Supporting housing investment

Transcription

1 Supporting housing investment A Case Study Guide Case studies

2 Introduction This document provides examples of entrepreneurial activity lead by councils to provide new homes in response to the demands of their local housing market and housing pressures and shares some of the learning from those councils. It also highlights the options available to develop an investment offer that meets your local needs. Collectively, we simply aren t building enough homes to meet the demands of a growing and ageing population. Demand for housing across all tenures is high and the housing waiting list in councils has increased by 70 per cent in the last decade 1. Private renters make up an increasingly large part of the overall housing population, and 45 per cent of them think it will be 5 years or more before they can buy their own home 2. After a period of uncertainty over house prices, the Royal Institution of Chartered Surveyors (RICS) report that house prices rose in every part of the country by the end of The challenges vary of course; for example areas experiencing high demand for housing face the challenges of affordability, leaving many households priced out of the market for home ownership and directing a significant proportion of the household income on housing costs. Conversely, areas where property is considerably lower in value can make it difficult to attract investment to support wider regeneration. Both of these issues will hold back the local economy, where housing and jobs are intrinsically linked. Taking a long term view on the housing needs and aspirations of your area and the investment needed to meet these needs can support wider plans to stimulate economic growth locally, and help to manage pressures on public services and affordable housing. As the councils in this document demonstrate there are opportunities for both stock and nonstock holding authorities to deliver, support, attract and underpin housing investment. For stock owning councils, self-financing provides an opportunity to run the housing stock in a more business like way to ensure value for money for tenants. 1 CLG live tables, Table 600 Rents, lettings and tenancies: numbers of households on local authorities housing waiting lists1, by district: England English Housing Survey RICS Housing Market Survey, 16 January Supporting housing investment

3 For all councils there are opportunities to build on previous commercial and entrepreneurial experience to start new house building projects which provide private rented, affordable and market housing. A recent LGA survey 4 showed that 90 per cent of councils intended to make land available for housing over the next five years and a number of City Deals and other asset development partnerships have opened up opportunities to pool and release assets across the public sector. Land values vary considerably across the country and this will have bearing on the development options for councils and the margins for potential investors. A complex housing market needs the creativity and entrepreneurial skills of councils to bring land and money to the table and get new homes built. Councillor Mike Jones Chairman, Environment and Housing Board Local Government Association 4 Supporting housing investment 3

4 Contents Introduction by Councillor Mike Jones 2 1. Housing delivery options 5 2. Case studies 10 A. Private investment 10 B. Council investment 15 C. Housing as part of a wider growth and investment agenda 17 D. A quick look at other investment and delivery models in development Issues to consider in selecting an investment and delivery model 22 Useful resources and further reading 25 Acknowledgements 25 4 Supporting housing investment

5 1. Housing delivery options There is no one model of partnership and each council will have a different set of requirements and opportunities. The table below sets out some of the different options. Vehicle Form Investment and return Direct development Council owned housing company Council or ALMO building financed through the Housing Revenue Account (HRA) or borrowing. Financial investment by the council outside of the HRA. Power to set up trading activity established by the well-being power of the Local Government Act 2000 and the Localism Act. Investment through the HRA or via borrowing up to centrally prescribed cap. Direct return to council through rental income and capital appreciation. Council investment Direct return to council through rental income and capital appreciation. Issues to consider Undertake a risk and options appraisal: the investment risk may be offset by the development of a potentially valuable asset. Borrowing through the HRA is limited by a centrally set cap. What impact will additional borrowing have on your long term HRA business plan? Investment is offset by the development of a potentially valuable asset. Example Stroud 5 Ashford (page 15) 5 Let s Get Building (NFA, ARCH, CIH, LGA and CWAG 2012) for more examples of building through the HRA Supporting housing investment 5

6 Vehicle Form Investment and return Local housing company A form of joint venture between a council and private sector partner originally piloted by the Homes and Communities Agency (HCA). Jointly owned, both partners share risks and benefits. Typically the Council invests land; partner provides funding and house building expertise. Shared reward. Issues to consider Shared risk. This is a longer term partnership arrangement and therefore councils will wish to consider the choice of partner carefully. Example Sheffield (page 19) Typically a medium to long term partnership arrangement. Special purpose vehicle (see note on p9) Land is committed to a special purpose vehicle and homes are built with private finance Council provides land, partner provides funding Returns go to investor for duration of lease. Asset may then return to council if a leaseback arrangement is in place. Investor may require guarantee from council or arrangement to underwrite potential losses. Barking and Dagenham (page 10) 6 Supporting housing investment

