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News analysis: Why are councils setting up private companies to build homes?

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What will the boom in council-owned housing developers mean for architects? Ella Braidwood investigates

Over the last 12 months the number of council-owned housing companies has boomed. Last year, 38 councils set up, or said they were considering setting up, their own arms-length housing developers – compared with just seven councils in 2014.

By the end of 2016, some 98 councils – more than a quarter of the 326 in England – had established or were considering establishing their own housing companies, according to recent figures.

Local authorities pioneering this move include east London’s Newham Council, which established its wholly owned housing company, Red Door Ventures, in 2014; and Thurrock Council in Essex with its equivalent, Gloriana, set up in 2015. Last year, both Croydon Council, and Wolverhampton Council set up their own developers: Brick by Brick and WV Living respectively. 

So why are local authorities increasingly using these companies to deliver housing? How are they faring? And what are the opportunities for architects to get involved? 

The drive to establish these arms-length developers was, in part, the result of powers given to councils under the 2011 Localism Act. 

This gave councils the ability to set up their own private companies, a status that meant they could borrow money more cheaply and avoid government-imposed restrictions.

In Croydon we’ve lost more than half of our central government budget. You need to throw something else in to meet the gap

Councils also appear to have been spurred on by central-government cuts.‘Local authority budgets are biting more and more,’ says Croydon Council’s director of development Colm Lacey. 

‘For example, in Croydon we’ve lost more than half of our central government budget since 2010. That’s a slow drip-drip of a loss of resource. Quite quickly, you come to realise that you need to throw something else in to meet the gap.

‘A lot of authorities around the country – it’s more pronounced in London – are starting to feel the pinch in terms of that reduction in central government grant, and have cottoned on to the fact that they need to be more commercial and make more money as one way of addressing that gap.’ 

He adds that more housing companies are being set up because ‘early adopters are sharing best practice, so now more authorities are realising that they can do it’. 

Catherine Pease, director of vPPR Architects, which is working on an infill site with Croydon Council’s Brick by Brick, agrees that these housing companies are needed to provide a return for councils.

Thorneloe Gardens for Brick by Brick (Croydon Council) by vPRR

Thorneloe Gardens for Brick by Brick (Croydon Council) by vPRR

Thorneloe Gardens for Brick by Brick (Croydon Council) by vPRR

‘Due to the lack of government housing grant, councils have had to look at alternative measures for releasing equity to fund builds,’ she says. ‘This coupled with huge demand and inflated land values has led to councils looking at their own stock to create private for-sale housing to cross-subsidise the building of new socially rented houses. 

‘The upshot is that a greater amount of social housing is being created by local councils in comparison to private developers, although in an ideal world councils would be able to build 100 per cent affordable housing.’

With housing companies taking around two years to get off the ground, their current delivery of homes is on a small scale. Barking and Dagenham’s housing company, Reside, has so far delivered 620 homes; while Blueprint, a joint venture between Nottingham Council and Igloo Regeneration, has completed 245 homes.

This is a minute contribution to the government’s target since 2015 of building 200,000 homes per year, and one million new homes by 2020. Last July, the House of Lords’ Select Committee on Economic Affairs recommended the delivery of 300,000 homes annually. 

But the long-term vision is much bigger. Newham’s Red Doors Ventures, which has only completed 42 homes so far, has a long-term plan to deliver 3,000 homes over the next 10 years. Meanwhile, Croydon’s Brick by Brick, which expects its first homes to start on site this summer, has a vision for the same number over the next five to seven years. 

‘It is a bit embryonic, and [housing companies] are still finding their feet,’ says Hari Phillips, director of Bell Phillips, which is working on schemes with Red Door Ventures and Thurrock Council’s Gloriana. ‘Presumably as they create more income they will be able to do more. There will be a certain snowball effect.’

At last year’s Conservative Party conference, housing minister Gavin Barwell told the AJ that the architectural profession was ‘absolutely critical’ to building quality homes. 

