The Times newspaper this week published research claiming to show that councils have spent £2.7bn on property since 2015, compared with £500m in the previous three years.
But Mike Britch, group managing director, NPS Group—wholly owned by Norfolk County Council—predicted that the government will crack down on the practice.
Speaking to a session at the annual conference of the Chartered Institute for Public Finance and Accountancy (CIPFA), he said: “I have got a feeling it is going to end in tears at some point. I think it can get out of hand quite quickly and I am not convinced that some of the decision making has been taken with the best advice possible.
“I am supportive of a local authority doing it in their own area for economic regeneration purposes, but when they start getting into the commercial market I think the complaints are going to start coming from the commercial sector about distorting the market and I think the government will step in eventually and stop it.”
Speaking at the same session, Helen Dobby, group manager for commercial services at South Hams District Council and West Devon Borough Council, said her council is taking a “measured approach” to commercial property investment.
She said: “It’s about not putting your eggs all in one basket. But if there is a challenge down the line councils are going to have to rethink some of those strategies, although some are benefiting at the moment if they are doing it in a measured way.”
The Times article said that it “made more than 350 freedom of information requests to every local authority in Britain”, but was presumably referring to England, which has 353 local authorities.
Its figures showed that nearly half have bought at least one commercial property in the past five years. A fifth invested more than £10m, with five investing more than £50m.
Last month, Room151 reported DCLG figures showing land and building purchases (including commercial and other types of property) rose from £1.2bn in 2015-16 to £2.8bn during 2016-17.
The rise of 133% was largely attributed to a desire among councils to seek commercial returns to prop up services.
A breakdown of the figures shows that between April to June 2016, acquisitions totalled £340m, jumping to £912m during July to September, before falling slightly to 765m and £298m in the last two quarters respectively.
The biggest asset purchase by local government during the year was Spelthorne Borough Council’s £380m investment in the BP Campus on its patch.
Other large deals included £180m on an energy-from-waste plant by Buckinghamshire County Council; Stockport Council’s £80m purchase of the Merseyway shopping centre; Surrey Heath Borough Council’s £103.6m acquisition of a town centre development and industrial park; and Leeds City Council’s £45m deal to buy the city’s 3, Sovereign Square office development.
Speaking more broadly about companies set up by local authorities to generate commercial income, Britch said that councils need to consider whether they really need to go down the route.
He said there was “too much of a headlong rush” into setting up a company instead of thinking about taking a more commercial approach within existing council structures.
He said: “If all you are going to do is provide services back to that authority putting in the company will cost you money.
“You might as well keep it in-house if you can do transformation.”