A projected loss of £400million in just one year has put the regeneration of “defective” housing in Merton in jeopardy.
Documents released by Merton Council show on 6 April 2020 Clarion Housing warned projections for the Merton Estates Regeneration Programme (MERP) had sank from an expected profit of £148million in April 2019 to a deficit of £258million in April 2020.
MERP would see 2,550 homes built over 15 years, replacing existing housing on the Eastfields, High Path and Ravensbury estates.
But a financial report on the council’s website acknowledges the deficit, a result of increased costs and decreased revenue, is a serious threat to the project.
The report states: “The scale of the reported viability gap was such that Clarion could not commit to delivering MERP on this basis.
“Merton cannot compel Clarion to deliver the comprehensive regeneration programme.”
The regeneration programme would include the demolition of the three estates, where it has been claimed residents are living in squalid conditions.
A resident of Eastfields in Mitcham told SWL conditions on the estate were “disgusting”.
SWL visited High Path, where construction has begun, and Eastfields, which is still awaiting comprehensive planning permission over a three month period.
There was evidence of leaks and fly-tipping, as well as mouldy and dilapidated exteriors.
SWL revealed in September that Eastfields homes contain asbestos and also saw proof that electric gates, which were designed to keep people who do not live on Eastfields estate from entering, had been dismantled and their wires left open to the elements.
A survey of the estate in 2016 found around half of kitchens and bathrooms were in poor condition, and over half of boilers were at the end of their life. It also identified extensive damp and mould issues.
When Clarion Housing, then Merton Priory Housing, took over management of Merton’s social housing in 2010, the company was under obligation to undertake a programme of ‘decent homes’ works by 2015.
The decent homes standard requires properties to be free of category one hazards, which include damp and mould growth, asbestos and entry by intruders.
It also requires homes to be in a reasonable state of repair and building components to be in good condition.
A government document outlining the criteria for the decent homes standard stated it expected 95% of all social housing to meet this standard by 2010.
However, Merton Council waived the decent homes standards for housing on the estates in 2014, and it has not been reinstated.
The council opted for estate regeneration instead of repair, meaning if regeneration goes ahead residents will not live in homes that comply with this standard until new housing, yet to start outside of High Path, is completed.
Council documents state: “Delivering the MERP will replace poor quality, and in some cases defective housing stock across the three estates with modern homes that meet high standards of accommodation.”
But with the project in such a financially precarious position, it is unclear when or even if residents will be housed in new homes that meet the decent homes standard.
The more than £400million loss is a result of decreased revenue and higher costs, including increasing costs of building materials and finance costs.
Merton Council worked with Clarion Housing to review their financial position, and managed to find around £40million of savings, taking the projected deficit to £237million.
But Clarion said they would still be unable to commit to the project with this size deficit.
A council report describes plans for Clarion to build more houses on the High Path estate for private sale, which will help reduce the deficit further.
The council has also waived a clause which would have guaranteed it 5% of profits from the scheme, which will be reinstated at the point the project breaks even.
With these measures the projection narrowed to a £65million deficit.
According to the document, Clarion is prepared to carry out the regeneration scheme and absorb a £65million deficit.
But the document adds: “Clarion has only agreed, at this stage, to commit to delivery on the basis of the deficit not worsening from the -£65m position.”
It acknowledges threats to the project remain, including rising costs and a lack of funding due to changes to the Greater London Affordable Homes Programme.
Under the programme, which awarded Clarion housing almost £170million in 2017, homes which will be rebuilt from March 2023 are not eligible for funding.
This poses a “clear strategic risk both to the overall viability and deliverability of MERP but also Clarion’s wider regeneration pipeline across London,” the document concludes.
Clarion Housing told SWL: “Clarion Housing Group is completely committed to the regeneration of the Eastfields, High Path and Ravensbury estates.
“We are a charitable social landlord and our investment of £1.3 billion in the community makes this one of the largest regeneration programmes in the country.
“Delivering high quality new homes is the right answer for our residents and has widespread local support.
“It is a complex scheme and it will of course take time to deliver all of the 2,550 homes. In the interim we are investing in current homes and have significantly increased our presence in the community since the summer, completing hundreds of repairs and delivering improvements to communal areas.
“We reached an important agreement with the council in September on the financial arrangement underpinning MERP and this provides us with the security to move forward with the regeneration programme at pace and with confidence.”
SWL has contacted Merton Council for comment.