Local Housing Companies: The Wokingham Experience Government policy - PowerPoint PPT Presentation

SEEC Housing Company Network Local Housing Companies: The Wokingham Experience Government policy on Housing Companies/delivery vehicles, incl. implications of delivering affordable housing Bill Flood/ Louise Strongitharm Nov 2017

Some context • Population 158,000 (2013) • High house price area • 1,876 people on Housing Register • Homelessness increasing • 612 local households interested in shared ownership • High average house prices - £416k at May 2017 – 57% higher than all England average • Increasing private renting costs • 80% owner-occupiers in Borough (2011) • 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)

Background: housing companies • A long journey - 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 • Reviewed the following options: – Council-House Building (i.e. in HRA) – 50:50 Joint Venture – Commissioning through housing associations (“as is”) – Wholly-owned company • And went for…

Wholly-owned company model • Gave greatest control over homes built • Able to be most responsive to local need • Able to concentrate on just the Borough itself • Ability to deliver mixed tenure at a range of price points • Housing Companies allow: • Build up of an asset base • The creation of an income stream • Ability to borrow against assets to build more • Understood higher risk and investment requirements

A simple idea Developers PWLB Commuted Sums (CS) Funds Surplus WHL build affordable Ongoing homes rent income

Legal Advice • A company limited by shares • Established using ‘wellbeing powers’ • ‘State aid’ considerations… • Secretary of State consents for general fund land • Corporation tax payable on profits and VAT on services such as housing management • Is a 'contracting authority' so is subject to EU procurement rules • Outside of ‘Right to Buy’ – but note Housing White Paper • Assured or Assured Shorthold tenancies apply

Housing Companies Structure WBC (Holdings) Ltd (Holdco) PRS Company? PRS 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 Rented Sector (PRS) company Determine at later stage whether it should be subsidiary of WHL or sister company

Currently… • 95 homes under construction over 7 sites - 57 units delivered • Funding - £17.2m (CS) + c.£10m (borrowing from WBC) • No. of pipeline sites (130+ units) • Plus agent for planning/delivery of HRA schemes – 11 units • Profitability: • WHL in 2017/18 (plus wking cap debt repayment - cleared by Nov ’18) • 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

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 • WHL Board challenging build costs • Quality/ maintenance costs/ customer • Off-site construction? • Build at an acceptable price per sq metre

How WHL operates • Set up 2011 - wholly owned by WBC • LHCs have small team of 5 staff – soon to be 6 (2 P/T) – 2 in WHL • Small Board – 1 Cllr Chair, 2 indi, MD • Board meet every 2 months • No capitalisation of costs – development services cover OH&P • EA & Contractor Framework Agreements • SLA with WBC – but external expertise also key – legal advice, Architects, Contractors

Setting up Loddon Homes • Jan 2014 set up Loddon Homes - registered June 16 as a For-Profit RP • HCA registration process – hard work – we needed to be very persistent! • HCA worried about ‘independence’ • 1 st wholly owned Council FPRP – so potential to set ‘precedent’ • … but strong governance as a result • Good vehicle for HCA grant – c.£3.8m to date • Financed from - Commuted Sums (£60- 100m)/ Borrowing/ HCA Grants

How Loddon Homes operates • 3 staff – MD, Business Finance Partner, Business Support Mgr (VAT) • Board of 7 – 2 Councillors, MD, 1 WBC tenant, 3 Independents • Board meets every 2 months • SLA with WBC – Legal, HR, Property, ICT, but mainly landlord services – charged at cost + 3-5% margin • External expertise from WHL, legal advice and consultants like Campbell Tickell, Altair

How Berry Brook operates • Set up April 2017 • No staff • Board of 4 – 1 Cllr Chair, 2 Indi, MD • Board meets every 2 months • Funding from Commuted Sums/ Borrowing • SLA with WBC – Legal, HR, Property, ICT, but mainly landlord services – charged at cost + 3-5% margin • External expertise from WHL, legal advice and consultants

Programme Tenure Mix Tenure Delivered % Under % Pipeline % Units Construction Social Rent 24 42% 18 19% 39 27% Affordable Rent 12 21% 52 54% 13 9% Intermediate 21 37% 13 14% 22 15% Rent Shared 0 % 12 13% 23 16% Ownership Outright sale 0 % 0 0% 29 20% Private Rented 0 0% 0 0% 19 13% Sector Total 57 100% 95 100% 144 100%

Project eg. 1 – Reading Rd • Disused Council offices in old house • Replacement scheme needed for young care leavers – 7 rms/ 2 bedsits • WHL took on project in November ’16 • Corporate priority due to c.£300k of HCA grant available if on-site March 17 • Achieved planning permission, contract award and SoS before end of March 17 • Funded from Commuted Sums £950k + HCA grant + borrowing of £150k (c.10%) – WHL OH&P £120k • GDV of £1m vs. TSC of £1.4m so notional loss £340k, but budget savings • But positive NPV, annual rent £35k/ yr

Project eg. 2 – Finch Road • General fund land – we cut the grass! • Joint venture - where a couple of ideas mooted – final scheme land swap and build x2 Shared Ownership units • Achieved planning permission May 17 and SoS Nov 17 • Funded from £500k Commuted Sums & £30k HCA grant – WHL OH&P £50k • GDV £660k vs. TSC £520k so notional profit of £140k • Positive NPV of £750k, first yrs rent £7.5k and first tranche sale £250k – no debt

Government Policy impacts… • Positive and negative impacts… • 2007 Housing Green Paper - concept of local housing companies (LHC) to build on LA land • Constantly monitoring new policies to consider potential impacts on LHCs • Some recent Government Policy unhelpful – e.g. voluntary RTB and the ‘levy’ and threat of LA RTB applying to LHCs • PMs announcements on Council’s building more homes – but detail?

Step-by-step guide – our learning • Be very clear what 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 initially (easy?)/ Govt grants/ future borrowing using assets • Businesses 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 all senior officers - it can’t be run like dept • It will be Political and political…

Want to know more? Bill Flood Managing Director t: 0118 974 6417 m: 07786 171 202 e: bill.flood@wokingham.gov.uk wokinghamhousing.co.uk @wokinghamhl