hca sw partnership event - bill flood - local housing companies, every la should have one? -...
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Local Housing Companies –every LA should have one?
HCA Partnership Event
Bill Flood - Dec 2017
The exam question…
• Growing number of LAs already
have or are setting up LHC/ SPV
to build/ acquire housing and/ or
income generating assets to
deliver commercial returns to the
Council…
• Inside Housing Dec 2016 - 98 out
of 252 councils set up/ are
considering setting up LHC
• Solution to the need for more
affordable housing?
• Should every LA set up their own
housing company?
Answer…
• Yes, part of the
solution and…
• OF COURSE
THEY SHOULD!
Thank you!
Bill FloodManaging Director
t: 0118 974 6417
m: 07786 171 202
wokinghamhousing.co.uk
@wokinghamhl
@billflood01
Some context
• Population 158,000 (2013)
• 2,000 people on Housing Register
• Homelessness increasing
• 1,272 households on shared ownership register (463 local)
• Increasing private renting costs
• High average house prices - £433k at Sept 2017 – more
than 50% higher than all England average
• 80% owner-occupiers in Borough
• Council stock of 2,650 – bought out of HRA subsidy system
• 4 Strategic Development Locations in Borough - 13,500
new homes by 2026 - 10,000 in SDLs
• 35% affordable housing (mix of on-site &
commuted sum)
We’ve been at this for a while…
• Started to discuss in 2008 post 2007 Housing Green Paper
• WBC wanted to look at different ways to meet housing need that built up assets and created a revenue stream
• WBC - worst funded LA in England
• Looked at:– Business as usual – commission through HA partners
– Council House Building through the HRA
– Joint Ventures model
– Wholly-owned company
• And went for…
Wholly-owned company model
• Control over homes built
• Most responsive to local need
• Concentrate on just the Borough itself
• Mixed tenure at range of price points - all
income back to WBC
• No LA ‘Right to Buy’
• LHCs:
• Build up an asset base
• Creates an income stream
• Future borrowing against asset base to build
• Understood higher risk and investment
requirements
A simple
idea Developers
Commuted
Sums (CS)
Surplus
Funds
WHL build
affordable
homesOngoing
rent
income
PWLB
Legal bits…
• A company limited by shares
• Established using ‘wellbeing powers’
• Don’t forget ‘state aid’ considerations…
• Some Secretary of State consents needed for land/ asset transfers
• Corporation tax on profits and VAT on services such as housing management
• A 'contracting authority' so subject to EU procurement rules
• Outside of ‘RTB’ – but note Housing White Paper
• Assured or Assured Shorthold tenancies
Housing Companies Structure
WBC (Holdings) Ltd
(Holdco)
Private Rent
Company
Local Housing Companies (LHC)
Loddon Homes - For-Profit RP
• Stock with Government Grant funding e.g.