And, in terms of design, these companies are displaying an admirable focus on using good architects to achieve a high quality of housing. 

Councils set up these companies, and don’t make them an attractive place for people with development experience to go and work

Barking and Dagenham’s Reside has commissioned architects including AHMM, Maccreanor Lavington and Pollard Thomas Edwards; while Nottingham’s Blueprint has employed the likes of Letts Wheeler Marsh and Ash Sakula, which was the overall winner at last year’s Housing Design Awards. Last week Newham Council granted planning permission to two schemes backed by its Red Door Ventures comprising 86 homes designed by Karakusevic Carson Architects.

Meanwhile, Rogers Stirk Harbour + Partners designed 36 homes with Red Door Ventures in Leather Lane estate, Stratford, seeing them through planning before falling out with Red Door over RSHP’s preference for off-site manufacture. The scheme has now been completed without the practice, using more traditional construction methods. 

The housing companies are facing other challenges, too. Igloo Regeneration’s chief executive Chris Brown says councils are struggling to recruit the skills these companies need.

‘When [councils] set up these companies, they tend to put councillors on the board, and they don’t make them an attractive place for people with development experience to go and work,’ he says. 

‘I’ve been advocating to put senior industry figures in as chairs of these vehicles. And then those figures can recruit a proper board with a mix of skills, that can then attract a chief executive.

Somerleyton terraced homes

Somerleyton terraced homes

Somerleyton Road, Brixton, for Lambeth Council, by Metropolitan Workshop

‘If they are going to attract people they have to be run more like development companies and less like council departments.’

Neil Deely, partner at London practice Metropolitan Workshop, says that while councils have the benefit of a ‘long-term view that a developer can’t’, such as the ability to look at the housing need and specific socio-economic conditions, many councils ‘are still not investing enough in their own in-house design and development teams, and often relying on external development managers’.

He adds: ‘Councils may also find themselves in awkward situations with their electorate if a scheme has not reached its affordable-housing target.’

Meanwhile, Martyn Evans, deputy chair of the London Festival of Architecture, who previously worked as a creative director at developer U+I, fears councils will use the profits from such companies for non-housing purposes if the dividends are not specifically ringfenced. 

‘To simply make money, through selling the properties, which can be fed into the council to support its other under-funded programmes, is not why they exist,’ he says. ‘They are there to provide homes for people that the market doesn’t serve. And they must not forget that.’

Council-owned developers are streets ahead in the quality of working relationships they forge with their architects and consultant teams

But Sally Lewis, founding director of Stitch Architects, which is working on four infill sites with Brick by Brick in Croydon, says that, while a council-owned company may be a ‘little behind its private counterparts in developer experience’, the relationship between the client and architect is one of ‘rare mutual respect’.

She adds: ‘We have found them to be streets ahead in the quality of working relationships they forge with their architects and consultant teams.’

Council-owned housing companies will not solve the housing crisis by themselves, but they could form one of multiple solutions that communities secretary Sajid Javid appears to be pursuing. 

These also include his plan for 14 new ‘Garden Villages’, the densification of cities through developing brownfield land, the use of prefabrication, relaxing building height restrictions, and even building on the green belt, albeit in exceptional circumstances. 

The choice of architects by these companies is impressive; the markers of quality, and the numbers envisioned, remain to be seen. Also to be resolved is how councils tackle the challenge of skills shortages, and the question of whether the profits should be specifically reserved for housing.

It is early days for this new model of house-building, but with their seeming commitment to quality design, the omens are promising for architects seeking work in the sector. Whether this model can bridge the gap in affordable housing provision remains to be seen.