7 Vehicle Form Investment and return Local Asset Backed Vehicle (LABV) (see note on p9) Various models but typically involves the council transferring land to a separate entity and financial investment from a partner organisation alongside skills and capacity to deliver. Council provides land, partner provides skills and funding Different models of return, depending on the contract arrangements Issues to consider Shared risk Example Gateshead (page 14) The vehicle is a distinct legal entity and shares and governance arrangements are typically shared across the partnership. Joint venture (see note on p9) Council and private commercial venture. Risk and rewards are split between the partners Can take different forms, either a limited partnership or a company. Council provides land, partner provides funding Rewards are split between the partners, depending on the contract arrangements Shared risk Oxford Barton LLP (page 12) Wakefield Partnership (page 19) Council will have high visibility and involvement in programme delivery. Supporting housing investment 7

8 Vehicle Form Investment and return Private Finance Initiative (closed to new applicants) Long term contracts between councils and private sector firms. Management of the housing becomes the responsibility of the private sector contractor; the local authority continues to own the housing and retains its tenants. Agreed returns to private partner during contract period. Asset then reverts to council. Issues to consider Risk formalised in contracting process. Some risks transferred to private sector. Example Kirklees (page 11) Development with registered provider Council investment of land, use of right to buy receipts or financial investment to fund new building. Direct loan or bond provided by council to housing association. Land assets may also be used in a partnership with the housing association providing the finance. What is the appropriate governance and investment vehicle for this partnership locally? For example joint venture, special purpose vehicle. Hastings Council loan to Amicus Horizon (see Hastings Council website for details) Pension Fund investment Pension fund acts as investor to housing development. Council can provide land to increase the viability of the model. Long term partnership arrangement. Consideration of the management of the asset over the partnership period and the ownership of the asset at the end of the period for example would this remain in local authority ownership. Housing Investment Fund supported by Manchester Pension fund and Manchester City Council (see the council s website for details) 8 Supporting housing investment

9 Vehicle Form Investment and return Planning obligation (Section 106 agreements) Planning obligations 6, commonly known as section106 agreements, are a mechanism which make a development proposal acceptable in planning terms, that would not otherwise be acceptable. This can include obligations for affordable housing. The wider viability of the development in question will be a key consideration. Issues to consider The Growth and Infrastructure Act introduces a new application and appeal procedure for the review of planning obligations on planning permissions which relate to the provision of affordable housing. The changes require a council to assess the viability arguments, to renegotiate previously agreed affordable housing levels in a S106, and change the affordable housing requirement or face an appeal. Example A note on special purpose vehicles, local asset backed vehicles and joint ventures Each of these vehicles can be used as a framework for a council to enter into a partnership with a private sector partner. They offer different approaches to tax, to on or off balance sheet borrowing, protecting public interests and visibility of council involvement. This is a complex area that requires legal and financial expertise. Land assets The availability and value of land for development will be a key factor in housing development. Councils will be identifying sites for development including public land through their strategic housing and planning function. Council owned land can be a valuable asset and considerations will include the council s overall asset management strategy as well the long term vision for the area including jobs and growth. In developing land assets for housing there are a range of issues to consider including capital receipts, achieving best value, de-risking sites and increasing the viability of development. The Homes and Communities Agency are working with partners on a programme to release HCA land and unlock development on publicly owned sites. 6 Section 106 of the Town and Country Planning Act 1990 (as amended) Supporting housing investment 9

