Financing of new housing supply

Supplementary written submission from the Local Government Association (FNHS 34a)

This paper has been prepared at the request of the CLG Select Committee, following the LGA’s oral evidence session delivered by Cllr Clyde Loakes (21 November 2011) in his capacity as Vice-Chair of the LGA’s Environment and Housing Board.

1. Best practice in development – local authority case studies

Councils understand the importance of increasing housing delivery to meet the needs of hard pressed local communities and of working across boundaries to plan for housing. Councillors overwhelmingly take a proactive and positive attitude towards development locally – an LGA survey showed that 80% of the councillors surveyed agreed that their local authority area needs new housing.

Councils have to balance the economic, social, and environmental priorities of their area, ensuring that all opportunities for sustainable development which fulfil such criteria can be taken forward. A number of prominent case studies were included within the LGA’s written evidence to the Select Committee. In addition, further examples of innovative and sustainable development can be found below:

Wiltshire

The Council is developing the concept of ‘total community place’, with strong local leadership through an inclusive Cabinet and inclusive Area Boards. The aim is to have a single community plan for Wiltshire built on the bottom-up picture – including data on levels of housing demand and Parish Plans – for each community area. The main challenge is to remove the barriers to local-scale rural housing developments. Local budgets will allow Area Boards to spend on infrastructure and environmental improvements and to meet local priorities. Local trusts already exist and there may be scope for them to take on affordable housing as well as providing other services to the local community. Local communities will be given more influence over the location, management and allocations of housing schemes. However, it will be necessary to consider whether sustainability also needs to be redefined: it is not simply about moving people into urban areas; it is about protecting the viability and sustainability of rural communities and developing them as living, vibrant places.

Leeds

The Council in Leeds is promoting an urban eco settlement in Aire Valley to deliver some 12,000 new homes, provide low carbon retrofit measures to 8,000 existing homes and deliver 40,000 new jobs. Leading this programme, senior councillors and directors have already established strong governance arrangements with the key stakeholders in the area through a joint public/private sector board. By promoting strong and open partnerships the council retains the strategic lead on developing this sustainable new district for the city. It also ensures that through these partnerships, projects will be deliverable and commercially attractive. The local democratic leadership – through local councillors and MPs – is also important in engaging local communities to shape the changes. Each area has a masterplan agreed by the public sector, the private sector and the local community.

Greenwich

Greenwich Council has used strong political leadership and corporate commitment to deliver new affordable housing, as part of its wider regeneration and anti-poverty strategy, as well as pursuing the Council’s own new build schemes. It has established close relationships with a number of preferred development partners, with one of the largest housing investment programmes in the UK including over £250 million grant allocated to housing associations for 2008-2011. The Council uses planning powers and public sector investment in infrastructure to secure high design quality, well integrated, tenure-blind and mixed income communities. Its Unitary Development Plan has included intermediate affordable housing (secured through Section 106 agreements) and lettings plans are ensuring a healthy mix of household types and child ages to build balanced and cohesive communities. At Greenwich Millennium Village, for example, the primary school and health centre were opened at an early stage in the development, providing social infrastructure from the start and supporting links between new residents and the existing wider neighbourhood.

Sheffield

Sheffield has in place close partnership working on area regeneration between Housing and Planning teams. As part of the Housing Market Renewal programme, a Planning team has worked hand in hand with locally based regeneration teams to ensure a co-ordinated council approach to designing and delivery of physical change in neighbourhoods. By working together through all stages of policy making, planning and delivering housing and place projects, time and money has been saved on agreeing design and specifications and securing scheme approvals. Most importantly the council has had a single voice in its work with new housing developers, local businesses, service providers and other social landlords, helping to set out the city’s requirements clearly and therefore making it an easier place for them to invest. The ‘Developer Manual’ which brings together housing and planning guidance for new homes has been shortlisted for an RTPI award and recognized by the Planning Advisory Service as best practice. And the council’s Designer Panel has provided focused expertise on property and place design.

