Over 100 authorities have now set up local housing companies (LHCs) to add to new supply and, in many cases, to secure a revenue return from new housing.
Some associations fear that authorities will in future direct much of their (limited) development land and planning gain arising from private housing development to their own commercial ventures, rather than to their traditional housing association partners. How should housing associations respond?
The first task is to understand why authorities are setting up LHCs. Building Bridges: A guide to better partnership working between local authorities and housing associations identifies the key drivers as affordability of new supply, ensuring that supply meets demand and gaining a greater share of the commercial benefits arising from new development.
Authorities are frustrated that little new housing association development is of the social rent housing they need to meet their statutory obligations to those in housing need. Authorities are concerned that an increasing number of associations are refusing nominations because the applicant won’t be able to afford a (so called) Affordable Rent. Authorities are also alarmed by those associations that are letting new homes on Rightmove rather than making them available for council nominees. By more directly controlling development, via LHCs, authorities seek better alignment between new supply and their strategic objectives.
Authorities are also aware that continuing cuts in government support for their revenue fund, and the planned cessation of all support funding in 2020, means that their ability to protect local services increasingly depends on their ability to generate revenue from each commercial deal that they undertake. By leasing land to LHCs, authorities seek to share the future increase in the capital value of the land and property and, where intermediate rent is part of the LHC portfolio, a new revenue stream.
The second task is to engage more effectively with authorities on affordability and allocations. Building Bridges proposes two innovations. Authorities and associations are recommended to set up Local Housing Affordability Frameworks which – in the context of available resources and capacity – lead to voluntary agreement on output and housing cost targets for new social and Affordable lets and relets, intermediate renting and homeownership. Authorities and associations are also recommended to develop new digital jointly-owned systems for allocations – ensuring an appropriate stream of applicants across the range of housing association products, not just for social rent. By taking these steps, associations can reaffirm their commitment to working with authorities, better-align their ‘offer’ for specific councils and engender a greater understanding of the constraints that limit the supply of genuinely affordable housing for those in the greatest need.
Clearly, these actions will require significant joint investment in local research and in senior management time when negotiating outcomes, but our research indicates that they will be ‘game changing’ in terms of improving relationships and restoring mutual trust.
In this improved liaison environment, associations will be better-placed to explain that even where an authority has an LHC, there remain many reasons for maintaining existing partnerships with associations and creating new ones:
- investment available to LHCs will be insufficient to meet overall local supply targets
- associations bring additional investment to the authority, enabling more homes to be built
- it may take time for an LHC to consolidate its expertise and scale up its output to significant levels
- associations can build at transformative scale and faster than LHCs
- associations can combine landholdings with those of authorities as part of master-planning site assembly
- associations can share the commercial risk of new development with authorities.
It is no accident that most authorities setting up LHCs also retain a commitment to continuing partnership working with housing associations.
There is also an opportunity for associations to play a role in the LHCs themselves. Authorities are beset by continuing constraints upon council borrowing and the use of right to buy receipts, the diminishing supply of developable council land and a lack of commercial and development skills. Consequently, senior local authority executives expect that although some LHCs will out-perform local authority expectations many will be unable to produce significant levels of additional local supply.
Rather than viewing them as competitors, associations can help authorities to maximise the potential of LHCs by offering them development services, commercial skills and market research. When the limitations on LHC capacity become more evident, partner associations can offer to take an equity stake in the LHC – if appropriate – whilst re-emphasising the benefits of increasing other council/association joint-venture activity.
Building Bridges was published by CIH on 25 September, sponsored by Vivid Homes and the Association of Retained Council Housing and written by Ross Fraser, John Perry and Gemma Duggan.