10 2. Case studies A. Private investment London Borough of Barking and Dagenham building homes for affordable rent Barking and Dagenham have developed 477 new homes for affordable rent using private investment. The investment was secured through a special purpose vehicle and the homes are managed through the council by an independent company. Tenants have moved into the first properties to be completed and marketing is well underway for the remaining homes. The homes are built on two sites across the borough, both owned by the council. Other options for developing the sites had been explored but proved difficult to deliver. The council s partnership with Laing O Rourke (the Local Education Partnership) started with schools projects and pre-dated the housing project. Drawing on their experience of building projects, the Local Education Partnership set up a special purpose vehicle (SPV) to act as a developer of the two housing schemes and secure private finance. Institutional investor Long Harbour funded the scheme with the council providing the land. The council guarantees the rents and after 60 years the homes will be owned outright by the council. All the new homes are offered at affordable rents, with a mix of rent levels including 20 per cent at social rent. The target group for the new homes includes local people in work who do not qualify for social housing, but struggle to afford options in the private housing market. The council markets, manages and maintains the homes through an independent company called Barking and Dagenham Reside. Reaching out to a new group of renters has required a commercial and cost-conscious approach from the council to marketing and managing the properties. Barking and Dagenham are working on options for a second phase of housing development. The council ran a funding competition last year to test the cost of private investment and are currently putting options to councillors on sources of finance and the mix of homes, which is likely to include some houses for sale. Learning for other partnerships The complex nature of the project meant that it needed the agreement of key experts inside the council. Any project of this type will need agreement from the council s finance, property and legal teams. Setting up a partnership with an institutional investor takes time and money. It takes longer 10 Supporting housing investment

11 and is more complicated than using more traditional forms of borrowing such as the Public Works Loan Board. With the benefit of hindsight the council would have simplified the contract arrangements. The number of organisations involved in the Barking and Dagenham project led to a complex arrangement that created a large volume of contract documents. Kirklees Council Excellent Homes for Life The Excellent Homes for Life project will build 466 new one and two bedroom flats for council tenants in Kirklees. The new homes are tailored to local housing need and the project includes 35 flats designed for wheelchair use and 140 extra care flats, 10 of which cater for people with dementia. Kirklees Council have specified high sustainability and design standards and the homes are adaptable to meet tenants needs throughout their lifetime. The scheme has been delivered through private finance initiative (PFI) and delivered in partnership with the Regenter Excellent Homes for Life consortium. Building work started early in Kirklees Council developed the Excellent Homes for Life project to replace a core of high cost, poor quality homes with purpose built new affordable homes. The new building project was an opportunity to address shortages in the current housing stock, and deliver wider economic benefits to the area. The process began around 10 years ago and with limited options for the council to build new affordable homes in volume, PFI provided an achievable route for delivery. The PFI deal covers the construction of the homes and a 20 year service contract to manage and maintain them. The project went through a competitive procurement process and Regenter was appointed as the preferred bidder in The Regenter consortium includes Regenter Limited and Wates Construction Limited. Kirklees Excellent Homes for Life development Supporting housing investment 11

12 Excellent Homes for Life is separate from Kirklees Neighbourhood Housing, (the arm s length management organisation (ALMO) for council housing) and has its own maintenance and management contracts. In practice, there is no obvious difference to tenants. The flats are built in small developments on 27 sites across Kirklees. Managing the planning process threw up some challenges, including some public opposition and the complexity of managing 27 sites in one project. The council has sought economic benefit to the local economy from construction work, and from delivering the services by working with Regenter to use and develop local skills. Construction work has been completed ahead of programme. Properties are let quickly after completion thanks to good communication between the partners. Relations between local communities and the construction company are good, and the contractor worked hard to address any problems caused by the disruption of the building work. There is a stringent certification process from the council to ensure that properties are handed over to the specified standard. Tenants are pleased with their new homes, with very high levels of satisfaction recorded in a recent survey. The extra housing units have opened up new housing options for Kirklees residents and some of the tenants have moved in to the extra care flats from residential care. Learning points for future partnerships The council set out a robust specification and this contributed to the success of the project. This was required as part of the PFI process but applies to other housing partnerships. The council has reduced risk as much as possible through tight specifications and contracts, but some risks such as the impact of welfare reform or future legislative change cannot be easily quantified. Understanding whether risks are acceptable to the private sector or should be kept in house is a subtle, but important skill for councils. Protocols between partners and expectations of service delivery have all helped the partners to understand each other and set out what is expected. The extra care element is treated separately to the housing management contract and is not part of the PFI deal. It was a deliberate decision to split the two contracts and avoid a conflict of interest. Councillors played an important role in developing the strategy and vision for building the new homes, and engaging local communities in the planning process. Oxford City Council bringing forward new housing at Barton Oxford City Council owns a 36 hectare (90 acre) site at Barton, which was allocated as a strategic site for the provision of housing in the city. The site needed significant investment in infrastructure, making traditional development routes difficult. In order to bring forward housing growth the council entered into a joint venture with an investment partner leading to the creation of Barton Oxford LLP. Outline planning consent has been granted for 885 new homes and work has begun on detailed building plans. In a challenging economic climate and against a background of severe housing shortage, the council wanted to ensure early delivery of new market and affordable homes. Demand for affordable housing in Oxford far outstrips supply. The council had very little development land 12 Supporting housing investment

