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

e: bill.flood@wokingham.gov.uk

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

e: bill.flood@wokingham.gov.uk

wokinghamhousing.co.uk

@wokinghamhl

@billflood01