Local Housing Companies – Still in the running
The Local Housing Company model has yet to make much headway, but as the credit crunch lays waste to many of the alternatives, it is an idea that is set for a bright future writes Susan McKenna.
The need for more good quality housing is never out of the news. The means of housing delivery has however become more difficult over the last few years and certainly since the financially optimistic days of 2007 when the Housing Green Paper "Homes for the Future: More Affordable, More Sustainable" was published. Councils will want to investigate every feasible avenue to find a way to meet their housing requirements to deliver new, good quality homes but need, more than ever, to be selective in how they apply increasingly limited staff and financial resources. We advocate the "objectives first, vehicle later" approach to avoid putting the cart before the horse, the tail wagging the dog or whatever other cliché fits this particular bill.
Abortive time, costs and effort can be avoided (or minimised) by the council identifying what it wants to achieve within a particular timescale, what resources it has or can readily obtain, and only then considering the form of delivery vehicle.
The Green Paper seemed to offer a new and exciting possibility for a delivery vehicle in the form of local housing companies. It was tantalising in its description as a "new opportunity for Local Authorities to establish joint venture Local Housing Companies with support from English Partnerships". The idea was that local authorities would invest its land and would act as "master developer for new communities within a designated area, working in partnership with other investors and contractors". English Partnerships would "assemble a package of financial and technical assistance" and this initiative would "allow Local Authorities to keep a stake in their land and enjoy the benefit of rising land values over time". The new companies would be "designed to suit local circumstances around a common framework, enabling them to be set up quickly".
14 Local Housing Companies were to be created in 2007 offering the potential to deliver at least 35,000 new homes, with at least 17,500 affordable homes. The Government had identified that the 14 pilot local authorities, together with other local authorities would, through local housing companies, help to realise the opportunities for over 2,600 hectares of surplus brown field sites identified with housing potential for 60,000 homes. All very promising. Whilst Barking and Dagenham, Leeds, Newcastle and Sheffield seem to be the most advanced of the 14 pilots, no LHC's have yet been delivered. We commissioned the "Opening doors" market research to find out why. A copy of the report is available on our website.
Some of the findings are particularly interesting. The responses to the question as to what delivery vehicles Councils use now and what they would prefer to use suggests an appetite for change. The respondents' most commonly used housing delivery methods are housing associations/RSLs (28%/25%) with joint ventures used by only 7%. Contrast this with the wish list of methods the respondents would like to use – 56% would like to use joint ventures and 38% would like to use LHCs – which are themselves a form of joint venture. Whilst Councils are now being encouraged to build housing directly, the sharing of risks and rewards through a JV clearly has its attractions.
Councils may feel under siege with the pressure on funding for just about everything but many are still landowners – in some cases, substantial landowners. A pipeline of development sites on this land is attractive to the private sector in a market where other land may be held back from sale pending an uplift and housebuilder landowners can't afford to develop without buyers on the horizon. The ability for Councils to invest land into a JV for no upfront payment can be attractive to a JV partner and there are a number of ways in which the Council can, with decent advice, protect its "crown jewels" and secure a proper return on its investment. It can also maintain an influence over quality standards to be achieved and in the long term planning of new communities, including their integration with existing communities. Studies by the Joseph Rowntree Foundation have shown that mixed tenure is only one factor in achieving a sustainable community.
Delivering vibrant sustainable communities also requires a quality physical environment and the provision and range of local services. Through involvement in long term housing delivery JVs, Councils can influence these factors from a broader perspective than as vendor (perhaps by imposing restrictive covenants) or as local planning authority and via a s106 agreement. The growing emphasis on localism and place making encourages this broader vision.
It would be useful then if there was greater clarity and guidance on how an LHC might work. The pilot schemes are at varying stages and there seems to be no single type of approach being used. There is, in fact, no prescribed LHC vehicle. It could be a limited company, a limited partnership, an LLP or some other vehicle or structure. Each has pros and cons. Such flexibility is good as every scheme is different, but our respondents thought that some direction would help. Guidance on LHCs generally is awaited from HCA, as is a decision on the accounting treatment of LHCs from the Office for National Statistics (ONS) and how this will impact on public sector net borrowings.
54% of respondents felt that HCA or other central government Guidance would encourage them to use an LHC. The same number felt that clarity on accounting treatment would provide encouragement with 71% saying that clarity on funding (eg from HCA) generally would help.
Actual delivered schemes would encourage 64% of respondents to consider the LHC option, so trailblazers will find themselves the centre of attention as real life reference and learning points for others. There are already useful lessons to be learned from the experiences to date of the leading pilots – establishing a land strategy and procurement planning amongst them.
The Report identifies the main benefits and drawbacks of LHCs as perceived by respondents. We believe that all of the identified drawbacks (such as the financial and time costs of set-up, high financial risks for local authorities and lack of control) can be managed to minimise the risk to the Council.
Lack of available land (another perceived drawback for some Councils) could be overcome by pooling land with one or more other local authorities.
The "LHC" tag may have become more of a hindrance than a help – it seems to have over complicated things. As a form of joint venture, the LHC model is worth considering as a housing delivery vehicle but the choice of vehicle should only ever follow identification of the Council's objectives, timescale and available resources. In this way, successful projects will be delivered in the most efficient manner.
Susan McKenna is a partner at Nabarro.
This email address is being protected from spambots. You need JavaScript enabled to view it..
