Agenda item

[Report of the Director for Housing and Growth. To be introduced by the Cabinet Member for Housing, and Estate Renewal.]

To set up a company, wholly owned by the Council, to deliver new Council-led housing development schemes.

The Cabinet Member for Housing, and Estate Renewal introduced the report which sought permission to set up a wholly owned company (WOC) to deliver new build Council-owned homes.

The Cabinet Member expressed that current Labour leadership was elected on a manifesto that placed housing at its heart and was committed to delivering 1,000 new Council homes at Council rent by 2022, to meet the needs of those on the waiting list. The creation of a wholly owned company represented a clear change in direction of housing in Haringey and the Council owns a number of sites in the borough which can be used to develop new housing.

The Cabinet Member referred to the last two bullet points at recommendation 3.6 and advised that the inclusion of these two housing sites was subject to approval of agenda item 19.

• In response to a question regarding the allocation of up to £500,000 funding from the Government’s Flexible Homelessness Support Grant to address the initial set up of WOC, it was noted that no current projects were losing funding as a result. This was a three year funding programme that was entirely flexible and so the money could be moved around, between projects and over different years, and it was expected to be repaid once the costs of WOC become capitalised. Furthermore, although the cost allowed for the setup of the WOC  is up to a maximum of £500,000, it was expected to be far less than this.

• In response to a question regarding the potential of the WOC to be able to deliver on larger schemes, it was noted that other local authorities whose  WOCs had taken on large schemes in the first instance, had taken considerable time to enable procurement of land and get development underway. The proposed WOC was in a better position because the Council was already in possession of the land for the type of schemes proposed in the report. In time, the WOC may be able to take on much larger and more complex schemes, but expertise would need to be built up first.

RESOLVED

1.            To agree to set up a Wholly Owned Company (WOC), as set out in paras 6.5 to 6.30, with the primary purpose of maximising the delivery of new Council owned homes on the condition that the WOC shall not be incorporated until Cabinet has considered the further report set out in paragraph 3.6;

2.            To note that the Director of Housing, Regeneration and Planning, in consultation with the Director of Finance and Deputy Leader of the Council and Cabinet Member for Housing and Estate Renewal, will take all necessary steps towards setting up the WOC, including but not limited to drawing up the Articles of Association of the WOC, the Shareholder’s Agreement between the Council and the WOC, any other necessary agreements and legal documentation required, including, if necessary, registration of the WOC as a Registered Provider; subject to recommendation 3.6;

3.            To agree that the WOC may undertake commercial activities, that is to develop market housing for sale and rent, subject to approved business cases and subject to recommendation 3.6;

4.            To allocate up to £500,000 funding from the Government’s Flexible Homelessness Support Grant for 2018/19 to cash flow initial set up and development costs of the Wholly Owned Company;

5.            To note that where possible any costs incurred in the establishment of the WOC will be capitalised and the funding returned to the FHSG;

6.            To note that decisions will need to be made on the following issues by Cabinet later in 2018:

• The appointment of the initial Company Directors of the WOC
• The appointment of members of the Shareholder Board for the WOC
• The Objects Clause and Articles of Association of the WOC, the Shareholders Agreement between the Council and the WOC and any other necessary agreements required between the Council and the WOC.
• All further legal documentation necessary to the set up of the WOC.
• The capital and revenue budgets to be made available to the WOC.
• Further delegations to agree and sign off the business cases for future WOC development sites.
• The financial limits for future delegated decisions and where Cabinet decisions will still be necessary.
• The first site business case for the WOC, ie housing development at Cranwood.
• Disposal of land at Cranwood to the WOC.

Reasons for decision

A wholly owned company (WOC) will enable the Council to scale up its delivery of new Council-owned homes to help deliver the Housing Strategy aims to increase housing supply in the borough, and in particular the supply of affordable homes.

To increase significantly the supply of housing in the borough that the Council itself owns and that it can use to house those on its housing register and homeless households, it will need to do this through number of different mechanisms. In addition to this WOC, this includes acquiring new homes on estate renewal schemes and municipalising existing market housing and purchasing s106 affordable housing from developers. Over time, the WOC could expand its role into these other areas, if necessary by developing subsidiaries or a wider family of WOCs.

The WOC could also expand, as has happened in other local authorities, to deliver a wider range of services or to repatriate surpluses to the Council to support the General Fund. It could also, to facilitate any such expansion, or if necessary, to facilitate the granting of Registered Provider status, be given more independence, for example having an independent chair, board members or its own staff. But to ensure a rapid start on the programme of new Council house building, a simpler more focused approach that will move as swiftly as possible to delivery has been recommended. At all times, the WOC will remain a separate entity and the board must always act in the best interest of the company.

