Elmbridge Council To Set Up Local Housing Company
Elmbridge Borough Council to Set Up Local Housing Company
We received an extremely interesting press release today which announced a very bold and innovative move by Elmbridge Borough Council to establish a Council-owned local housing company with the dual aim of generating an income return for the Council’s General Fund and meet a range of housing needs, including:
- Housing at Affordable Rents
- Temporary Accommodation for Homeless Households
- Key worker Accommodation
- Rental Market
- Sales Market
So what is a Local Housing Company?
According to The Smith Institute a leading independent, not for profit, public policy think tank:
“Local housing companies (LHCs) are independent arms-length commercial organisations wholly or partly owned by councils. They can develop, buy and manage properties within and outside of a local authority area. The homes LHCs provide sit outside of the local government housing financing system (Housing Revenue Account) and are not subject to the Housing Act and most of the social/affordable housing regulations.”
The Smith Institute published a report into LHC’s late last year, The rise of local housing companies, which attempted to capture the rapid rise in local housing companies (LHCs), which has occurred among councils of all types throughout England.
Their main findings were: “
- Our findings suggest that LHCs offer councils a “triple dividend” in the form of much needed extra housing, a greater stewardship role in place-shaping and a financial return to the council.
- There are now probably as many as 150 LHCs in England, most formed in the past few years. On the current trend, this could increase to 200 by 2020 – covering just over half of all councils in England.
- LHCs have been established by all kinds of councils, across the size spectrum, including, in some cases, with participation by counties. The largest concentrations are in London and the South East.
- Most LHCs have modest ambitions to build (averaging around 50 units a year), although there are larger housing companies in urban areas with major build programmes.
- Collectively LHCs could increase completions over time from 2,000 homes a year to 10,000-15,000 homes each year by 2022, with perhaps a quarter of the total in London.
- We estimate that around 30%-40% of new LHC homes are likely to be ‘affordable’, with a minority at the equivalent of social rented levels.
- Councils are attracted to LHCs because they want more control and influence, and greater freedoms and flexibilities (especially over rents, borrowing and the Right to Buy).
- LHCs can generate income and cross-subsidise new private affordable and sub-market housing at social rents.
They also identified that:
- The housing crisis is worsening with many areas suffering from acute shortages of affordable homes, especially for those on low-to-medium incomes. Councils, many of whom are frustrated with the performance of private developers and housebuilders, have responded by delivering homes (and kick-starting schemes) through their LHC.
- LHCs have cross-party support and are widely viewed as an example of ‘entrepreneurial councils’ taking the initiative and innovating to meet local housing needs.
- Government broadly welcomes “councils building again” and the establishment of LHCs, but has no specific policies or funding to support them.
- Many LHCs have been established by stock holding councils as a reaction to government constraints on the Housing Revenue Account (e.g. borrowing caps, rent controls and the RTB), as well as to cuts in housing budgets. Others have been motivated by the desire to intervene in the housing market, often because of a frustration with the pace, scale and cost of delivery by the private sector and housing associations.
This all sounds very interesting…
So what do Elmbridge Borough Council have to say about their forthcoming Local Housing Company?
Read on for the press release plus full recommendation from the council meeting:
Elmbridge Borough Council Press Release:
“At an Elmbridge Borough Council meeting last night ( February 21, 2018), it was agreed to establish a Council-owned housing company with the aim of building homes to meet the needs of residents.
The creation of this housing company will open up new opportunities for affordable housing to be developed in the Borough.
A detailed business plan will now be prepared and directors appointed, paving the way for the new company to start planning for developments in 2018.
Councillor Roy Green, Portfolio Holder for Housing, said: “This new company will allow us to respond to the needs of the people who live and work in Elmbridge , working with our partners and contractors to build homes that will help local people. We are committed to providing affordable homes in the Borough and the establishment of this company is another example of the work we are doing to ensure there are enough homes in the Borough for all our children and families.”
Affordable homes – a key priority
It is a key priority for the Council to increase the supply of affordable homes in Elmbridge. To do this the Council works with housing associations and others to increase the supply of affordable housing to meet needs of people in the Borough. In the financial year to end of March 2018, it is anticipated that housing associations will deliver around 70 affordable homes and in 2018/19, we expect another 125 to be provided.
Examples of current affordable housing developments in Elmbridge –
- The planning consent for Rivernook Farm in Walton- on- Thames includes 40 affordable dwellings as part of a 93-home scheme
- Having purchased Albemarle House in Thames Ditton last year, the Council secured planning approval in January 2018 to convert the vacant office building to residential use, and once the refurbishment is completed, the site will provide 5 affordable homes.
- The Council’s redevelopment of Weybridge Hall is seeking planning permission for 5 affordable homes as part of the scheme.
- The redevelopment of Rydens School, Hersham – 128 affordable homes (of a total of 296 homes) are being built alongside a new school. The first affordable homes are due in Spring 2018. The housing association, A2 Dominion, will be providing the affordable housing, half as shared-ownership and half for affordable rent, of different types and sizes. Priority for the affordable homes will be to households living or working in Elmbridge who are in housing need.
