South West council to go ahead with “soft closure” of housebuilding company after potential losses
Mid Devon District Council, is to close its housebuilding company after deciding in March that it would not start any further projects in the face of a possible £5.3m loss.
It set up 3Rivers in 2017 as a commercial business owned by the council, which aimed to deliver homes and earn money for Mid Devon.
But a council statement said: “it is clear these long term aims have not materialised and set against a back-drop of high interest rates, high building costs and a changing housing market the future of the firm has been uncertain for some time”.
3Rivers - which is unconnected to the district council of the same name - is to undergo a ‘soft closure', and will be wound down as projects are completed.
Council leader Luke Taylor said: “We know there have been concerns raised about the viability of 3Rivers, and the council funding of it, for some time and as a newly appointed leader I committed to addressing this concern swiftly.”
Minutes of a cabinet meeting, most of which was held in private session, stated the pandemic hindered development companies and this had been compounded by the cost of living crisis that followed.
Mid Devon’s 2021-22 and 2022-23 accounts made provision for potential losses of some £5.3m and “further write offs will likely need to be made”, the report said.
Minutes stated: “Furthermore, it was agreed that the balance between confidential information of a company in a competitive market and the need for openness and transparency had been a challenge.”.
A report said the ‘soft closure’ option would minimise any potential financial exposure, maximise returns from company assets and allow for completion of projects in Tiverton and Bampton.
3Rivers has a total loan book from the council of some £21.3m, but only these two projects are nearing completion and there is no future development pipeline, which meant the company faced “a very challenging economic future, with rising interest rates and significant uncertainty in the housing market”.
It has an annual operational overhead of around £300,000 and “needs to generate annual sales turnover of around £3-3.5m just to cover these costs”.
The trading position had deteriorated since 2020 mainly due to problems with the St. Georges Court project in Tiverton and insufficient business activity to contribute to its working capital, while also suffering from “rising material and contractor costs and the associated reduced availability of resources”.
Changes to Government guidance on councils investing outside their own area had further restricted 3Rivers’ development options and commercial potential.
Mark Smulian
