Readers will be aware of local authority housing development companies – new kids on the housebuilding block.
A recent survey reported on the many local authorities that had established, or were actively considering establishing, a housing development company.
That is certainly our experience, as we are seeing new proposals each week currently adding to an already-long list of instructions.
The reasons behind establishing housing development companies are many and various, and some councils are as interested in acquisition as development; but there is no lack of hard thinking and determination to do something themselves about increasing housing supply in their areas.
The Summer Budget has caused some councils to revisit their plans and some initiatives are on hold as finance officers assess the impact of the rent reductions on Housing Revenue Account business plans.
Many, however, see the Budget as a further reason for innovation.
“Many see the Budget as a further reason for innovation”
They are certainly being encouraged to do all they can to boost supply by Natalie Elphicke and Keith House, whose government-sponsored report has since led to the launch of a Housing & Finance Institute (HFi) that is actively encouraging local authorities to become Housing Enablers.
This does not necessarily mean building new homes themselves, but many authorities are hoping that the HFi will help them do just that.
The risk that any new social rent homes may be purchased under the Right to Buy is a concern for some councils, who were told by the housing minister in the run-up to the last election that he did not want council companies to be ‘used’ to thwart the aspiration for home ownership.
Councils understand the sensitivity and appreciate the need to use their powers responsibly, but there are reasons why a council can properly look to a housing development company to deliver products that it cannot do itself and which the market is not supplying.
Range of options
Councils are looking at ‘products’ across the full spectrum of housing supply, from conventional social rent through affordable rent to market rent and sales, with equity-based and other models in-between.
“Councils understand the sensitivity and appreciate the need to use their powers responsibly”
They are also using a variety of company models, but the most favoured one is the straightforward company limited by shares (CLS).
Quite apart from its familiarity and certain technical advantages (including potential relief from stamp duty land tax where land is transferred from the council), a CLS affords the opportunity, later, to bring in private investors or development partners.
For a council wanting to start small, prove the concept and then grow, a wholly owned CLS capable of expanding into and with the private sector is an attractive approach. There are of course plenty of legal, financial and other issues to work through but these are surmountable.
These local authority housing development companies are well worth keeping a close eye on.
The kids will be adults before you know what’s happened.
Ian Doolittle is housing and regeneration partner at law firm Trowers & Hamlins