Unlocking The Value Of The NHS' Property Estate Is Mostly A Political Problem

London is notoriously property-starved, and a solution could be lurking in plain sight. The NHS owns about 269M SF of English real estate, enough to cover the City of London 10 times over. By selling or redeveloping the land, the NHS could generate nearly £6B, but would need to take a “far more commercial approach,” according to a major report by the government’s estate czar. Sir Robert Naylor made several sweeping recommendations to unlock the value tied up in the NHS’ estate and boost residential development in key areas of London, but the political will to execute the plan appears to be lacking.

THE OPPORTUNITY

In 2014 Savills estimated that 300,000 homes could potentially be built on surplus or underutilized NHS land. Those properties are usually in commercially viable locations: near populations with infrastructure. In a report released alongside Naylor’s, Deloitte identified about £1.8B that could be released from the ‘acute estate’ alone. Combined with the estate outside the acute sector, the NHS could release about £2.7B immediately — and even more if the NHS adopted a more commercial approach to obtaining planning consent, negotiating affordable housing quotas and maximizing value from the highest value sites in London.

CURRENT STATUS: URGENT

For property developers — particularly homebuilders — the NHS surplus estate represents a once-in-a-generation opportunity to acquire central land with good infrastructure. Meanwhile, the NHS is struggling with long waiting times, too few beds, mismanaged care, premature deaths and incompetence. Last summer, junior doctors went on strike to demand better pay, and an NHS pension fund deficit of £11B is looming. Realizing the latent value in the NHS estate is one way to alleviate both housing problems and the pressures on the NHS.

“The programme [to sell NHS property] strikes me as eminently sensible,” said Kristian Niemietz,  senior research fellow at the Institute of Economic Affairs. “Inevitably, an NHS trust will never just be a healthcare provider; it will also be a landowner, an owner of business premises and an owner of machinery. And, inevitably, this will sometimes mean that an NHS entity will be presented with an opportunity to realise a windfall gain, because the market value of these assets will fluctuate, while their value to the NHS may not. The only question then is: Should they just sit on those assets passively, and do nothing with those opportunities? Or should they actively try to make the most of it? If anything, I think the NHS should try to get a lot more out of its land and property portfolio.”

SOME SUCCESS

There have been some successes in converting NHS properties into homes. An NHS Property Services spokesperson told Bisnow that since the company was formed in 2013, NHS PS has disposed of 295 surplus properties. The spokesperson declined to say how much was realized in capital receipts from property sales, but did say the aim is always to generate valuable funds for reinvestment in the NHS, and since 2015, NHS Property Services has invested £110M in the NHS estate.  

"We always look to achieve best value for a site to enable funds to be reinvested.  Our policy is to ensure that market value is achieved on property disposals," the spokesperson said. 

The spokesperson said the company will offer surplus property to other public sector bodies using an arm’s length process, before other options are considered, but purchasers are largely from the private sector.

In January 2017, NHS Property Services sold Bridgwater Hospital (which closed in 2014 and its services transferred to a new purpose-built £33M facility on the edge of town) in Somerset for £1.6M. The site has planning permission for an 80-room hotel, gym, swimming pool, day nursery and three homes. The buyer was undisclosed and the NHS said the capital released will be reinvested in the NHS.

In 2015, the NHS sold the Bassetts Campus, a former residential facility for people with learning disabilities in the London Borough of Bromley. The site had been empty since 2013. London Square bought the property and plans to build 100 new residences, ranging from one-bedroom flats to four-bedroom family homes. London Square’s proposal also includes restoration of the site’s surroundings, green spaces and an improved habitat for wildlife.

In 2014, an idea was floated to redevelop existing NHS buildings to include floors of apartments above the service areas that could provide 77,000 new homes in London. While that exact model has not been executed yet, some of the new mixed-use developments do include healthcare facilities.

St George’s Hospital in Hornchurch, which had been vacant since 2012, was sold in June 2016. The new owners plan to build 279 homes and a 32K SF health hub on the 29-acre site. The health hub will include GP and clinical care as well as space for community providers and education space. To get the deal done, a “contribution” of £1.7M was requested from NHS Property Services to invest in education, improving Hornchurch Country Park and installing cycle storage at Hornchurch station.

In 2016, the NHS sold Lyngford House, a former conference centre in Somerset, to Quantum, a firm that specializes in care homes and extra care living, for £1.1M. It had been vacant since February 2015. 

NHS Property Services inherited the four-acre site from the former Somerset Primary Care Trust as part of the 2013 health reforms. The venue was previously used by the NHS as a training and conference centre.

The site comprises the Grade II-listed main building with adjoining cottage and stable block dating from circa 1830, a 1980s purpose-built 18-bedroom hotel block, a detached conference building, parking and grounds.

THE LACK OF POLITICAL WILL

Still, hundreds of millions of square feet remain unsold. Experts say the main obstacle is that the NHS has not taken the bold action required to see real results from its scheme.

Naylor’s report attributes that to the mindset and culture of the NHS, which does not treat the estate as a strategic asset. The public sector is inherently risk-averse, and the public’s vocal fear of privatization has weakened the NHS’ will to make bold changes.

Niemietz believes the fear of privatization is overblown. “Whatever the NHS does, there will always be somebody who claims that this is ‘really’ about privatization.”

Take the following text:

“It is no exaggeration to say that the Health Service is now under serious threat. […] The strategy of government ministers has been obvious. Starve the NHS of vital cash and resources then force patients to look to the growing private sector […] There is no doubt in my mind that the NHS is in danger and over the next five years we could find ourselves drifting towards American-type [healthcare].”

Or this one:

“[The reforms] clear the way for a massive shift of resources from the NHS to private companies … Private companies … are to be enabled to asset-strip the NHS.”

They could both be from any of today’s papers. In fact, the first one is from 1980, and the second from 1983. This fear of secret plans to privatise the NHS has always been there, and it does not deserve to be taken seriously, Niemietz said.

“The objections are really moral arguments dressed up as economic arguments. There is a mindset which sees the NHS as morally pure, and market exchange as morally corrupt. In that mindset, the NHS should not participate in market transactions, because that would taint its purity. But the NHS has never existed in a vacuum. The NHS buys medical equipment, medical devices, drugs, beds, office equipment on the market, and always has. I don’t see this as fundamentally different.”

Naylor's report states that political pressure can undermine clinical strategy as the primary driver for the estate's strategy. Disposals are high risk, politically. Localism is also a problem because residents see hospitals and clinics as part of their community.

Accountancy rules are also standing in the way of progress. The negative impact of writing off estates for demolition and the failure to reflect capital receipts and sale of surplus land as income force the NHS to drag its feet on doing anything with the property, lest it incur more costs.

Lack of flexibility was also blamed. There is a lack of alternative uses for the properties — healthcare assets can be more difficult to convert to other uses than other property types — and NHS' estate also owns small parcels of land and areas within buildings.

The poor condition of the properties is another challenge. The NHS estimates it needs £1.37B to refurbish buildings that are in critical condition. 

To help speed up the sales, Naylor suggested creating a new NHS Property Board that will be empowered to execute speedy action and professional credibility within the sector. The NHS Property Board would produce guidance on estate planning and disposals for the NHS, and would access private sector expertise, models for affordable housing, and partnerships with both housing associations and developers.

A Department of Health spokeswoman told Bisnow that this government is committed to improving the NHS estate. A new NHS property board is setting a clear strategy for maximising the estate's value, and the budget provided £325M of additional investment to start the transformation of NHS facilities so they support the very best patient care and experience.

“We will fully consider all the recommendations in the report and respond later in the year,” she said.