London’s boroughs are, at last, borrowing government money and building new council homes to tackle shortages, improve quality and create new sources of income.
After 40 years of almost zero council house building some 16 boroughs out of 33 have established or are in the process of establishing “local housing companies”. These are wholly owned subsidiaries to which councils lend money and transfer or sell council-owned sites.
Boroughs borrow finance through the Public Works Loan Board at low interest rates and then lend at a higher rate to their local housing company to fund development. This creates a new income stream for the council on top of the rent and profits they receive from sales and lettings of new homes.
This is manna from heaven for councils whose budgets have been slashed over 10 years of austerity. Most of the new companies maintain they are building because there is a need. But there is also a strong financial incentive to borrow and build.
“Newham recognised the need to generate income from new sources,” says Red Door’s managing director Kent Taylor. “There was a need for better-quality rented homes in the borough so the borough set up Red Door Ventures in 2014.” It develops homes for market rent.
It is finalising plans for its latest project at Brickyard on the former Co-op site in East Ham, part of a mixed-use scheme with private developer Helical Retail. This will include 98 homes and a “hub”, with a gym, events space and landscaped courtyard that all Red Door tenants can use.
A further 185 homes were approved at East Ham Town Hall annexe earlier this year. The original business plan was to create 530 new homes. This has increased to 3,140 homes over the next eight years.
Its properties are available to anyone, with 75 per cent of tenants from Newham and the rest from elsewhere. “We’re here for 50 years to provide an exemplary service and community living,” adds Taylor. “Our private rented homes provide a cross-subsidy to help provide more affordable homes at subsidised rents. We have a second business plan for 3,200 homes outside Newham to double the size of the business.”
Repeated across all boroughs, this kind of growth would soon make a big dent in council housing shortages. But there are concerns over whether the public sector has the skills for development.
Scott Dorling of lawyers Trowers & Hamlins helps councils set up companies: “They have to borrow prudently and demonstrate a plan to repay the money. The Localism Act of 2011 [which enabled councils to establish private companies] and the Government’s clampdown on spending, have forced councils to think commercially about their property portfolios.”
In Ealing, Pat Hayes, executive director for regeneration and housing, is overseeing the growth of Broadway Living, the council’s development company, which is expanding its business plan. New finance of £130 million is being put in place. “It’s not really about generating income. It is to increase the supply of good-quality rented homes.
“Broadway Living will provide a range of housing, not just traditional council housing. We have 150 under construction and we have a pipeline of 700 in the new business plan. We will work towards perhaps 5,000 new homes over the next 10-15 years.
“The average house price in the borough is £450,000 and you need an income of £90,000 to afford that — the top taxpayer bracket. We felt we had to do something. The private sector was reluctant to do build-to-rent and we wanted to demonstrate it could be done.”
The borough has now attracted one of the world’s largest private rented sector developers, US company Greystar, which is building 2,000 homes in Greenford with Broadway Living which will own 200 homes in the scheme.
In Croydon, south London, housing minister Gavin Barwell has a tiny 165 majority. Maybe the Tory manifesto commitment to build 1.5 million council homes by 2022 will help him keep his seat at the general election on June 8. The borough has set up Brick by Brick Developments led by MD Colm Lacey, the council’s director of development.
Says Lacey: “We’re hoping to develop up to 3,500 homes over five to 10 years across all tenures. We took the view that investing in Croydon’s housing market was a positive thing to do. Demand is there. We’ve had 30 years of undersupply.
“Croydon is a healthy market for first-time buyers and young people. And if the market did change we could always offer the homes for rent.”
It looks like a new source of homes across all tenures is opening up across London, courtesy of the capital’s more creative councils.