13 available to develop social housing apart from the Barton site, and buying others was not an option due to lack of other land in the city. There were significant financial constraints associated with bringing forward the Barton site with infrastructure costs estimated at 25 million to 30 million relating to issues such as contamination, and access onto a major trunk road. In addition, there were significant viability issues relating to the provision of a new primary school and additional S106 contributions. The site needed substantial upfront funding before returns could be made from the sale of land and property could be made. Selling the site to developers was unlikely to lead to a quick route to building, with the likelihood of with protracted negotiation over section 106 requirement and viability of affordable homes. The council could have funded the project through borrowing, but would have been exposed to the full development risk. After carrying out an options appraisal the council agreed on a joint venture vehicle with a private sector partner to provide investment. The infrastructure provider will secure investment against the value of the land Oxford did not have significant prior experience of joint ventures and had to draw on external advice on tax and the accounting treatment. There were also costs for professional services including architects, surveyors and lawyers and further due diligence, met by HCA. The council started the procurement process to find a partner in As the developers are providing infrastructure funding alone, the procurement of the Joint Venture partner was not subject to the EU public procurement rules, avoiding a time consuming OJEU exercise. The procurement process was still a vital stage of the process as it brought out the economic, social and environmental benefits in the council s vision for Barton, including the opportunity for training, apprenticeships and job creation. Following the procurement process Grosvenor Developments Ltd was selected as the preferred private sector co-investment partner. The council entered into a 50:50 limited liability joint venture partnership (LLP) with Grosvenor in October The scheme is expected to deliver 885 residential units of which at least 40 per cent will be for social rent. The early stages are well advanced with outline consent granted and a detailed design code has been part of the planning process. The council has been careful to keep a strict separation between its role as landowner and as Local Planning Authority. The joint venture has enabled development on a difficult site, and will enable the building of new affordable homes without additional public funding. It also allows the council to retain a degree of control over how the site is delivered. Running a joint venture takes time and effort from the council and initial investment to cover the cost of external expertise and the procurement process. Oxford has learnt that operating the joint venture takes more time than they originally expected. Learning for other partnerships Oxford had clear objectives for the project and threaded these through the process and the procurement stage. For Oxford, the project was not just about getting housing built and the aim, clearly set out by elected members, was to support local economic growth and increase the range of housing options for local people. Choosing the right partner has been crucial to the success of the project. Oxford had clear aims Supporting housing investment 13

14 and set them out in the procurement process, and this has been helpful to both partners. A joint venture requires resourcing by the council. Oxford have committed a lot of time to the partnership and other councils considering this approach will need to think about the demands on officer and member time. The skills and commercial experience needed to set up a successful joint venture will also be critical to success. Gateshead Council Regeneration partnership The Gateshead Regeneration Partnership between Gateshead Council and Evolution Gateshead will deliver 2,400 homes over the next 15 years. The council is using its land assets to secure private finance through this Local Asset Based Vehicle which also allows the council to achieve wider economic, design and sustainability outcomes. Gateshead has partnered with Evolution Gateshead (itself a partnership between Home Housing and Galliford Try) to develop an innovative solution to delivering both private and affordable housing. This scheme is also being supported by the Homes and Communities Agency. The approach developed by the council has been to secure a long-term public private partnership with access to private financing and commercial expertise. Sites are being bundled together in groups of three or so where the sites with a positive value will cross-subsidise those with a negative value and thereby ensure development across the bundle. This public private joint venture will also support wider housing and regeneration objectives of the council and its communities including promoting economic development, increasing local employment opportunities, raising sustainability standards in residential dwellings and improving design standards. The project will deliver: the regeneration of 19 key development sites around 600 affordable and 1,800 private homes local employment and economic opportunities: 25 per cent of employees working on the project will be from Gateshead and 25 per cent of the value of supply chain opportunities will go to Gateshead businesses homes will be built to Code for Sustainable Homes level 4 all homes will be built to Homes and Communities Agency space standards. Learning for other partnerships This type of project requires a corporate approach with input from a dedicated range of professions across the council. An engagement plan is a useful tool to keep stakeholders informed of progress with the project. A governance structure is needed that effectively represents the interests of all partners. 14 Supporting housing investment