- Orchard Lane, East Molesey – CALA Homes is developing 106 homes (of which 43 are to be affordable) on what was the Imber Court Trading Estate. Thames Valley Housing will be providing the affordable housing, comprising 22 shared-ownership homes and 21 dwellings for affordable rent. Again, priority for the affordable homes will be given to those living or working in Elmbridge, with the Council nominating applicants on our housing register to take up the tenancies. The affordable housing is forecasted to complete in early 2019.
There is always more to do
- As well as new-build, the Council supports a number of initiatives to make the best use of the existing housing stock. With PA Housing, we launched the Perfect Fit scheme in 2012 to encourage their tenants in homes larger than they needed to downsize, thereby freeing up much-needed larger homes for families in need. Support and incentives of up to £4,000 have resulted in around 150 households downsizing.
- We also support Catalyst Housing to run the Elmbridge Homeownership Assistance Scheme, which gives aspiring homeowners and who are priced out of the market, a route to purchasing a home of their own. The scheme offers equity loans of up to £90,000 to qualifying households towards the cost of purchase. 39 households have been helped through this scheme since 2011.
- We also help promote the Government’s Help to Buy programme, which offers a range of products designed for those who want to purchase a home of their own, but who can’t afford to buy on the open market. More details are available at www.helptobuyese.org.uk “
Before I go on to the Council Meeting recommendations I do have a question to pose….would Elmbridge Council be independent enough to refuse a planning application from its own ‘Local Housing Company’?
Recommendation from the 21st February Council Meeting:
This is an excerpt from the Public Agenda Reports Pack which can be found in full here:
“Prior to introducing the report, the Portfolio Holder for Housing, Cllr Roy Green, placed on record his congratulations to Dominic Raab, Conservative Member of Parliament for the Esher and Walton Constituency, who had been appointed the new Minister of State for Housing.
The Portfolio Holder for Housing then introduced the report that provided a progress update on the case for setting up a local housing company together with a proposed course of action for the creation of a parent company and a wholly local authority-owned housing company subsidiary.
The Cabinet was reminded that in Spring 2017, specialists Local Partnerships, had been commissioned to provide advice to the Council in relation to the emerging housing delivery vehicles, with a view to establishing whether and what type of outline business case could be made for what type of vehicle or vehicles.
Members were pleased to note that throughout the course of the work undertaken by Local Partnerships, engagement with Members was undertaken via the Affordable & Social Housing Working Group (ASHWG) and an informal Member sounding board.
Strategic Outline Business Case
Having now completed its work, Local Partnerships had produced a strategic outline business case for a new delivery vehicle for the Council to consider.
Taking on board the advice from Local Partnerships and in order to meet the Council’s key objectives, it was proposed that a wholly-owned local authority housing company be established for the purpose of acquisition, development and management of housing.
It was also further proposed that the Council set up a holding company to act as a parent company under which the housing company would sit.
The Portfolio Holder reported that the development of a wholly-owned housing company would allow the Council to directly increase the supply of homes covering a range of tenures within the Borough in a way which it could not do
under current arrangements.
Whilst the company would initially focus on developing Council-owned land and acquiring existing street properties, it could potentially acquire and develop sites currently owned by third parties.
These activities would both generate an income return for the Council’s General Fund and meet a range of housing needs, including housing at affordable rents; temporary accommodation for homeless households; key worker accommodation; market rent; and market sale.
The type of tenancy or leases granted for housing of different tenures could take many forms, with assured shorthold tenancies being the most prevalent for rented housing.
In this regard, it was considered that the company would fall outside of the scope of the 1985 Housing Act and therefore the company would not be required to grant tenants the potential Right to Buy.
With regard to the structure of the housing company, it would be a company limited by ordinary shares in which the Council would be the sole shareholder.
A comprehensive business plan would be developed and include financial modelling and assumptions together with the tax and accounting implications for the company as well as a financial appraisal that would assess the economics of developing on Council-owned land, acquiring existing properties and / or buying and building out development sites from third parties.
A Registered Social Landlord?
Whilst the housing company would not directly employ staff, it was acknowledged that operational requirements would
be met through a mix of contracted out resources and Council staff with their time charged to the housing company.
Furthermore, the housing company would not act as a Registered Social Landlord and the Articles of Association
would accordingly reflect this.
With regard to the proposed governance arrangements, as the Council would be the sole shareholder of both companies, company directors would need to be appointed to each.
In this regard, it was proposed that the Council delegate the appointment of directors to the Chief Executive, in consultation with the Leader of the Council, relevant Portfolio Holders, Monitoring Officer, Leader of the Opposition and the Section 151 Officer.
Based on the experience of other local authorities in setting up companies, it was proposed that each company have between three and five directors.
Relevant training would be provided to the directors and any other officers or elected Members who were closely involved with each company. It was also suggested that having a nonexecutive director would help complement the range of skills and experience already available in-house.