South Holland

South Holland District Council formed a housing company – wholly owned without development partners – to build new homes (to supplement the 22 homes it had built in recent years). The Leader of the Council, Cllr Gary Porter, chairs the Board, which consists of Councillors, Officers and a nominee from the South Holland Tenants’ Group. The Council had acquired the necessary permission to manage the Company’s houses, with the latter retaining ownership. By October 2008, the company had become the South Holland Local Housing Community Interest Company, which includes an asset lock and trades as South Holland Homes. In March 2009, the Homes and Communities Agency awarded the company Social Housing Grant. The Council worked with the LGA and other councils to ensure that the HCA had a practical funding agreement which allowed rapid construction and the first social rented homes were completed by September 2010.

Croydon

Croydon Urban Regeneration Vehicle (CCURV) is an innovative partnership between Croydon Council and John Laing Plc established in November 2008 to deliver regeneration within the Borough. CCURV brings together core skills from each partner – Croydon supplies the land (initially four town centre sites) and local knowledge, while John Laing commits to matching Council investment with equity; it brings its development, management skills and expertise, both in-house and externally sourced. The result is a partnership which should ensure that over the next 25 years major developments meet Council requirements to maximise asset value, and are consistent with its vision for the regeneration of the Borough. Projects include a hub which brings together many of Croydon’s public sector services and provides mixed housing/commercial schemes. CCURV’s innovative structure as the first Local Asset Backed Vehicle of its kind provides shared control between the public and private sectors; the nature of this long term partnership means that barriers created by the recession can be more easily overcome. Without CCURV, planning consents for key regenerative schemes - including the new public services hub and new community facilities in Waddon as well as the masterplan for

College Green - could not have progressed.

Birmingham

The Birmingham Municipal Housing Trust (BMHT) model for the delivery of mixed tenure homes aims to make the provision of market homes attractive to the contractor and to achieve an appropriate balance of risk and reward between the council and the contractor. The key elements of the model are:

· no land purchase up front

· planning already secured by BMHT

· design risk and costs already met by BMHT

· use of BMHT house types by developer.

The model was market tested with developers, whose response was extremely positive, and is now being delivered successfully on the ground. Under the model a Design and Build contract for constructing the affordable housing is linked to an associated Development Agreement for the market homes. The Council’s land is licensed to the developer who constructs and markets the remaining market homes within 3 years. There is only one land transaction at the end of the process, thus avoiding double Stamp Duty/Land Tax liability. The Council defers its land receipt until the point of sale with an agreed minimum plot value and overage conditions. Any unsold plot or house returns to the ownership of the Council. Developers are able to customise the inside of their market homes as they choose. This typically includes furnishings, appliances and en-suites. In this model it is the space standards that represent the main difference, with up to 30 per cent larger homes than some standard market house types.

Manchester

Manchester City Council is making the best use of its assets by building homes for older people within existing local communities on spare land to free up under-occupied high demand family accommodation. Working closely with tenants who have two or more spare bedrooms in their current home, the Council is building 32 council bungalows in the north of the city. A design competition was held to identify a suitable architect and developer partnership. Manchester is proud to be building Code Level 4 for Sustainable Homes while incorporating innovation in design for older people, including assistive technology and the City’s stringent Design for Access 2 and Lifetime Homes standards, supporting continued independent living for an ageing population. The use of marginal infill sites that are not currently attractive to the private sector will see redundant parcels of land, often the subject of anti-social behaviour, brought into use. Use of the City’s streamlined Contractor Frameworks in the procurement process will deliver not only efficient build costs but employment and training initiatives for the local community, connecting people to work opportunities – a key aim of the Community Strategy.

Liverpool

Liverpool city council is using the LIFE model which identifies four roles for

Housing Associations:

· Lead in an area.

· Influence what happens in the area or part of it.

· Follow - collaborate in delivering the direction set by others.