A snapshot of schemes by council-owned housing companies 

Red Door Ventures (Newham Council)

dRMM's proposals for the Town Hall Annex at East Ham

Tha proposed view 02

dRMM’s proposals for the Town Hall Annex at East Ham, as they would be seen from Barking Road

  • 42 homes completed, including 36 homes designed by Rogers Stirk Harbour + Partners, delivered by HG Construction and Jefferson Heard
  • Overall vision for 3,000 homes built over the next 10 years, including schemes by Karakusevic Carson Architects, Bell Phillips and dRMM

Reside (Barking and Dagenham Council)

  • 620 homes completed, including schemes by AHMM, Maccreanor Lavington and Pollard Thomas Edwards Architects
  • Overall vision for 50,000 homes over the next 20 years, including schemes by Fraser Brown MacKenna, Levitt Bernstein, and Rick Mather Architects

Gloriana (Thurrock Council)

Stchads view02 141009 highres final

  • No homes completed so far
  • 128 homes by Bell Phillips (pictured) due for completion later this year
  • Overall vision for 500 homes over the ‘next  few years’

Brick by Brick (Croydon)

Coffey chertsey render

  • No homes completed so far
  • Overall vision for 3,000 homes built over the next five to seven years, including schemes by Mae, vPPR, Pitman Tozer, Stitch, HTA Design and Coffey Architects (pictured)

Comment

Neil Deely, partner at  Metropolitan Workshop

About 15 years ago I listened to the chief executive of one of the top three volume house builders say that architects needed to understand housing in the UK was now being delivered by PLCs with boards and shareholders who expect results and dividends; and while this was the case, no house this housebuilder would ever deliver would be anything other than the statutory min required. Quite a depressing admission - even when housing crisis then was nothing like it is today.

Supply was, and still is, being driven by the bottom line. Not an issue in itself - the incentives for building houses are not aligned with those of the end users (choice and value for money) or society at large (adaptability and place-making). But there was/is no alternative. With so many small builders having gone to the wall in the recession of the early 90s, the housing market was now in the hands of a few who had no interest in innovating for their captive audience.

So once again it is financial imperative that is driving local authorities into the market place, with ever-increasing social care bills and decreasing funding from central government, they are building homes while trying to avoid being at the mercy of the private sector who might say ‘count yourself lucky we are building anything at all’.

The benefit is that a council can take an holistic and more importantly, long term view that a developer can’t and won’t. They can look at demographics, housing need, specific socio-economic conditions, use CPO powers where necessary, manage planning risk better and of course borrow more cheaply than a house builder.

The risks on the other hand are that, with a few exceptions - most notably perhaps Croydon - councils are still not investing enough in their own in house design and development teams and often relying on external development managers. Good ones with the right ethos (like igloo) are in high demand.

Councils may also find themselves in awkward situations with their electorate if a scheme has not reached its affordable housing target, or the viability means that the mix does not meet their own planning policy, or a scheme is criticised for being over-developed.

This is why we are seeing such a rise in councils seeking joint ventures in which councils set the quality agenda, share in the upside, and private developers don’t have to tie up precious capital in land. What they call aligning incentives. Hopefully it will produce more, better quality, homes.

Wendy Stokes, project director at Broadway Living

Ealing takes an innovative and creative approach to delivering new homes in the borough through a policy of ‘municipal entrepreneurism’. Setting up Broadway Living the council’s wholly owned subsidiary is part of this approach. Its remit is simply to build more homes for intermediate rent, market rent and for sale; to make a contribution to the need for more homes.

Broadway Living has a healthy pipeline of round 750 new homes some of which are part of the council’s regeneration schemes such as Copley Close and Perceval House and others are with partners such as Greystar at their Greenford Green development.

Over the next six months we will be in a position to provide more details on our pipeline and how designers and developers can assist us in our ambitions

  • 1 Comment

Readers' comments (1)

  • 1. The council tax is grossly unfair taxing the rich and poor the same scale of contribution.
    2. Land tax on the rich would abate the laundering of free capital.
    3. The right to buy must be stopped, or at the very least, the receiots ringfenced for housebuilding, as the Blair creature promised, but reneged on once in power in 1997

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