Whilst the Board of Directors would be responsible for the delivery of the expected outcomes within the Business Plan of their respective company, they would also have oversight of the performance, financial and operational management within the parameters agreed with the shareholder.
To ensure good governance and to demonstrate there was clear separation between the Council’s role as the Municipal authority and the Council’s role as shareholder, it was recommended that a Shareholder Board be created.
Whilst being politically proportionate and administered separately from Cabinet business, the Shareholder Board would be appointed by the Council and fulfil the Council’s role as sole shareholder.
The Shareholder Board would not be operational but would have powers to make decisions on behalf of the Council
when it came to housing company matters. In this regard, regular updates would be provided to the Affordable and Social Housing Working Group.
A key governance issue would be the relationship between the housing company’s internal management and the Council, the sole shareholder. In this regard, it was considered appropriate that a Scheme of Delegation be drawn up structuring the relationship between the Council and the housing company.
To ensure that good governance arrangements were in place to monitor the activities and performance of the subsidiary organisations, it was also proposed that the Overview and Scrutiny Committee be tasked with the oversight of the trading organisations and receive regular performance reports on the operation of the companies. Any budgets for providing loans to the companies would need to be approved by the Council as part of the Council’s budget framework.
On the basis of the above, it was recommended that the Council approves the formation of a local authority housing company and a holding company and that authority be delegated to the Chief Executive, in consultation with the Leader of
the Council, Portfolio Holders for Resources and Housing, Monitoring Officer and the Section 151 Officer to:
- Establish a local authority housing company and a holding company
- Agree the names for the companies
- Draft, in line with the report, and approve Articles of Association as required
- Name the directors of the housing company
- Make governance arrangements for the companies including agreement to the scheme of delegation
- Decide on the relationship between the Council and the Companies
The Cabinet noted that there was a need to establish a budget to cover the start-up and business plan modelling costs of the housing company (including obtaining tax and legal advice).
In addition, given the intention to accelerate housing delivery and the limited capacity, skills and expertise within the Council to manage this activity, it was proposed that a new Housing Delivery Project Manager post be created to lead on this area.
Accordingly, it was proposed that an initial budget of £200,000 from the Affordable Housing element of the
New Homes Bonus allocation be set aside for these costs.
The Cabinet welcomed the proposal and fully supported the formation of a local authority housing company and holding company which it was felt would assist the Council in achieving its housing objectives.
The work undertaken to date in progressing this important project for the Council was acknowledged and the Portfolio Holder for Housing, the Chairman of the Affordable & Social Housing Working Group together with the officers were thanked in this regard.
The Portfolio Holder for Resources expressed his support for the project and advised that one of the key risks that was fundamental to the project was the risk of incurring excessive costs with relatively little delivery.
In this regard, he stressed the need to ensure that the Council received a satisfactory return on its financial investment.
During consideration of the report, the Leader invited Councillor J. Browne, the Chairman of the Affordable and Social Housing Working Group, to address the meeting.
Councillor Browne welcomed the collaborative work that had been undertaken to date with this project and highlighted two questions that residents could be asking about this project, namely, why was the Council doing this and why was it looking to commit £200,000 to it.
Councillor Browne advised that when he first became Portfolio Holder for Housing under the Conservative Administration in 2010 there had been no advantage in the Council owning its own housing stock given the arrangements that had been in place with social housing partners.
He reported that this position had since changed and the Council’s social housing partners were finding it difficult to find
sites and obtain planning permission.
With regard to the Council’s private sector partners, as viability assessments had been introduced and Regulations
had been amended, the private sector had indicated that it was not now viable for them to put social housing on sites. In this regard, Councillor Browne stressed the need for the Council to intervene.
With regard to the proposed initial budget of £200,000, Councillor Browne reported that there was currently approximately £8 million in the Council’s Affordable Housing Enabling Fund and given that high quality professional assistance was required, this was a sensible approach.
In concluding his comments and whilst acknowledging the possible risks involved, Councillor Browne gave his full support to the project.
The report from Local Partnerships on the outline business case for a local housing company be noted
The setting up of a wholly-owned local authority housing company limited by shares and a parent company be approved
A budget of £200,000 to be financed from the Affordable Housing element of the New Homes Bonus within the Council’s Enabling Fund, to enable the start-up and business plan modelling costs for the company, be approved
The recruitment of a Housing Delivery Projects Manager to provide the capacity to manage and deliver projects on behalf of the housing company be agreed
The Chief Executive be authorised, in consultation with the Leader of the Council, Portfolio Holders for Housing and Resources, Monitoring Officer and the Section 151 Officer to approve:
(i) articles of association for the housing company and the parent company and agree suitable names for the companies
(ii) such other documents as may be necessary to govern the companies and to manage the relationship between the
Council and the companies
(iii) the appointment of the directors and establishing governance arrangements for the two companies
A Shareholder Board of five Councillors or such number that achieves political proportionality be established
The Head of Legal Services be authorised to make the necessary constitutional changes to establish the role of the Shareholder Board and to disapply the rule on substitutions in Council Procedure Rule 4(g). “
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