Vic Allison: Property investment? Yes, but only for the right reasons

There were one or two articles in the national press recently about the dangers of councils investing in property.  As I have written before about Wychavon’s ambitious approach to property investments, I thought I ought to set the record straight.

We don’t invest in property outside the council’s area and our investments are always to provide an economic or social return first and foremost, but must also make sense from a financial perspective.

For example, we have bought land in the council’s area and made it available for new and expanding businesses when the market failed to do this.  We have built a town centre supermarket for rent by a major retailer which has helped to regenerate the local economy, again when the market failed to do this.  And we have lent money to various businesses to do worthwhile things such as build a hydro power plant, restore an art deco cinema and provide additional capacity to train engineering students. In these cases banks were reluctant to invest. Our investments should make new things happen and are not just about a financial return.

We do accept that investing in property whether it’s buying land or building a supermarket can be risky and each investment requires careful thought.  The covenant of any future tenant or borrower is important and the extent of the council’s exposure to any risk is critical.  A range of different types of investments is helpful and any one investment must be proportionate to the size of the council.  Our single largest investment is £10m for a new town centre supermarket.  Many of our investments are significantly smaller.

Wychavon is fortunate to have been able to carry out these investments so far without any external borrowing.  We have used capital receipts from our 1990’s housing stock transfer and more recently our excess New Homes Bonus.  We understand that this opportunity may not be available to all councils.  Before any external borrowing for investment we would need to be satisfied that the risk and reward balance was appropriate and that the council was not being exposed to unacceptable levels of risk.  However, to be clear, we would consider external borrowing where this was supported by a business case.

We therefore do not consider our property investments to be a treasury management tool nor gambling with taxpayers’ money.  We are taking a cautious approach, investing for the right reasons but mindful that we cannot afford to invest without a return for our taxpayers.  We do not invest where the market is providing an acceptable solution for our communities and we have recent examples where we were prepared to invest in a facility before a private sector solution came forward.

We are very comfortable with our strategy and believe that we would be failing our communities if we didn’t take this approach.

Vic Allison is deputy managing director at Wychavon District Council.