Over the period 2014 to 2018, the Council built its first new Council owned homes for decades - 32 new homes, a combination of Affordable Rent and shared ownership. The lessons learned from this experience has informed the establishment of the WOC. As a result, it will, in the first instance, aim to develop mid-size sites, on Council owned land, in mixed tenure developments. Its primary purpose, at this stage, is to maximise the delivery of Council owned housing at Council rents on these sites. The WOC will sell any market housing it develops to cross-subsidise the Council owned housing, ensuring all surpluses are reinvested to maximise the supply of Council owned housing.

A number of sites in the borough are being considered for development through the WOC, with the first site identified being the Cranwood site in Muswell Hill. As future sites are identified, each will come to Cabinet for approval.

Alternative options considered

There were a number of other options considered, and as with the preferred WOC option, a number of Councils are operating these alternative options. The options considered below may be deemed more appropriate to pursue on future housing developments, and if the legislative and policy agenda changes. But for the purposes of the types of development identified in section 6, the WOC set out here is, at this point, the preferred option.

For the Council not to seek to deliver any affordable housing itself: That is, the Council could continue to rely wholly on Registered Providers to deliver affordable housing in the borough, helping the Council meet its housing need through nominations agreements to these homes.

This has not been pursued because, while Registered Partners are likely to still deliver the majority of new affordable homes in the short to medium term, relying wholly on Registered Partners eschews the ability of the Council to provide additional supply using its own resources. Any surpluses from Council led housebuilding will be reinvested in housing in Haringey or paid as dividends to the General Fund at a later stage, if other Council investment purposes are deemed a greater priority. In contrast, Registered Partners can utilise surpluses from their new build stock in Haringey to invest in other Boroughs or even outside London. In addition Council nominations are rarely 100% in perpetuity on Registered Partner homes, rents will typically be higher than Council rents and tenants and prospective tenants have expressed a preference for Council owned housing. Finally, this would miss the opportunity to bring new stock into the HRA, of good quality and with little or no debt, and providing additional rental income, which will enhance the financial viability of the HRA and support the improvement of existing Council stock.

For the Council to deliver affordable housing itself, but not through this form of wholly owned company: That is, for the Council to deliver affordable housing through other methods such as:

a)        The Council building directly itself, rather than through a WOC.

b)        Homes for Haringey, an already established WOC, building the new housing.

c)         The Council establishing a joint venture with a housing developer or Registered Provider.

Although Option (a) has not been pursued further at this point, this does not mean that the Council cannot consider at a future point whether there are developments that could be better undertaken directly by the Council itself or by Homes for Haringey, rather than through the WOC. However, for some sites, having the WOC option is beneficial because it is able to operate in a more commercial manner than the Council itself can. The WOC could also more easily build for market sale and market rent to cross subsidise affordable housing, and could make a return to the General Fund, activities that would not normally fit so easily within the Council’s, or Homes for Haringey’s, social purposes.

It is important for Members to note that homes owned by a WOC would not have the statutory Right to Buy, which they would, were they owned by the Council directly. However, homes owned by a WOC cannot have a secure tenancy, which they would have, were they were owned by the Council directly; although if owned by the WOC they can have a lifetime assured tenancy, as most Housing Association tenants do. Depending on the Council’s view on these and other relevant issues, as new homes are developed by the WOC, the Council can choose to hold them within the WOC itself, or for the WOC to sell them to the HRA.

If the Council were to develop within the HRA, then this capital investment would be constrained by the HRA debt cap. With the new pressures on the HRA on Broadwater Farm, this headroom is likely to be extremely restricted in the short to medium term. And HRA investment in new build would need to be balanced against other existing stock investment pressures, such as decent homes, fire safety and environmental improvements. The HRA is a ringfenced Account so offers less flexibility over use of surpluses than a WOC and does not as easily support trading for profit.

Option (b), utilising Homes for Haringey (HfH) as the WOC, has not been pursued, to enable the greatest flexibility going forward. It is noted that this decision is about where the legal entity of the WOC is based. The WOC will employ no staff itself and all the actual work of delivery will be undertaken by Council and HfH staff as appropriate. Basing the WOC itself within HfH, or using HfH itself as the WOC, would both distance it to some extent from direct Council control and mean that the actual delivery capacity could only sensibly be entirely within HfH. But as noted above, this decision does not preclude using HfH to deliver some or all of the programme, and, wherever the delivery of the new homes is based, the management and maintenance of the homes would be undertaken by HfH.

Option (c), a joint venture (JV) has not been pursued at this point for the types of development that the WOC is seeking to undertake. Although such a JV would bring immediate benefits in that it would be with a partner that has the delivery capacity and experience the Council lacks, this may have less long term benefits as the Council is seeking to develop that capacity itself. It typically takes much longer to procure, negotiate and enter into a joint venture agreement, whereas a WOC can be set up relatively quickly. Due to the cost and time involved in setting up a JV, this option is more suitable for larger or multi-phased developments where these costs can be justified over the lifetime of a higher value, longer term strategic development partnership, rather than the type of developments identified for the WOC in section 6.