15 B. Council investment Ashford Borough Council building on a track record of housing growth Ashford Borough Council is setting up a council owned housing company to build new homes for rent. Ashford has a thriving housing market but there is a gap in the provision of rented accommodation, and this is an area that the council will target through the new housing company. Experience of building council homes, PFI projects and a proactive approach to housing development has given the council a base of commercial and entrepreneurial experience to build on. Ashford has a track record of housing growth, including the expansion of Chilmington Green with 6,000 new homes. Councillors and communities have supported the growth of the area and there is support for further building. The council has built new affordable homes on council owned land through Housing Revenue Account (HRA) borrowing and through the HCA funded local authority new build programme. New council homes have been well received, and have improved small and difficult sites such as garage areas. There is a strong housing market in Ashford for owner occupiers but the market is not keeping pace with demand for privately rented accommodation or providing alternatives for people without sufficient income to buy their own homes. The council is seeking to target this gap in the housing market through a new venture. Building through the HRA is no longer an option as the council has reached the borrowing cap. A new trading company is the solution for providing additional housing capacity. The new property company will be council owned and funded initially by council borrowing. The company will offer homes to rent and sale, with a mix of rent levels. Providing some properties for sale and market rent will make the company sustainable and enable the company to provide the properties at lower rent, creating a housing offer for local people that meets the gap in the commercial market. Setting up a council owned company has not been straightforward and the question of state aid has been particularly complex. This model was preferred by Ashford due to the ability for the council to maintain control and ensure that the company has appropriate governance. It will also provide an income stream for the council through the borrowings. Ashford s track record in building new houses will underpin the new company. Their experience of building through the HRA has built up their skills in design and consultation. Becoming a self-financing housing authority gave them confidence in their accounting ability, as they gained valuable experience from the process of negotiating the self-financing agreement with the Treasury. Learning for other councils Taking a more entrepreneurial role in housing has enabled council staff to develop new skills and services in house. The council now has its own architect, for example. The expansion of the housing stock has had a positive effect on the housing service and opened up new areas of opportunity. The trading company allows the council to manage the investment and keep a close control Supporting housing investment 15

16 over governance. It has taken time to set up and other councils thinking of a similar approach will need to think about the time and skills needed to support this level of commercial activity. Ashford Borough Council prepared a detailed business case as part of their preparation, and had existing experience of trading companies to draw on. South Cambridgeshire District Council Arms Length Housing Company South Cambridgeshire District Council has registered South Cambridgeshire Limited, a specialist arms length housing company. Long term options for the housing company are under review, with the potential for commercial activity. Affordable housing is a significant economic issue in the local area. The shortage of rented accommodation is a concern for employers, with a real risk that essential workers will be priced out of the local jobs market by high housing costs. The council is considering leasing arrangements through the Housing Company to address the shortage of affordable rented property. Options under consideration include leasing empty publicly owned empty homes, and redevelopment of council owned bedsits. Leasing has the advantage of speed, as no building is required. It is also a low risk activity to the council in terms of risk and investment. The council is exploring different types of tenancy through Housing Company including longer tenancies. There is demand from professionals for rented accommodation with security of tenure, for example during a placement with the University. 16 Supporting housing investment

