Last December, research by Inside Housing magazine found that more than a third of English local authorities have already – or are planning to – set up their own housing companies.
The research showed that 98 out of 252 councils were considering the establishment of a private housing development company, or had already established one. That’s a significant increase on the seven housing companies that existed in 2014.
The factors driving council housing companies
The 2011 Localism Act gave local councils the powers to establish their own private companies, enabling them to borrow money more cheaply and avoid government-imposed restrictions. A mixture of motives is now prompting local authorities to enter the housebuilding business. Some see the new companies as sources of additional revenue. In addition, homes built by these private companies are not liable to right-to-buy. The Inside Housing research also found that a number of councils want to target income generated on tackling homelessness in their area.
At the same time, councils are facing funding pressures. “Local authority budgets are biting more and more,” Croydon Council’s director of development Colm Lacey explained to The Architects’ Journal in February.
“For example, in Croydon we’ve lost more than half of our central government budget since 2010. That’s a slow drip-drip of a loss of resource. Quite quickly, you come to realise that you need to throw something else in to meet the gap.”
Most companies are being established as wholly owned subsidiaries of councils, while some are solely management companies, letting stock built by their parent local authority. Many are funded by councils borrowing money from the Public Works Loan Board at low rates and then lending it to the company at a market rate.
The types of councils establishing housing companies are very varied, from rural to urban, and across the political spectrum. There is also a wide geographical spread, with a growing number located in London.
Among the councils pioneering their own housing companies is Newham Council in east London, which established its Red Door Ventures company in 2014 to provide homes at market rents, with a third of profits to be invested in social or affordable housing. The company’s properties are built on land bought from the council by the company using a local authority loan. Already, three developments have been built, and planning permission has been given for two more.
Another council-established private development company is Brick by Brick, set up by the London Borough of Croydon Council in 2016. The borough owns a significant amount of land, but has found that procuring agreements with developers has rarely generated benefits to the council in terms of increased land values or development returns. In an interview with Local Government Chronicle, Croydon’s Colm Lacey explained the reasoning behind Brick by Brick:
“The model allows the council as land-owner, sometime finance provider and sole shareholder to extract value from the core components of development activity – funding, building and selling. It maximises both affordable housing supply and return from development activity to Croydon residents, and allows the council to reinvest in core services.”
Learning from the pioneers: the upside and the downside
As more local authorities move towards establishing their own housing companies, they can learn from the experiences of early adopters, who can advise them on what to watch out for. This includes analysing council powers in relation to the establishment of a company, provision of funding, transfer of land, decision-making arrangements and potential conflicts of interest (for example in relation to planning).
At a time of acute housing shortages, the creation of house building companies takes on increased significance. Chartered Institute of Housing deputy chief executive Gavin Smart agrees that housing companies can help council deliver more homes, but warns:
“The downside is that the need to cross-subsidise might mean that their ability to produce new homes at genuinely affordable, social rents can be limited. It’s vital that they continue to prioritise building new homes at social rents.”
A rising tide or a drop in the ocean?
The trend towards council housing companies shows no sign of waning.
- Cambridge City Council set up its housing company in January 2016, and the following May the company handed over its first rental property to new tenants.
- The first of 128 new homes built by Gloriana – Thurrock Council’s housing company – will be completed this year in Tilbury. The development has been created to keep up with demand for homes from increasing numbers of people coming to work in the area, mainly in freight and retail.
- Meridian Homestart is a company set up by the Royal Borough of Greenwich to offer high-quality homes for local working families to rent. These homes are let at 20% below local market rent levels in order to help working families who would otherwise find it hard to buy or rent on the open market.
- A shortage of private accommodation has prompted Bracknell Forest Council to use its housing company to provide better and cheaper housing for homeless people.
At the moment, the contribution of council housing companies towards tackling the housing crisis is relatively small. Barking and Dagenham’s housing company, Reside, has so far delivered around 600 homes; while Blueprint, a joint venture between Nottingham Council and Igloo Regeneration, has completed 245 homes. That’s a drop in the ocean when compared to the House of Lords Economic Affairs Select Committee recommendation of 300,000 new-build homes each year.
Even so, housing companies have come a long way in a short time, and their rapid growth signals a much bigger long-term vision. As Sir Robin Wales, Mayor of Newham explains:
“We’re trying to correct 30 to 40 years of failure in the housing market, but it will take time.”
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