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 Commuted Sums (CS)

Surplus Funds WHL build affordable homes Ongoing rent income

PWLB

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’
• 1st 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 Units % Under Construction % Pipeline % Social Rent 24 42% 18 19% 39 27% Affordable Rent 12 21% 52 54% 13 9% Intermediate Rent 21 37% 13 14% 22 15% Shared Ownership % 12 13% 23 16% Outright sale % 0% 29 20% Private Rented Sector 0% 0% 19 13% 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
• f 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
• ther LAs - but probably not for free…
• Securing funding – PWLB initially (easy?)/

Govt grants/ future borrowing using assets

• Businesses first and foremost - so directors
• f 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