17 C. Housing as part of a wider growth and investment agenda Preston, South Ribble and Lancashire City Deal - Land assets and infrastructure The Preston, South Ribble and Lancashire City Deal is one of the second wave of City Deals. It focuses on the area s economic assets and opportunities to drive forward local growth, and over a ten year period the City Deal will generate 17,420 new homes and secure 2.3 billion in leveraged commercial interest. New homes will be needed to support the planned increase in jobs and economic activity. The City Deal area already has many attractive sites allocated for housing development in its Core Strategy. Investing in infrastructure is critical to delivering large scale housing development on these dormant sites. The area has the potential for housing growth and the location and geography of Preston makes it a well suited for development as a regional hub. Several attractive sites have already been earmarked for housing development through the core strategy. The challenges have been to secure the infrastructure and speed up delivery on sites that have so far been dormant, and where planning permission has not been given due to capacity problems. The City Deal has enabled the partners to set up an Infrastructure Delivery Fund and Investment Fund to get schemes moving and provide the catalyst for jobs and housing. Infrastructure projects include four major new roads, a motorway junction and local community infrastructure. Infrastructure developments will be funded by bringing together existing funding streams, along with investment from the Lancashire Pension Fund, land receipts, New Homes Bonus and the community infrastructure levy (CIL) from developers. HCA assets, a legacy of the new town development in the 1970 s, are being brought into the City Deal. The Partners will keep the receipts for 10 years and a Stewardship Board will guide the disposal process. By bringing certainty over long term investment, housing development can start quickly. Preston Council is working on a masterplan with developers and encouraging them to collaborate. The aim is to produce a single planning application. Learning for other partnerships Joint working between the local authority partners began long before the City Deal. The councils involved had a clear, simple vision for economic growth and this has been key to agreeing the City Deal. There will be complexity in the delivery of the City Deal projects, for example on the planning masterplan, but underpinning the agreement is a simple vision for developing the area and using existing assets. Supporting housing investment 17

18 D. A quick look at other investment and delivery models in development Plymouth City Council Plymouth City Council is establishing a 50 million fund to build 1,000 new houses a year. The council will borrow the money and lend it to housing associations and housing cooperatives at an interest rate of 3 per cent. The council also plans to release 100 acres for development for a mixture of affordable homes, family homes, executive properties, student accommodation and extra care housing. Kent County Council and Kier Kier s property arm and Kent County Council have struck a deal to build 150 homes for private rent across the county. The council will provide the land, Kier and an international pension fund the finance for a mix of market sale, new, rental and affordable housing. Cornwall Council In February 2013 Cornwall Council established a new 62 million fund which will deliver more than 4,000 new affordable homes over the next 4 years. A central proposition is for the Council to develop new innovative ways of investing which create value which can be recycled into future schemes. This includes commissioning new affordable housing from registered providers and appointing a development partner through the HCA to develop council owned sites where receipts are recycled. Eastleigh Borough Council Eastleigh Borough Council offered a guaranteed purchase model for developers who had sites with existing planning permission but were unsure if they could sell the houses, leading to stalled development. Eastleigh provided a letter of guarantee that the council would buy the property if it failed to sell on the open market. Under this arrangement the developer had an agreed period to sell, and the flats were in fact all sold to private buyers. Eastleigh is exploring options for developing a set of sites that are too small to attract commercial interest. Partnership with neighbouring authorities and local housing associations would allow the council to link up sites and share resources and expertise. A Special Purpose Vehicle is being established and options for housing delivery are being considered by councillors. It is likely that any new housing would include affordable housing as well as homes for market rent, to ensure viability. 18 Supporting housing investment

19 Mansfield District Council Mansfield District Council is looking at a number of options to promote house building and a mixed approach to investment. Different options are proposed for different sites, allowing the council to support a range of different housing products and help local people access affordable homes and move up to home ownership. Proposals include new build rent to buy homes on land owned by the council, financed by private investors. Alongside the lease back scheme the Council is also looking at an arms length Housing Company as vehicle for direct investment. Thurrock Council, Essex Gloriana Thurrock will be a housing company wholly owned by the council and able to build new homes on council-owned on a site-by-site basis. The financial model assumes that most of the new homes will be let at 80 per cent of market rent, with the balance sold outright or through shared equity or similar schemes. The business case for Gloriana Thurrock can be found on the Council s website: mid/397/meeting/2261/committee/402/default.aspx Sheffield Housing Company The Sheffield Housing Company was formally established in It is a partnership organisation with 50 per cent of its shares owned by Sheffield City Council and 50 per cent owned by a consortium of Keepmoat Ltd and Great Places Housing Group. The council invests land in the Company and Keepmoat Great Places invests money to match the value of the land asset. Profits and risks are shared equally between the partners. Sheffield Housing Company plans to build 2,300 new homes over a 15 year period. Wakefield Metropolitan District Council and Wakefield & District Housing Joint Venture Partnership Wakefield MDC and Wakefield & District Housing (a Registered Provider set up following transfer of the housing stock in 2005) have agreed to establish a Housing Joint Venture Limited Liability Partnership to develop private market homes with the purpose of increasing the supply of new high quality market sale homes and affordable homes. This innovative new partnership will operate on a commercial basis with a view to profit realisation, in order that the profit generated from market sales can be re-invested in further improving the local housing supply or investing in priority regeneration opportunities in the Wakefield district. Supporting housing investment 19

