An increasing number of councils are setting up housing companies to tackle the shortage of homes in their area, new research has found.
More than 8,000 homes will be delivered by development companies set up by local authorities, according to findings by Construction News’ sister title LGC.
The research identified 28 local authorities have housing companies. Twenty-three of these have been formed since the start of 2014.
Housing companies set up by councils_LGC
LGC looked in detail at the plans of the most recently formed companies, 16 of which are in London and the South-east where the housing crisis is being felt most acutely.
However, with plans to build or buy around 8,400 homes for sale or rent, the contribution to the government’s target of building one million this parliament is small.
Of the total homes planned, Newham LBC is hoping to build 3,000 over the next 13 years while Croydon LBC’s strategy is to have started work on 1,200 homes by 2018.
The ambition elsewhere is on a much smaller scale: Guildford Borough Council aims to acquire eight properties for rent in the next nine months.
Manjeet Gill, housing spokesman for the Society of Local Authority Chief Executives & Senior Managers, told LGC the numbers were on a relatively small scale because housing companies were a new concept for councils and required much legal advice to get up and running.
West Lindsey District Council chief executive Ms Gill is in the process of investigating setting up a housing company for her council. “Councils are still learning,” she said.
The 23 most recently established companies have so far invested almost £450m, mostly through loans obtained by councils which are used to fund loans to the companies.
South Holland District Council has used about £2.6m from its reserves and borrowed about £12.6m from the Public Works Loan Board to provide 142 properties over the next two years. The council then charges its housing company Welland Homes interest on the loan, earning a margin of up to 0.85 per cent.
The Department for Communities and Local Government told LGC it was happy for councils to set up housing companies as long as they were not building social homes for rent in an attempt to avoid the Right to Buy.
Most councils contacted by LGC said the two issues were separate and that housing companies had been set up to provide properties that would help meet their area’s housing needs.
Ealing LBC’s company Broadway Living is focused on building private rented accommodation at either market, or sub-market rates, to help meet the needs of lower-paid workers. About £19m has been invested so far with a view to providing about 800 properties over the next five years.
Ealing executive director for regeneration and housing Pat Hayes told LGC: “We’re not looking to compete with the local rental developers but complement what they do.”
Reading Borough Council wants to buy about 500 properties over five years, about 200 of which are intended to help households in temporary accommodation by setting rents at local housing allowance rates.
Some authorities, including Redbridge LBC, South Cambridgeshire and Shepway DCs, also see housing companies as a way of generating extra income that could be used to help protect services from budget cuts.
Camden LBC is forecasting its company will make a surplus that could either be used to reduce rents further or provide revenue for the council.
Ms Gill said housing companies should not be seen as a short-term financial fix and could provide long-term stability.
In 2011 Barking & Dagenham LBC became one of the first councils to set up a housing company – Barking and Dagenham Reside. It now has 621 properties, which it rents out at sub-market rates.
Strategic director of finance and investment Jonathan Bunt told LGC councils setting up housing companies needed to be “comfortable” with the financial risks.
“There will be rockier markets somewhere down the line and you’ve got to understand the downsides of this and have a financial model that can contain all of that,” he said.