Fosters, 52 Reading Road, Shared O/ship
Berry Brook Homes - Local Hsging Co
• All affordable – non Govt. Grant funded
e.g. Phoenix Ave, Grovelands, Anson Wk
WHL
• Develops units for above + WBC HRA
• Funds and delivers private sale/ private
rented – therefore needs to make profits
Private Rent company
• Ethical landlord, build up asset base and
income stream to generate profits
Private Rent
Company
A simple
idea Developers
Commuted
Sums (CS)
Surplus
Funds
WHL build
affordable
homesOngoing
rent
income
PWLB
A simple idea…
WHL profits from
development
services it provides
Interest – till March 2019
@5.75%, thereafter
3.5%
Key:Loans=
Income=
CS=
Interest=
* CS repays some/ all
loan on completion
WBC/ Loddon/
Berry Brook
‘commission’
WHL to build
affordable
homes
Currently…• 76 homes under construction over 9
sites - 75 units delivered
• Funding - £17.2m (CS) + c.£10m
(borrowing from WBC)
• No. of pipeline sites (140+ units)
• Plus agent for planning/delivery of
HRA schemes – 11 units
• Profitability:• WHL in 2017/18 (plus wking cap debt
repayment - cleared by Jan ’19)
• Loddon Homes in 2018/19 & Berry Brook Homes in 2020/21
• WHGp - growing from c.£800k in 2018/19 to c.£1.5m by 2020/21
Programme Tenure MixTenure Delivered
Units
% Under
Construction
% Pipeline %
Social Rent 33 44% 4 5% 39 27%
Affordable Rent 12 16% 56 74% 13 9%
Intermediate Rent 30 40% 4 5% 22 15%
Shared
Ownership
0 % 12 16% 23 16%
Outright sale 0 % 0 0% 29 20%
Private Rented
Sector
0 0% 0 0% 19 13%
Total 75 100% 76 100% 144 100%
WHGp – commercial approach• 2 key objectives: homes + profit
• Working capital loan – c.£2m by end 2017/18
• Tough business case appraisals that tests:
• Notional profit/ loss
• GDV and ROI over NPV
• VFM balanced against cost benefit analysis
• Decision gates process - to manage ‘rules of
engagement’/ reduce abortive costs
• Boards challenging costs
• Future maintenance costs
• Off-site construction?
• Build price per sq metre vs. quality
Wokingham Housing Group
All LHCs
• LHCs have small team of 5 staff – soon to
be 6 (2 P/T) – 2 in WHL, 3 in Loddon
• All Boards meet every 2 months
• All Boards have independent NEDs
• SLA with WBC – but external expertise key
– legal advice, EAs, Architects, Contractors
WHL
• Set up 2011 - wholly owned by WBC
• Development services covered by OH&P
• EA & Contractor Framework Agreements
Loddon Homes• Set up Jan 2014 - registered June 16 as a For-
Profit RP
• HCA registration process took 9 mths – we
needed to be quite persistent! Concerns:
• ‘Independence’ of RP with Council parent
• 1st wholly owned Council FPRP – so potential to set
‘precedent’
• Strong governance as a result – which
transferred to all housing companies…
• Board of 7 – 2 Cllrs, 3 inde NEDs, x1 tenant, MD
• Vehicle for HCA grant – c.£3.8m to date
• Financed from - Commuted Sums
(£60-100m)/ Borrowing/ HCA Grants
Berry Brook Homes
• Set up April 2017 – wholly owned by
WBC
• Private company providing
affordable housing
• Additional flexibility around meeting
housing need
• Control of rent levels, no RTB
• Small Board of 4 – x2 inde NEDs
• Funding from Commuted Sums/
Borrowing
So should every LA have one?• 353 LAs in England - 201 DC, 55 unitary,
68 London Boroughs and Mets
• If say 240 developed housing through the
HRA / LHC – estimate c.24,000 additional
homes/ year
• Not all need a development function
maybe 1/3rd would – shared service
• Limited competition with HAs and
housebuilders – smaller sites/ working
with SMEs builders
• Good JV partners to share risk/ use land
Our learning - step-by-step guide • Be very clear what your objectives are
• Councillors, senior officers and some key
heads of service need to ‘get it’
• Good consultants can help, but so can
other LAs - but probably not for free…
• Securing funding – PWLB/ HCA grants/
future borrowing using assets
• A business first and foremost - so directors
of companies need to understand their role
• NB of Company(ies) structure/ governance
• Profitability and paying dividends – VAT
treatment, Corporation Tax, depreciation
and valuation basis
Top Tips • Be brave…
• Don’t reinvent wheel, but there might
not be someone to copy…
• Invest in advice/ staff – you can’t do it
as an add on to the day job…
• Get backing of, but then manage
expectations of Councillors
• Get backing of, but then educate senior
officers - it can’t be run like department
• It will be Political and political…
• Deliver homes – don’t just talk about it
Want to know
more?
Bill FloodManaging Director
t: 0118 974 6417
m: 07786 171 202
wokinghamhousing.co.uk
@wokinghamhl
@billflood01