20 The parties have agreed to invest equal sums into the Partnership that will enable it to acquire sites from the council, with an initial programme of 200 new homes over the next 5-7 years. It is currently anticipated that the Partnership will be launched in April Brighton and Hove City Council Brighton and Hove City Council has identified a range of options for delivering affordable housing. The council is engaging with institutional investors in order to utilise potential private sector funding opportunities to contribute to the delivery of new affordable homes. The HRA capital programme includes funding to support building new council homes on vacant garage sites and 1 million for the procurement of initial feasibility, design and stakeholder engagement, on potential case studies for additional housing opportunities on HRA land. The Estate Regeneration Team is carrying out detailed work on an initial pipeline of 40 sites which have the potential to deliver up to 150 homes Westminster City Council Westminster City Council has developed an integrated model which incorporates direct development with a council owned housing company, leverage of value through planning obligations and funding through local authority borrowing. Together these initiatives have helped to speed up the delivery of housing regeneration across the council s area and add to housing supply. In 2010 the council formed a wholly owned charity, Westminster Community Homes (WCH) to compliment the council s activities in delivering new and better affordable housing in the Borough. Westminster has a planning policy that allows a payment into the council s Affordable Housing Fund (AHF) if it is impossible or unviable to deliver affordable housing on site. The council uses the AHF to grant aid charities and registered providers to provide affordable housing with this fund. Some donations have been provided from the AHF to WCH. In addition the council transferred land at nil value to the charity plus loaned money at market rates to help WCH grow its portfolio. Over four years WCH s portfolio will have grown to 400 homes with a mix of new build homes and acquisitions. WCH provides housing for those in priority need in Westminster. More recently WCH has worked in partnership, acquiring homes in and around the council s Housing Renewal Areas. With the benefit of these homes, WCH provides decant opportunities for households affected by the Housing Renewal Programme. The availability of these decant homes helps to speed up the process of regeneration by providing local residents with decant opportunities. The phase 1 Housing Renewal sites will deliver over 500 new and larger affordable homes alongside a programme of 600 private homes in the City. As the new homes are much larger than the old homes which are being demolished, the phase 1 programme will help up to half of the overcrowded households in the City. Building through the New Homes Bonus The New Homes Bonus is an un-ring fenced grant from central government. Councils use the New Homes Bonus for a variety of purposes and these examples show it in use as a funding option for new housing development. 20 Supporting housing investment

21 Leicestershire County Council Leicestershire County Council committed all New Homes Bonus received in 2011/12 to support the building of rural affordable homes, available to rent or for shared ownership schemes in villages. This is bringing forward stalled housing developments by plugging funding gaps. South Norfolk Council South Norfolk Council is using money from the New Homes Bonus to encourage Housing Associations to build affordable housing in the district. The first development funded under the scheme is for 8 new homes in Diss built on the site of derelict garages. The initial investment by the council is expected to attract a further 1 million from other sources. Islington Council, Keriston project Islington Council In 2011, Keriston Housing Association planned to develop a site on Junction Road in Archway, but did not have enough funding to provide all the homes for social rent. Islington Council stepped to meet the funding gap by adding 820,000 of its New Homes Bonus money to unlock the scheme and guarantee that all 14 homes would be for social rent. It s one of the first deals of its kind between a local council and a housing association. The development of one, two, three and four-bedroom properties, including one which has been especially adapted for a wheelchair user, will help house more than 50 people, including Islington families currently living in overcrowded conditions. The properties will also have lower energy bills thanks to solar panels, green roof and argonfilled double glazing. Supporting housing investment 21