· Exit an area.

LIFE’s purpose is to facilitate the delivery of Neighbourhood Renewal

by generating bespoke solutions to meet the different challenges posed by individual neighbourhoods, particularly in restructuring Liverpool’s failing Inner Core housing markets. It is a collaborative, rather than a competitive approach. Working closely with the council, housing associations contribute to the overall regeneration and management strategies and agree targets. They partner with Lead Developers set up in each Housing Renewal Area. The model has achieved rationalisation of housing association stock within the inner core housing markets that has allowed the council and lead developer partners to work more effectively to bring forward new mixed tenure housing/neighbourhoods.

Redditch

Redditch Co-operative Homes is a partnership between Redditch Borough Council, five neighbourhood Co-operatives and Accord Housing Association. Through Redditch Co-operative Homes, five neighbourhood housing cooperatives have been developed in the borough with a total of 285 properties in five Co-Ops, who buy services from Redditch Cooperative Homes. The neighbourhood co-operatives have been pioneering Green solutions to housing by working with other co-operatives to find innovative housing solutions. Cllr Bill Hartnett from Redditch Borough Council said: "It’s been a story of great success. Initially councillors were sceptical about cooperative housing, myself included, and we had to be convinced that it was going to work. But now all the political parties in Redditch support it, and I am one of its greatest advocates. We are proud that it has delivered so many of the things that people in Redditch wanted."

2. Reform of the council housing finance system

The Committee also asked how councils would deal with mounting debt.

The LGA strongly supports the government’s moves towards a devolved finance system for council housing. The opportunity that self-financing brings for councils to run their own housing stock independently is good news for tenants and local taxpayers.

Under the new system however, housing authorities will be required to manage a total of £29.5 billion debt within long term business plans spanning thirty years. To manage these businesses effectively, councils will need the freedom and flexibility over investment decisions and control over their housing assets.

However, there are three key areas which will restrict councils’ ability to improve their housing stock and invest in new supply and which run contrary to the principles of self-financing.

The first of these issues is the cap imposed on the amount each council can borrow for their housing business. There is no clear rationale for capping councils’ borrowing for housing purposes when no such restriction applies to borrowing for other purposes. Unlike central government in the past, Councils have a strong record of sound financial management. They adhere to CIPFA’s prudential code which has proved to be an effective approach to managing borrowing. The cap will effectively switch off a significant stream of funding that could be available to build the homes that the government has agreed we need.

Secondly, the principles of self-financing would logically mean that when a council house is sold, the money from that sale should be reinvested locally to meet local housing needs. However, currently councils must hand over 75% of the income from Right to Buy to the Treasury. Government’s proposals to reinvigorate the Right to Buy scheme make it more important than ever for the money to be retained locally. If they are not, councils will be presiding over a fast dwindling level of council housing and will not have sufficient resources to invest in replacement homes. The forthcoming consultation provides an opportunity for government to ensure that proceeds from the sale of council homes are used most effectively to support new housing. Allowing councils to retain the full receipts from sales would mean that the money could go directly into development projects and new home construction.

In addition, the Localism Act gives the Secretary of State the power to reopen the settlement and buy-out figure at a later date. This causes uncertainty about levels of debt and seriously constrains long term business planning.

3. Evidence substantiating the fact that it is cheaper for local authorities to build new build properties, when compared to Housing Associations

Evidence collected by the LGA’s Housing Commission [1] , chaired by Lord Best, demonstrates that it is £10k cheaper for local authorities to build new build properties, compared to the costs for Housing Associations.

The average cost per property (in England) if built by a Housing Association is £73,000, while for a local authority it is £63,887.

4. Innovative best practice

See case studies listed under item one.

