodies involved.

The pathfinders aim to reinvigorate the housing market by regenerating the housing stock and to make it available at affordable prices with access to suitable loans. It is intended that much of this will be achieved by refurbishing or repairing existing stock or, where necessary, demolishing and constructing new developments. The process is expected to take 10 to 15 years to complete.

The programme is intended to meet the aspirations of the potential home owners or occupiers and encourage them to live and work in the area. As a result it will also include new schools, commercial units and general urban environmental improvements as well as addressing skills shortages.

Pathfinders structure

The pathfinders are a panel of stakeholders usually made up primarily of the areas’ local authorities. But it can also include the police, health authorities, the finance sector, landlords and the construction industry. The function of this partnership is to set the strategy and coordinate bids for funding, not only from the HMR fund but from other sources. The funds go to the individual bidding entities via an accountable body and they are responsible for their own projects under the pathfinder’s objectives.

This means that the local authorities receive their own block of funds to carry out their independent role. This is, primarily, to establish land banks through acquiring properties in the designated area and then clearing the land to make it ready for development. The land banks are intended to be parcelled up and sold to developers, or registered social landlords, to undertake construction of the required housing.

The proceeds from the sales are re-cycled back into the project by reducing the funds to be paid under the bid by an equivalent amount. This mechanism means that the local authority is unable to make a profit.

VAT treatment

The activities relating to the acquisition and disposal of land under the HMR programme are non-business and local authorities can recover the costs incurred under section 33 (see VATGPB4000).

It is accepted that local authorities are not acting in competition with the private sector as the cost of acquiring, clearing and disposing of the land outweighs its market value. This is one of the reasons why the commercial sector is not involved and why HMR is needed.