22 3. Issues to consider in selecting an investment and delivery model Vision and leadership Key questions to ask: What type of housing is needed now and in the future? Sources of information could include the Strategic Housing Market Assessment and Joint Strategic Needs Assessment. How does the scheme link with your wider objectives? For example town centre regeneration, skills development and apprenticeship schemes, supporting an ageing population. What is the business case for increasing housing supply? Could increasing housing supply reduce the pressure on council housing and homelessness services, for example? What is the right balance for your authority between refurbishment of existing stock, stock replacement and new build? What are the ambitions and priorities of your residents? Learning from councils: Ensuring strong leadership and a clear and effective vision. The crucial role of councillors in setting a clear vision for investment was highlighted by many of the councils we spoke to. Housing as part of a wider agenda. The councils in our case studies linked housing to their wider vision for growth, local employment and sustainable communities. Getting the language right. A number of councils highlighted their role as mediator or ring master of partnerships including a number of public and private interests. Ensuring effective communication channels and demystifying the public sector for private investors was identified as an important role for the local authority. Level of involvement: risk and return Key questions to ask: What level of involvement does control does the council want to have in house building projects? This could range from being a strategic partner or funder, to taking a direct role in building and managing new homes. What is the council s approach to risk? This will underpin the right delivery vehicle and determine the degree of direct involvement in implementation and investment. House building can offer a financial return through sales and rental income. Could increasing housing supply reduce the pressure on council services, for example in homelessness and temporary accommodation? 22 Supporting housing investment

23 What skills and expertise will be needed? A role in delivery and commercial activity will need sound financial management as well as the ability to deliver new houses. Learning from councils: Greater involvement will give the council more of an opportunity to share the rewards and influence the way that projects are run and delivered. To support this, councillors and officers may be required to invest significant amounts of time in housing projects. The traditional housing management function is moving into a new entrepreneurial and enabling role. Officers and councillors may need to learn new skills and adopt different ways of working as part of this process. This can be motivating and open up new opportunities, but it may also represent an increased workload and demand on limited capacity. Partnership working does not necessarily equate to the transfer of risk. Retaining some of the risk with the public sector may be necessary to make projects attractive to private sector partners and to reduce costs. Investment in housing can be part of a longer term strategy to create income for councils to invest in further housing activity, and become more resilient to reductions in grants and central government funding. Considering best fit for on-going and planned projects as well as new and unexpected initiatives is crucial when selecting a partner for a long term venture. Kirklees - Excellent Homes for Life development Supporting housing investment 23

24 What source of finance? Key questions to ask Some form of financial investment will be required, either by the council or a private partner. Credit markets are fluid and borrowing rates have changed over time. Which option will be cheapest in the long run? Will the borrowing be on or off the council s balance sheet? Learning from councils Each option will require different amounts of preparation and research. Entering into a partnership with an external partner will take time and involve complexity through legal, procurement and finance issues. How can the planning system support you to attract investment in housing? Key questions to ask Have you got your local plan in place? Providing certainty to potential investors and the community through a local plan and land allocations can attract investment locally. How can your pre application service support early engagement with potential partners? Could this take place across areas to attract investment on a larger scale? Learning from Councils Using planning tools to package up land and reduce risk up front for potential investors was highlighted by councils we spoke to as a key tool to attract investment. An effective pre application service which develops and nurtures long term and mature relationships with potential investors can help deliver long term investment locally. 24 Supporting housing investment

25 Useful resources and further reading Online library of housing case studies on the LGA website: Meeting Local Housing Demand - A Guide for Elected Members Supporting Housing and Growth: Case Study Guide Let s get building The case for local authority investment in rented homes to help drive economic growth Published by the National Federation of ALMOs and ARCH, with CWAG, CiH and the LGA Homes and Communities Agency Funding for national housing programmes and information on investment models LGA Productivity and Commissioning resources including asset management and economic growth Acknowledgements The LGA would like to thank the case study councils for their time and contribution to this report. Further thanks go to the Homes and Communities Agency for suggesting case studies and innovative examples of partnership working. Contact: Hilary Tanner hilary.tanner@local.gov.uk Supporting housing investment 25

26 Local Government Association Local Government House Smith Square London SW1P 3HZ Telephone Fax Local Government Association, February 2014 For a copy in Braille, larger print or audio, please contact us on We consider requests on an individual basis. L14-74