Local asset backed vehicles: controversial but “one of the few options” to tackle the housing crisis

Political pressure may have ended Haringey’s local asset backed vehicle but, Anthony Breach argues, if councils want to address the housing crisis the structure remains a potent weapon.

The collapse of the Haringey Development Vehicle (HDV) has been the subject of breathless political reporting and countless twitter threads, but the implications for local government funding have received much less attention.

The fact remains that local asset backed vehicles (LABVs) — of which the HDV is the most famous example — are one of the few options currently open to local authorities that have the sufficient scale to tackle their housing crises.

Councils are limited in terms of powers or resources with which to free up land and finance for new housing — an issue which has largely been absent from the public debate around the HDV. How can councils address their local housing crisis when they have no cash and their ability to borrow against their housing revenue account is capped — even if they own large assets in the form of valuable city centre land?

For example, although Southwark Council owns 43% of the land in its borough and has 11,500 families on its housing waiting list, it has seen central government funding fall by £116m.

In this context, partnering with the private sector through LABVs is one of the few ways local authorities can secure the investment they need to increase their supply of residential or commercial space, while still retaining a say over the direction and development of their land. A recent Centre for Cities report shows how councils can use LABVs to drive inclusive economic growth in their areas.

This is exemplified by Slough Urban Renewal, which has built hundreds of new affordable homes with 2,000 more planned, a library, and a new ground for the local football team. These inclusive goals are combined with how Slough’s LABV is using council land for investment into hotels, restaurants, and other commercial projects, creating additional revenue income for the council.

But while there are around 20 LABVs which have worked well up and down the country, they do carry some risk — and crucial to the mechanism of LABVs has always been the sharing of that risk between the public and private sector.

Indeed, the HDV is not the first LABV to fail. The Croydon Urban Regeneration Vehicle was dismantled by Croydon Council after the 2014 local elections changed the colour of the leadership from Conservative to Labour. Although the HDV is the first LABV that collapsed due to internal political disagreements within a political party, this political risk has always been present.

Mitigation

To minimise these risks, local authorities considering a LABV need to not only secure cross-party support to minimise the chances of a failure like that in Croydon, but also secure a broad coalition to back the scheme within the local community, based on clear consultation and communication.

While some critics of the HDV object in principle to the model of public and private sector partnerships (especially in the post-Carillion environment), many of the concerns of local people arose from uncertainty as to the details of the scheme, such as whether the net amount of social homes would increase or whether council tenants would have right of return.

Addressing these issues head on with legal guarantees might appear to reduce returns for the public and private sector, but in the long run these reduce the political risk to both the specific scheme and broader efforts by local leaders to build and improve housing on council land.

The increase in housing supply is not the only reason why local authorities should consider LABVs. One of the core advantages of LABVs over traditional social housing is that homes let out at social rates by LABVs are exempt from Right to Buy.

This not only protects local authorities from having to sell at a discount new assets on which they have just spent a lot of money, it also has the potential to win support from local residents who want to defend social housing.

Another option for local authorities if they decide not to pursue the LABV route is to set up a wholly owned company (or WOC). It’s implied in the name, but this option gives the council complete control over the development process, and examples include many of the housing companies that local authorities have set up since 2011.

The limitation of WOCs is that, unlike LABVs, they require council financing and expertise in order to deliver high quality developments — both of which are expensive. For councils that lack either, WOCs will struggle to deliver the scale of development needed in order to substantially improve local economic growth or the wellbeing and inclusion of local residents. As an example, while Barking And Dagenham’s WOC has built 600 homes with another 180 under construction, the HDV aimed to build 6,400.

If the context of local government funding and finance changes — perhaps with the abolition of the Housing Revenue Account borrowing cap (as the Treasury Committee recommended), or through local leaders gaining increased tax raising powers —the need for LABVs may become less acute.

But until then, local authorities that want to act to address the housing crisis, and the associated social problems it creates for residents, would be wise to consider LABVs while learning the lessons from Haringey.

Anthony Breach is an anlyst at Centre for Cities.