As well as promoting councils at a national level, the LGA is also offering a comprehensive package of support for councils and councillors across the country to improve their performance in housing. This includes:

LGA SUPPORT

Briefings: We are producing a series of briefings on the questions that councils need to be asking to respond to the major changes that are taking place in the housing sector. The briefings will explore the practical implications of the reforms, and provide advice as to how to capitalise on the opportunities and mitigate the risks. They are available on the LGA’s website www.local.gov.uk

Master Classes: Throughout March 2012, we will be hosting a series of interactive housing and planning development classes to equip councils with the knowledge and skills needed to respond to the changes, and provide them with practical tools and techniques to support them in their engagement with local people and external partners. For more information on these events, please visit www.local.gov.uk / events

SECTOR LED SUPPORT

Peer Challenge: Peer Challenge is a flexible support service, co-ordinated by the LGA, whereby an external team of officers and members act as ‘critical friends’, bringing valuable expertise and learning from elsewhere to review and challenge a particular aspect of the local authority and enable them to continue to improve their performance, without adding to your budget pressures. Since 2007, almost 70% of councils have benefited from Peer Challenge. We offer a free corporate Peer Challenge for every local authority, a free child safeguarding peer review and a fully subsidised planning Peer Challenge. We also offer a housing Peer Challenges (including strategic housing).

Peer Support: Peer Support is a free, five-day member led support programme to assist any council undergoing a change of control. The LGA is also expanding its network of peers from across the country to include business, the voluntary sector and other parts of the public sector.

ONLINE TOOLS

Knowledge Hub: Knowledge Hub is a new online platform that helps councils to build professional networks and connections with peers and experts in their fields, thus helping you to drive self-regulation and improvement. It creates a single place to share ideas, knowledge and information across the sector. Knowledge Hub is also linked to other media platforms, and allows councils to manage their flow of information, meaning that they don't miss out on valuable learning and experience. For more information on Knowledge Hub, please visit www.local.gov.uk/knowledgehub

LG Inform: LG Inform prototype enables councils to look for and understand their own local authority performance, and compare it to other similar or contrasting local authorities. It helps councils to understand service productivity, identify potential good practice and access data on key areas of interest. They will also be able to create and print individually tailored reports based on data that is of interest to them. For more information on LG Inform, please visit www.local.gov.uk/about-lginform

5. The LGA’s proposal for a single capital pot to help provide support for infrastructure and new housing

The LGA’s single pot proposal is detailed within the report Funding and Planning for Infrastructure [2]

The coalition Government committed itself soon after its election to a significant devolution of powers and funding to local authorities. It has already acted to remove some of the barriers to genuinely local decision-making, including the derisking of some grants and the abolition of Comprehensive Area Assessments. The LGA’s work on place based budgets has set out the case for decentralising funding in a dramatic way, using locally determined governance arrangements to make public services more local both in the way funding is allocated, and decisions about services are made and accounted for.

For infrastructure investment, this points to a place based approach giving councils flexibility about how and when they use the capital funding allocated to them through the creation of a real single capital pot with the ability to conduct investment appraisal, re-profile, and account for spending all fully localised. Bringing together different funding streams into one pot, under the control of local councils would result in:

· more efficient targeting of capital funding where it is most needed

· efficiency savings in administering investment, streamlining or removing resource intensive bidding and reporting processes

· a common appraisal methodology to assist in prioritisation of funding to address local priorities and that adequately reflects wider social and environmental benefits

· more confidence and certainty over long term funding essential to attracting private sector investment.

The Regional Growth Fund represents a step in this direction. The ’single pot‘ nature of the fund is a welcome development, as is the government’s aim of placing the funding in the hands of the new Local Enterprise partnerships to manage. The fund is, of course, small - the original £1.4 billion was supplemented by a further £1 billion in the Autumn Statement, but it is expected to remain significantly over subscribed. It also will be important to ensure that the fund’s reliance on bidding does not become a new mechanism for control and produce new barriers to combining money from different sources.

The LGA would encourage the Committee to indicate support for a single capital pot in its final report on financing the new housing supply, to in turn encourage DCLG to engage with the local government sector further on the subject.

December 2011